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Introduction This report provides an overview of Supreme Court and Federal Circuit cases concerning patentable subject matter, including the Court's recent June 2010 decision, Bilski v. Kappos . Background The U.S. Patent and Trademark Office (PTO) issues a patent to an inventor after PTO examiners approve the submitted patent application for an allegedly new invention. An application for a patent consists of two primary parts: (1) a "specification," which is a written description of the invention enabling those skilled in the art to practice the invention, and (2) one or more claims that define the scope of the subject matter which the applicant regards as his invention. Therefore, these claims define the scope of the patentee's rights under the patent. Before a patent may be granted, the PTO examiners must find that the new invention satisfies several substantive requirements that are set forth in the Patent Act. For example, one of the statutory requirements for patentability of an invention is "novelty." For an invention to be considered "novel," the subject matter must be different than, and not be wholly "anticipated" by, the so-called "prior art," or public domain materials such as publications and other patents. Another statutory requirement is that the subject matter of an alleged invention must be "nonobvious" at the time of its creation. A patent claim is invalid if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." Finally, the invention must also be "useful," which means that the invention provides a "significant and presently available," "well-defined and particular benefit to the public." According to section 101 of the Patent Act, one who "invents or discovers any new and useful process, machine, manufacture, or any composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title." Even if an invention satisfies the novelty, nonobviousness, and utility requirements described above, it may not qualify for patent protection if it does not fall within one of the four statutory categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. Indeed, whether the discovery is patentable subject matter is a threshold inquiry that "must precede the determination of whether that discovery is, in fact, new or obvious." The statutory scope of patentable subject matter under § 101 of the Patent Act is quite expansive—the U.S. Supreme Court once observed that the legislative history describing the intent of § 101 was to make patent protection available to "anything under the sun that is made by man." Notwithstanding the breadth of patentable subject matter, the Supreme Court has articulated certain limits to § 101, stating that "laws of nature, natural phenomena, and abstract ideas" may not be patented. The Court has elaborated on this restriction in several cases, including the following explanation: [A] new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E=mc 2 ; nor could Newton have patented the law of gravity. Such discoveries are "manifestations of ... nature, free to all men and reserved exclusively to none." Process Patents Process patents (also called method patents) involve an act, or series of steps, that may be performed to achieve a given result. They are often classified as either a "method of using" or "method of making" a particular article. The Patent Act defines a "process" to mean a "process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." However, the U.S. Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction in patent cases, has noted that this statutory definition is not particularly illuminating "given that the definition itself uses the term 'process.'" It has thus been up to the courts to interpret the scope of patentable processes under § 101 of the Patent Act. Case Law Concerning Patentable Subject Matter In the 1972 case Gottschalk v. Benson , the Supreme Court held that the discovery of a mathematical formula, though it is novel and useful, may not be patented. The Court rejected patent claims for an algorithm used to convert binary code decimal numbers to equivalent pure binary numbers (in order to program a computer), because such claims "were not limited to any particular art or technology, to any particular apparatus or machinery, or to any particular end use." A patent on such claims, according to the Court, "would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself." The Benson Court then pronounced that "[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work." Six years after Benson , the Supreme Court in Parker v. Flook recognized that "[t]he line between a patentable 'process' and an unpatentable 'principle' is not always clear." The Flook Court rejected patent claims that described a method for computing an "alarm limit," which is a number that may signal the presence of an abnormal condition in temperature, pressure, and flow rates during catalytic conversion processes. The Court criticized the patent claims, as follows: The patent application does not purport to explain how to select the appropriate margin of safety, the weighting factor, or any of the other variables. Nor does it purport to contain any disclosure relating to the chemical processes at work, the monitoring of process variables, or the means of setting off an alarm or adjusting an alarm system. All that it provides is a formula for computing an updated alarm limit. The Flook Court then concluded that "a claim for an improved method of calculation, even when tied to a specific end use, is unpatentable subject matter under § 101." In 1980, the Supreme Court in Diamond v. Chakrabarty held that § 101 of the Patent Act allowed the patenting of genetically altered micro-organisms. The case involved a human-made, genetically engineered bacterium that is capable of breaking down multiple components of crude oil, an invention that would help in the control and treatment of oil spills. The Chakrabarty Court observed that Congress, in drafting § 101, used "expansive terms as 'manufacture' and 'composition of matter,' modified by the comprehensive 'any'," thus reflecting Congress's intent to permit a broad range of patentable subject matter. The Court found that the bacterium sought to be patented was a nonnaturally occurring manufacture or composition of matter; thus, because the discovery was not the result of "nature's handiwork," it could be patented. A year after Chakrabarty, the Supreme Court once again had an opportunity to examine statutory subject matter under § 101 in Diamond v. Diehr. The case involved a patent application that sought to claim a process for producing cured synthetic rubber products. The Diehr Court upheld the process patent, stating: [A] physical and chemical process for molding precision synthetic rubber products falls within the § 101 categories of possibly patentable subject matter. That respondents' claims involve the transformation of an article, in this case raw, uncured synthetic rubber, into a different state or thing cannot be disputed. The respondents' claims describe in detail a step-by-step method for accomplishing such, beginning with the loading of a mold with raw, uncured rubber and ending with the eventual opening of the press at the conclusion of the cure. Industrial processes such as this are the types which have historically been eligible to receive the protection of our patent laws. The fact that several of the process's steps involved the use of a mathematical formula and a programmed digital computer did not pose a barrier to patent eligibility. The Diehr Court explained: [T]he respondents here do not seek to patent a mathematical formula. Instead, they seek patent protection for a process of curing synthetic rubber. Their process admittedly employs a well-known mathematical equation, but they do not seek to pre-empt the use of that equation. Rather, they seek only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process. Diehr was decided in 1981 and was the last case in which the Supreme Court issued an opinion concerning § 101 of the Patent Act. Since Diehr, the Federal Circuit Court of Appeals has decided several cases concerning patent-eligible subject matter. In a 1994 en banc decision, In re Alappat, the Federal Circuit considered a means for creating a smooth waveform display in a digital oscilloscope. In upholding the patentability of computer programs, the Federal Circuit stated: Although many, or arguably even all, of the means elements recited in claim 15 represent circuitry elements that perform mathematical calculations, which is essentially true of all digital electrical circuits, the claimed invention as a whole is directed to a combination of interrelated elements which combine to form a machine for converting discrete waveform data samples into anti-aliased pixel illumination intensity data to be displayed on a display means. This is not a disembodied mathematical concept which may be characterized as an "abstract idea," but rather a specific machine to produce a useful, concrete, and tangible result. In 1998, the Federal Circuit issued another decision regarding patent-eligibility of process claims, State Street Bank & Trust Co. v. Signature Financial Group. This decision is widely credited with opening the doors to the allowance of patents on methods of doing or conducting business in a variety of fields, including management, finance, legal, and e-commerce. State Street Bank involved a data processing system consisting of software for managing a stock mutual fund. The system allowed individual mutual funds ("Spokes") to pool their assets in an investment portfolio ("Hub") organized as a partnership. The Federal Circuit found the system patentable: Today, we hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces "a useful, concrete and tangible result"—a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades. In response to the State Street Bank decision, Congress passed the American Inventors Protection Act of 1999, which, among other things, allowed an earlier inventor of a "method of doing or conducting business" that was maintained as a trade secret, to assert a defense to patent infringement in the event that the business method was later patented by another. The legislative concern was that because State Street Bank would allow business methods to be patented, companies and individuals who had maintained business methods as trade secrets may be potentially subject to liability for patent infringement. This defense to patent infringement is known as "prior user rights." The Supreme Court had an opportunity to revisit § 101 subject matter patentability in the 2006 case, Laboratory Corporation v. Metabolite Labs . The patent at issue in the case involves a way of detecting a deficiency in two B vitamins, cobalamin and folate, in the human body. Low levels of these vitamins can cause serious illnesses in humans. The patented method requires two separate steps: first, measuring a body fluid for elevated levels of a particular amino acid (homocysteine), and second, noticing that an elevated level of this amino acid correlates with a deficiency in the two B vitamins. The question presented on which the Supreme Court granted certiorari in the case was: "Whether a method patent setting forth an indefinite, undescribed, and non-enabling step directing a party simply to 'correlat[e]' test results can validly claim a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result." However, after hearing oral argument in the case, the Court dismissed Laboratory Corporation , stating only that the writ of certiorari was improvidently granted. Three justices dissented to the dismissal of the writ. Justice Stephen Breyer, writing for himself, Justice John Paul Stevens, and Justice David Souter, opined that "those who engage in medical research, who practice medicine, and who as patients depend upon proper health care, might well benefit from this Court's authoritative answer." Justice Breyer explained that he would have held the patent invalid because "[t]here can be little doubt that the correlation between homocysteine and vitamin deficiency ... is a 'natural phenomenon'" that is not patentable. Furthermore, Justice Breyer offered insight into his views regarding the legal correctness of the Federal Circuit's State Street Bank decision. Justice Breyer expressly criticized the State Street Bank ruling that relied on the "useful, concrete and tangible result" test first articulated by In re Alappat : Neither does the Federal Circuit's decision in State Street Bank help respondents. That case does say that a process is patentable if it produces a "'useful, concrete and tangible result." ... But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary. In a 2006 opinion involving a business method patent, eBay, Inc. v. MercExchange, Justice Kennedy wrote a concurrence, joined by Justices Stevens, Souter, and Breyer, in which he criticized the "potential vagueness and suspect validity" of "the burgeoning number of patents over business methods." Bilski v. Kappos The patent application at issue in Bilski v. Kappos contained claims that relate to a method of hedging risk in the commodities trading field. Specifically, the patent application claimed the following method: A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions. The PTO examiner rejected the application on the basis that the claims were not directed to patent-eligible subject matter under § 101 of the Patent Act, a determination that was upheld by the Board of Patent Appeals and Interferences ("Board"). The Board held that the transformation of "non-physical financial risks and legal liabilities of the commodity provider, the consumer, and the market participants" is not patentable subject matter. In addition, the Board found that the claimed process did not produce a "useful, concrete and tangible result." The applicants, Bernard L. Bilski and Rand A. Warsaw, appealed the final decision of the Board to the Federal Circuit. Before a panel of the Federal Circuit was able to rule on the appeal, the Federal Circuit sua sponte ordered en banc review of the case. The Federal Circuit's Opinion On October 30, 2008, the Federal Circuit issued an opinion in the case, in which it affirmed the Board's decision. More importantly, the appellate court's decision clarified the standards concerning patentability of process claims. In so doing, the Federal Circuit expressly overruled In re Alappat, State Street Bank & Trust Co. v. Signature Financial Group, and its other prior decisions that relied on the "useful, concrete and tangible result" test for process patent eligibility. The Federal Circuit stated: To be sure, a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a "concrete" and "tangible" result as those terms were used in our prior decisions. But while looking for "a useful, concrete and tangible result" may in many instances provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, that inquiry is insufficient to determine whether a claim is patent-eligible under § 101. ... Therefore, we ... conclude that the "useful, concrete and tangible result" inquiry is inadequate. Instead, the Federal Circuit announced a different test that it believed is drawn directly from Supreme Court precedent. The appellate court examined the last Supreme Court opinion concerning § 101, Diehr, and found what it claimed were several instructive passages. First, the court observed that the Diehr Court had drawn a distinction between fundamental principles (unpatentable) and applications of a law of nature or mathematical formulas (may be patentable). Furthermore, according to the Federal Circuit, the Diehr Court would deny patent protection for any claims that pre-empted substantially all uses of a fundamental principle, while it would allow claims that only foreclose others from using a particular application of that fundamental principle. The Federal Circuit asserted that the Supreme Court: has enunciated a definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself. A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. The appellate court derived this two-branched "machine-or-transformation" test from the Benson opinion, which had stated: "Transformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines." Furthermore, the Federal Circuit asserted that the Diehr Court had reaffirmed this test, and rejected Bilski's argument that the Supreme Court did not intend the "machine-or-transformation" test to be the sole and exclusive governing test for determining patent eligibility for a process under § 101: We believe that the Supreme Court spoke of the machine-or-transformation test as the "clue" to patent-eligibility because the test is the tool used to determine whether a claim is drawn to a statutory "process"—the statute does not itself explicitly mention machine implementation or transformation. We do not consider the word "clue" to indicate that the machine-or-implementation test is optional or merely advisory. Rather, the Court described it as the clue, not merely "a" clue. The Federal Circuit noted that "an applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article." Because Bilski's claims did not involve a specific machine or apparatus, the Federal Circuit expressly left "to future cases the elaboration of the precise contours of [the machine implementation part of the test], as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine." However, the Bilski opinion set forth several instructive principles concerning the "machine-or-transformation" test: The use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility. The involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity. A claimed process is patent-eligible if it transforms an article into a different state or thing. This transformation must be central to the purpose of the claimed process. The transformation may involve physical articles or electronic signals and electronically manipulated data if such data represents physical and tangible objects or the data is transformed into a visual depiction. However, manipulation of legal obligations, organizational relationships, and business risks are "abstract constructs" that fail the test because they are not physical objects or substances. The addition of a data-gathering step to an algorithm is insufficient to convert that algorithm into a patent-eligible process. At least in most cases, gathering data would not constitute a transformation of any article. In applying the "machine-or-transformation" test to the facts in Bilski, the Federal Circuit held that Bilski's process claim failed to satisfy the new legal standard: We hold that the Applicants' process as claimed does not transform any article to a different state or thing. Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances. ... Given its admitted failure to meet the machine implementation part of the test as well, the claim entirely fails the machine-or-transformation test and is not drawn to patent-eligible subject matter. Nevertheless, the Federal Circuit acknowledged that "the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies," such as the widespread use of computers and the Internet, that may present challenges to the "machine-or-transformation" test. On June 1, 2009, the Supreme Court granted certiorari in Bilski to consider two questions: Whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for "any" new and useful process beyond excluding patents for "laws of nature, physical phenomena, and abstract ideas." Whether the Federal Circuit's "machine-or-transformation" test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear congressional intent that patents protect "method[s] of doing or conducting business." 35 U.S.C. § 273. The Supreme Court's Opinion All nine members of the Supreme Court were unanimous in affirming the Federal Circuit's judgment that Bilski's claimed process was unpatentable, but they disagreed about the legal reasoning behind their decision. Justice Kennedy wrote the opinion of the Court, which was joined in full by Chief Justice Roberts and Justices Thomas and Alito. Justice Scalia joined most of Kennedy's opinion, but he did not support two subparts of it. Therefore, Kennedy's opinion, with the exception of two subparts, constitutes the "majority" opinion of the Court in Bilski . Justice Stevens filed an opinion concurring in the judgment, but disagreeing with the approach taken by the Court in deciding the case. Justices Ginsburg, Breyer, and Sotomayor joined the Stevens opinion. Justice Breyer wrote a separate concurrence that identified what he believed were four points of agreement among the members of the Court on the fundamental issues of patent law raised by this case, in an attempt to harmonize the opinion of the Court and Justice Stevens' opinion. Justice Scalia joined part of Breyer's opinion. The Opinion of the Court At the outset, Justice Kennedy identified three potential bases upon which Bilski's patent application could be rejected: (1) it is not tied to a machine and does not transform an article; (2) it involves a method of conducting business; and (3) it is an abstract idea. Bilski's Process Claims Are Unpatentable Justice Kennedy first addressed the "abstract idea" test for assessing whether a claimed process is unpatentable. He noted that the Court's precedents provide three specific exceptions to subject matter that may be patented under the Patent Act: "laws of nature, physical phenomena, and abstract ideas." He explained that "[w]hile these exceptions are not required by the statutory text, they are consistent with the notion that a patentable process must be 'new and useful.'" He further argued that "these exceptions have defined the reach of the statute as a matter of statutory stare decisis going back 150 years." Relying on the Court's earlier decisions in Benson, Flook, and Diehr , all members of the Court agreed that Bilski's patent application is not a patentable "process" under § 101 because it attempts to patent abstract ideas: The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea. The remainder of the majority opinion explored the other two approaches of evaluating the patentability of processes under § 101: the Federal Circuit's "machine-or-transformation" test, and the argument that "business methods" are categorically excluded from patent protection. Machine-or-Transformation Test is Not the Sole Test for the § 101 Analysis Turning to the "machine-or-transformation" test, Justice Kennedy observed that the Supreme Court has "more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed." He then emphasized one basic principle of statutory construction that "[u]nless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning." He acknowledged, however, the one deviation from the "ordinary meaning" rule as it applies to the Patent Act—the "well-established" exceptions for laws of nature, physical phenomena, and abstract ideas that the Supreme Court has imposed on § 101, which are found nowhere in the statutory text. Nevertheless, the existence of these particular judicially crafted exceptions does not mean that federal courts have " carte blanche to impose other limitations that are inconsistent with the text and the [Patent Act]'s purpose and design." The Court held that the Federal Circuit, in adopting the "machine-or-transformation" test as the sole test for what constitutes a patentable "process," violated the "ordinary meaning" rule of statutory construction: Section 100(b) provides that "[t]he term 'process' means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." The Court is unaware of any ordinary, contemporary, common meaning of the definitional terms "process, art or method" that would require these terms to be tied to a machine or to transform an article. The Court determined that the Federal Circuit was erroneous in concluding that the Supreme Court has endorsed the "machine-or-transformation" test as the exclusive test for process patent eligibility under § 101. However, the Court recognized that its precedents have found that the "machine-or-transformation" test is "a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101." Thus, the Court did not invalidate the "machine-or-transformation" test, but rather reversed the Federal Circuit's requirement that the test be the only standard by which courts may examine a process for patent eligibility under § 101. No Categorical Exclusion for Business Method Patents Justice Kennedy next addressed the question of whether business methods are categorically excluded from the scope of subject matter eligibility under § 101. Applying the ordinary meaning rule, he observed that "the term 'method,' which is within § 100(b)'s definition of 'process,' at least as a textual matter … may include at least some methods of doing business." He further explained that "[t]he Court is unaware of any argument that the ordinary, contemporary, common meaning of "method" excludes business methods." In addition to this conclusion based upon the ordinary meaning rule, Justice Kennedy observed that "federal law explicitly contemplates the existence of at least some business method patents," citing the American Inventors Protection Act of 1999 that had added § 273 to the Patent Act and created the "prior user rights" defense to patent infringement, described earlier in this report: [B]y allowing this defense the statute itself acknowledges that there may be business method patents. Section 273's definition of "method," to be sure, cannot change the meaning of a prior-enacted statute. But what § 273 does is clarify the understanding that a business method is simply one kind of "method" that is, at least in some circumstances, eligible for patenting under § 101. A conclusion that business methods are not patentable in any circumstances would render § 273 meaningless. This would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous. Finally, Justice Kennedy explained that the Court would not announce or adopt "categorical rules that might have wide-ranging and unforeseen impacts" in deciding this case. Instead, courts that evaluate what constitutes a patentable "process" under § 101 must adhere to the statutory definition of "process," follow the Benson, Flook, and Diehr trilogy of Supreme Court cases , and refrain from placing limits on the Patent Act that are not required by the act's text. The Court explained that nothing in its decision "should be read as endorsing" the way in which the Federal Circuit may have interpreted § 101 in the past, including the State Street Bank opinion (while it was not endorsing it, the Court did not expressly reject State Street Bank either). However, Justice Kennedy encouraged the Federal Circuit to continue to develop and articulate "other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text." Justice Kennedy's Plurality Opinion Because Justice Scalia did not join two subparts of the Court's opinion, those subparts represent only a plurality of the Court (and is thus not controlling). In the first subpart, Justice Kennedy expressed concern that the "machine-or-transformation" test may negatively impact the Information Age: The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals. He suggested that "in deciding whether previously unforeseen inventions qualify as patentable 'process[es],' it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test. Section 101's terms suggest that new technologies may call for new inquiries." In the other subpart, Justice Kennedy echoed his sentiment from the Court's 2006 eBay case, that "some business method patents raise special problems in terms of vagueness and suspect validity." He explained that the Court's precedents on the unpatentability of abstract ideas could serve as a useful limiting principle in considering such patent applications; however, he offered no further guidance on this point beyond identifying this limitation. He also noted that the Patent Act's other statutory requirements for patentability (novelty, non-obviousness, and particular description), "serve a critical role in adjusting the tension, ever present in patent law, between stimulating innovation by protecting inventors and impeding progress by granting patents when not justified by the statutory design." Justice Stevens' Concurrence In a lengthy concurring opinion that was joined by Justices Ginsburg, Breyer, and Sotomayor, Justice Stevens agreed with the Court's determinations that the "machine-or-transformation" test was not the sole test for what constitutes a patentable process. He also agreed that Bilski's patent claim is not a "process" within the meaning of § 101. However, he objected to the Court's disposition of the case that relied to a great extent on the ordinary meaning rule. He criticized the Court's approach to interpreting the Patent Act's terms "as lay speakers use those terms," rather than the way that the terms have been traditionally understood in the context of patent law. Such interpretation of § 101 could lead to absurd results, in his view: Although this is a fine approach to statutory interpretation in general, it is a deeply flawed approach to a statute that relies on complex terms of art developed against a particular historical background. Indeed, the approach would render § 101 almost comical. A process for training a dog, a series of dance steps, a method of shooting a basketball, maybe even words, stories, or songs if framed as the steps of typing letters or uttering sounds – all would be patent-eligible. I am confident that the term "process" in § 101 is not nearly so capacious. Justice Stevens pointed out the inconsistency of the Court in adhering to the "ordinary, contemporary, common meaning" rule, when it accepts the "atextual" "machine-or-transformation" test as one way to evaluate patent eligibility of processes; furthermore, he notes that the Court excludes "laws of nature, natural phenomena, and abstract ideas" from the kind of "processes" that are patentable under § 101, despite the fact that they could be colloquially described as such. Instead, Justice Stevens would have rejected Bilski's patent application because his method "describes only a general method of engaging in business transactions—and business methods are not patentable." Therefore, in the view of Justice Stevens and the other three justices who joined his concurrence, business methods do not qualify as a "process" eligible for patenting under § 101. Justice Stevens reached this conclusion by finding "strong historical evidence" in patent case law and legislative history, that suggested that business methods are not patentable. He explained that "[f]or centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable." He expressed concern that business methods may stifle technological progress (and legitimate business competition and innovation) rather than promote it. He opined that "patents on business methods are patents on business itself. Therefore, unlike virtually every other category of patents, they are by their very nature likely to depress the dynamism of the marketplace." Unlike the opinion of the Court, Justice Stevens explicitly rejected State Street Bank 's declaration that anything with a "useful, concrete and tangible result" may be patented. He also disagreed with the Court's reliance on the existence of § 273 of the Patent Act as evidence that Congress contemplated that some business methods may qualify as a "process" under § 101: In 1999, following a Federal Circuit decision that intimated business methods could be patented, see State Street , 149 F.3d 1368, Congress moved quickly to limit the potential fallout. Congress passed the 1999 Act, codified at 35 U.S.C. § 273, which provides a limited defense to claims of patent infringement, see § 273(b), regarding certain "method[s] of doing or conducting business," § 273(a)(3). It is apparent, both from the content and history of the Act, that Congress did not in any way ratify State Street (or, as petitioners contend, the broadest possible reading of State Street ). The Act merely limited one potential effect of that decision: that businesses might suddenly find themselves liable for innocently using methods they assumed could not be patented. The Act did not purport to amend the limitations in § 101 on eligible subject matter. Justice Breyer's Concurrence In a brief concurring opinion, joined in part by Justice Scalia, Justice Breyer explained that he wished to highlight the areas of substantial agreement among the members of the Court on several of the fundamental issues of patent law raised by the Bilski case. He identified four points that he believed are consistent with the Court's opinion and with Justice Stevens' concurring opinion: 1. While the text of § 101 is broad, it is not without limit. 2. The "machine-or-transformation" test has been repeatedly helpful to courts in identifying what is a patentable "process." 3. Although the "machine-or-transformation" test has always been a "useful and important clue" for determining patentability of processes, it has never been the "sole test." 4. State Street Bank 's determination that anything which produces a "useful, concrete, and tangible result" is patentable is not valid. Such an approach allowed the granting of patents that "ranged from the somewhat ridiculous to the truly absurd." Reactions to Bilski The business community, patent practitioners, legal scholars, and policymakers were eagerly awaiting the issuance of the Court's Bilski decision, desiring to receive clear guidelines regarding what types of business methods could or could not qualify for patent protection. Some parties (existing business method patent holders) had feared and other parties (Internet companies that are often the target of business method patent infringement lawsuits) had hoped that the Bilski decision would pronounce an outright ban on business method patents—which very nearly happened, as four justices supported that view. Although the Bilski opinion did not strike down business methods, nor did it reject the "machine-or-transformation" test, the lack of additional guidance from the Court may have disappointed many observers. Indeed, Justice Stevens was critical of the Court opinion's lack of substance: The Court, in sum, never provides a satisfying account of what constitutes an unpatentable abstract idea. Indeed, the Court does not even explain if it is using the machine-or-transformation criteria. The Court essentially asserts its conclusion that petitioners' application claims an abstract idea. This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court's musings on this issue stand for very little. One observer argued that the Bilski decision "does little to quiet a fierce debate on the value and harm of [business method] patents raging in both the business and academic worlds." A prominent patent law scholar lamented that " Bilski is a remarkably inconclusive contribution to the law on patent eligible subject matter." He continued: The Court's characterization of the claims as "abstract ideas" is palpably unsatisfying. The claims were to a series of specified steps a human can take (e.g., "identifying market participants" and "initiating a series of transactions"). The claimed subject matter may have been very obvious in view of the state of the art or possibly unduly vague, but to characterize it as an "abstract idea" stretches the meaning of "abstract" and "idea" beyond recognition. Others expressed relief at the ruling, noting that "there was a big possibility that the patent system was going to get gutted, that the court would go too far and put up too many hurdles to getting anything patented." Former chief judge of the Federal Circuit Paul R. Michel (the author of that court's en banc In Re Bilski decision) observed that the Supreme Court did not "impose any radical change" in patent eligibility jurisprudence; however, he expressed his concern that Bilski, which emphasized the use of the judicially recognized "abstract idea" exception to patentability but provided no additional definition of "abstractness," "will make litigation more difficult and outcomes less predictable." Bilski's Potential Impact The legal impact of Bilski is that a process may be eligible for patenting under § 101 if the patent applicant can show that it is more than a law of nature, natural phenomena, or abstract idea; by satisfying the "machine-or-transformation" test, the applicant can likely demonstrate patent eligibility. However, because the Bilski court had determined that the "machine-or-transformation" test is not the sole test for process patent eligibility, it is possible that a process could still be eligible for patenting if it fails to meet the "machine-or-transformation" test (and is neither a law of nature, natural phenomena, nor an abstract idea). Nevertheless, it remains to be seen how many processes would fall into this category; as Justice Breyer in his concurring opinion suggested, not many patentable processes lie beyond the reach of the "machine-or-transformation" test. The opinion of the Court did not directly address the degree to which patent protection is available for software, medical diagnostics, and e-commerce techniques (although Justice Kennedy's plurality opinion suggests that such "inventions in the Information Age" may qualify for patent protection). Nevertheless, by finding that the Patent Act's definition of "method" does not categorically exclude business methods, the Court did not outright invalidate the patents that have already been issued in the financial services, biotechnology, and Internet fields; furthermore, by rejecting the use of the "machine-or-transformation" test as the exclusive test, Bilski requires courts and PTO examiners to follow a more flexible approach in determining patent eligibility of processes. In addition, a majority of the Court specifically rejected the State Street Bank "useful, concrete, and tangible result" standard that had been the basis for finding patent eligibility of many business methods in the years prior to the Federal Circuit's In Re Bilski decision. Thus, patents that had been obtained on business methods under that standard may be more easily subject to challenge by defendants accused of infringing them. In response to Bilski , the U.S. Patent and Trademark Office issued guidelines to its examiners for patent application examination under § 101: If a claimed method does not meet the machine-or-transformation test, the examiner should reject the claim under § 101 unless there is a clear indication that the method is not directed to an abstract idea. If a claim is rejected under § 101 on the basis that it is drawn to an abstract idea, the applicant then has the opportunity to explain why the claimed method is not drawn to an abstract idea. Conclusion The Bilski decision leaves unanswered several important questions (in particular, the definition of "abstract idea" and "business method"), and the Court's opinion arguably "negated over twenty-five years of the Federal Circuit's attempts at doctrine" regarding patent-eligibility of process claims. Therefore, going forward, the district courts, PTO examiners, and the Federal Circuit will likely have to determine, on a case-by-case basis, what constitutes an "abstract idea" and whether particular business methods, diagnostic methods, or other inventions are too abstract to be patentable.

The source of federal patent law originates with the Patent Clause of the U.S. Constitution, which authorizes Congress: "To promote the Progress of ... useful Arts, by securing for limited Times to ... Inventors the exclusive Right to their respective ... Discoveries." Section 101 of the Patent Act describes the subject matter that is eligible for patent protection, which may be divided into four categories: processes, machines, manufactures, and compositions of matter. The U.S. Court of Appeals for the Federal Circuit issued two decisions in the 1990s, In re Alappat and State Street Bank & Trust Co. v. Signature Financial Group, that had expanded the scope of patent-eligible subject matter to include any process that produces a "useful, concrete and tangible result." In October 2008, the Federal Circuit issued an en banc opinion, In re Bilski, that expressly overruled those earlier decisions. The Federal Circuit's Bilski opinion articulated a new legal standard governing the eligibility of process claims for patent protection under § 101 of the Patent Act: if the process is tied to a particular machine or apparatus, or if it transforms a particular article into a different state or thing. Some observers and patent practitioners criticized this "machine-or-transformation" standard as being too rigid and not in compliance with Supreme Court precedent concerning patentable subject matter eligibility. They raised concerns that the test potentially restricts patent protection for new innovations in business methods and software, and that it called into question the validity of already-issued patents that claim information-based and computer-managed processes. On June 28, 2010, the Supreme Court issued its opinion in Bilski v. Kappos, representing the first time that the Court has ruled on the scope of patentable subject matter since its last decision on this topic, the 1981 decision Diamond v. Diehr. At the outset of the opinion, the Court emphasized that its precedents already provide limits to patent eligibility under § 101—laws of nature, physical phenomena, and abstract ideas may not be patented. Indeed, the Supreme Court rejected Bilski's patent application (regarding a commodities trading risk-hedging method) without using any "test" that may have been developed by the Federal Circuit; rather, the Court relied on its precedents in declaring that the processes that were claimed in Bilski's patent application are unpatentable abstract ideas. The Court ruled that the Federal Circuit was incorrect in holding that the "machine-or-transformation" standard is the sole test for showing patent eligibility of process claims; however, the Court acknowledged that the test is a "useful and important clue, an investigative tool," for determining whether a particular process is patentable. Thus, the Court did not invalidate the test, but rather rejected the Federal Circuit's conclusion that the test is the exclusive one that governs the analysis for process patent eligibility under § 101 of the Patent Act. However, the Court did not articulate a different test or adopt new categorical rules for process patent eligibility, nor did it provide much guidance to the lower courts on this matter. Instead, the Court invited the Federal Circuit to develop additional tests and other limiting criteria regarding what constitutes a patentable process. The Bilski Court also ruled that some business methods may be patentable, because (1) the Patent Act's definition of "process" does not categorically exclude business methods; and (2) § 273 of the Patent Act contemplates the possibility that some business methods, at least in some circumstances, may be eligible for patenting.

Overview The United States and Bangladesh have generally enjoyed a positive working relationship. The United States has sought to help Bangladesh with its development goals, including in the areas of sustainable development, health, education, poverty reduction, disaster preparedness, and food security. In recent years, the rise of Islamist militancy has been a cause of concern to the United States and to Bangladesh's Prime Minister, Sheikh Hasina, and her government. The two nations hold an annual Partnership Dialogue and a Security Dialogue and have developed a cooperative relationship over the years to meet shared concerns. Bangladesh faces—and will continue to face—major challenges in the coming years. Bangladesh is undergoing a political struggle between those that would emphasize Islamic religious identity over a relatively more secular identity based on Bengali nationalism. This tension manifests itself through demonstrations, political gridlock, and at times violent street protests. Rising conservative Islamist sentiment may also increasingly become linked to militant organizations and international Islamist movements. A growing population, when combined with environmental stress brought on by natural disasters and climate change, may pose further challenges for Bangladesh, particularly given its already high population density. While the geopolitical rivalry between China and India may present opportunities for Bangladesh, it may also create new tensions or place new demands on the country in the years ahead. The recent arrival of hundreds of thousands of Rohingya from Burma is a potential source of instability and will likely have humanitarian, diplomatic, security, and geopolitical implications for Bangladesh. Recent Developments Rohingya To date in 2017, hundreds of thousands of Rohingya refugees have crossed the border from Burma into Bangladesh. The predominantly Muslim Rohingya have faced persecution in Buddhist-majority Burma for years—especially in Burma's Rakhine State—and an estimated 582,000 Rohingya have fled to Bangladesh since August 2017. Bangladeshi authorities have struggled to accommodate the new arrivals, and Sheikh Hasina has called on Burma to take back the displaced Rohingya. Political Dynamics Political instability likely will remain a problem in Bangladesh and could further erode democracy in the country, according to some observers. Some view the risk of social unrest as rising as the 2019 parliamentary election draws nearer. A major source of instability is the rivalry between Prime Minister Hasina, of the governing Awami League (AL), and Khaleda Zia, the leader of the opposition Bangladesh Nationalist Party (BNP). That rivalry, observers suggest, shows little sign of abating. Some observers see few paths to get beyond the current political stalemate, and the BNP likely will resort to further protests to pressure the AL government to hold the 2019 election under a caretaker government. In July 2017, some observers pointed to disputes over wages for garment workers as a potential flashpoint of social unrest. Others noted the potential that rising food prices, the result of floods in April and August 2017 which destroyed 1.2 million tons of rice in Bangladesh, could be a cause of political instability. Security Situation A report issued by the U.S. State Department's Bureau of Diplomatic Security noted that the "Department … assessed Dhaka as being a high-threat location for political violence directed at or affecting official U.S. government interests." Political demonstrations, the report continued, have led to violent clashes—some of which have resulted in fatalities. A Bangladeshi human rights group, Odhikar, reported that, in 2016, 215 people were killed and 9,050 were injured because of inter- or intraparty violence. There also are signs of ongoing Islamist militancy, and the continuing political turmoil could create opportunities for Islamists. In March 2017, there were several terrorist attacks across the country, making it the deadliest month since July 2016, when an attack on a bakery killed over 20 people, including one U.S. citizen. Observers believe the threat of small-scale, religiously motivated attacks continues. International Crimes Tribunal The International Crimes Tribunal (ICT) has, according to some, contributed to the country's political instability. The ICT was constituted on March 25, 2010, and it has tried individuals accused of committing human rights abuses during Bangladesh's war of independence against Pakistan in 1971. As of October 2017, 33 cases were under trial at the tribunal. Some analysts point out that the trials seem to be aimed at undermining the AL's political opponents, especially Islamists, including members of Jamaat-i-Islami (JI)—the largest Islamist political party in the country and a traditional BNP ally. In April 2017, the ICT handed down death sentences to two people who were convicted of committing war crimes during the 1971 war. In July 2017, the head of the ICT's investigation arm confirmed that there was an ongoing investigation into Osman Faruque, a top BNP leader. Bangladesh-U.S. Relations The United States has long-standing supportive relations with Bangladesh. Bangladeshis tend to have a positive view of the United States: According to a 2014 Pew opinion survey, 76% of Bangladeshis had a favorable opinion of the United States, compared to 66% of respondents from the United Kingdom. The United States and Bangladesh work together on several issues, including development, governance, trade, and security. In August 2017, U.S. Acting Assistant Secretary of State for South and Central Asian Affairs Alice Wells met with Prime Minister Hasina to discuss U.S.-Bangladeshi relations, including the two countries' efforts to cooperate on security and energy issues. U.S.-Bangladesh Bilateral Forums The United States engages Bangladesh through several fora, including the U.S.-Bangladesh Partnership Dialogue and the U.S.-Bangladesh Dialogue on Security Issues. The former seeks to improve ties between the two nations. In June 2016, the Partnership Dialogue—held in Washington, DC—addressed a broad spectrum of issues, including "security cooperation, development and governance cooperation, and trade and investment cooperation." Also, following the Dialogue, the United States and Bangladesh issued a joint statement announcing that Bangladesh would be joining the U.S. Counterterrorism Partnerships Fund, which aims to provide security-assistance funding to states fighting extremists. Security Cooperation The United States and Bangladesh see a common interest in working to counter extremist Islamists and their ideology—as well as in promoting regional and global security. Historically, the two countries have shared an interest in supporting U.N. peacekeeping operations. In July 2017, Admiral Harry Harris, Commander of the U.S. Pacific Command (PACOM), met with Prime Minister Hasina and participated in the dedication ceremony for the Bangladesh Institute of Peace Support Operations Training—a $3.6 million facility to train peacekeepers deploying with the United Nations. Bangladesh is one of the largest contributors of military personnel to U.N. missions. (See section " Peacekeeping " below for further details.) The U nited States has worked to strengthen Bangladesh's maritime security capabilities. The United States transferred a U.S. Coast Guard cutter, the USS Jarvis , to Bangladesh in 2013. A second U.S. cutter, the USS Rush , was transferred in 2015. PACOM conducts naval exercises with Bangladesh, including the Southeast Asia Cooperation and Training (SEACAT) exercise, which promotes multilateral cooperation and information sharing with naval forces from Brunei, Indonesia, Malaysia, the Philippines, Cambodia, Bangladesh, Singapore, and Thailand. PACOM also carries out humanitarian operations, such as Operation Pacific Angel, which provides humanitarian assistance, such as general health and dentistry services, to people in the Asia-Pacific region. Additionally, Bangladesh's security forces conduct counterterrorism training with U.S. forces. As mentioned above, Bangladesh participates in the State Department's Antiterrorism Assistance program—which provides participating states with counterterrorism training and equipment—and the country has received U.S. funding for law-enforcement training. The United States and Bangladesh also signed the Counterterrorism Cooperation Initiative in 2013. Foreign Assistance The United States has been a foreign assistance partner of Bangladesh since its creation in 1971, and many observers contend that the country greatly needs foreign aid. For FY2018, the Trump Administration requested about $138 million in foreign-assistance funding for Bangladesh ( Table 1 ). Previously, for FY2017, the Obama Administration requested about $208 million. In 2015, the Asian Development Bank reported that 31.5% of Bangladeshis lived below the national poverty line, and in 2014, 18.5% of Bangladeshis were living on less than $1.90 (PPP) per day. Also, about one-quarter of the population—or about 40 million people—faced food-insecurity issues in 2014. The United States has partnered with Bangladesh on three major development initiatives: Feed the Future, the Global Climate Change Initiative, and the Global Health Initiative. As part of Feed the Future, USAID has implemented programs to improve the food-security situation in Bangladesh—for instance, by working to increase crop yields. USAID has provided assistance to Bangladesh across a number of areas, including supporting democratic institutions, promoting health and education, empowering women, and disaster preparedness and response. U.S.-Bangladesh Trade According to USTR, in 2016, Bangladesh was the United States' 50 th -largest trading partner in terms of total, two-way goods trade. Exports of U.S. goods to Bangladesh were worth approximately $895 million in 2016 and supported an estimated 6,000 U.S. jobs in 2015. In 2016, major U.S. exports to Bangladesh included miscellaneous grain, seeds, fruit (soybeans) ($249 million), cotton ($96 million), machinery ($83 million), food waste, animal feed ($72 million), and iron and steel ($72 million). From Bangladesh, the United States primarily imported woven apparel ($3.8 billion), knit apparel ($1.4 billion), miscellaneous textile articles ($206 million), headgear ($174 million), and footwear ($105 million). However, between 2015 and 2016, Bangladeshi garment exports to the United States declined slightly, from about $5.4 billion in 2015 to $5.3 billion in 2016. U.S. goods exports to Bangladesh increased 169% from 2006 to 2016. The United States and Bangladesh signed a Trade and Investment Cooperation Framework Agreement (TICFA) in 2013, setting up an annual meeting to identify challenges to the countries' bilateral-trade and investment relationship. In 2015, U.S. foreign direct investment (FDI) in Bangladesh amounted to $589 million—an increase of 24.3% from 2014. American trade and investment interests also include developing natural gas reserves thought to be in the Bay of Bengal off Bangladesh's coast. In 2013, the United States suspended Bangladesh's designation as a beneficiary country under the Generalized System of Preferences (GSP) program over concerns about workers' rights. As a result, U.S. imports of GSP-eligible products from Bangladesh lost their duty-free status. The United States has welcomed Bangladesh's efforts to improve labor conditions in the country, including thousands of factory inspections, but not enough has been done to reimplement GSP privileges. The United States has called on Bangladesh to go further to protect workers from unfair labor practices and give workers in export processing zones the same rights as workers elsewhere. U.S. Human Rights Concerns The United States has expressed some concerns about human rights issues in Bangladesh. In 2017, the State Department issued its Human Rights Report, detailing numerous human rights abuses in the country. As mentioned above, the report states that The most significant human rights problems were extrajudicial killings, arbitrary or unlawful detentions, and forced disappearances by government security forces; the killing of members of marginalized groups and others by groups espousing extremist views; early and forced marriage; gender-based violence, especially against women and children; and poor working conditions and labor rights abuses. The U.S. Commission on International Religious Freedom raised concerns about Bangladesh's human-rights situation, particularly for religious minorities in the country. According to the commission's 2017 annual report, there has been an uptick in violent attacks against religious minorities, as well as against secular bloggers, intellectuals, and foreigners in Bangladesh. In September 2017, the State Department issued a statement, saying that the United States was "very concerned" about the influx of Rohingya into Bangladesh. Between October 2016 and September 2017, the U.S. government "provided nearly $63 million in humanitarian assistance for vulnerable communities displaced in and from Burma throughout the region." More recently, on September 20, 2017, the United States pledged to spend an additional $32 million on humanitarian aid for the Rohingya. Political Setting Bangladesh is a parliamentary democracy with a unicameral legislature, the Jatiya Sangsad. The 300 members of parliament are directly elected for five-year terms, and an additional 50 seats—which are reserved for women—are filled by the political parties in proportion to their respective vote shares. The Awami League, led by Prime Mister Sheikh Hasina, and the Bangladesh National Party, led by Khaleda Zia, are the two main political parties. The Awami League has been viewed as relatively more secular in its approach though some have recently accused the government of "pandering to Islamist zealots." According to the International Foundation for Electoral Systems, Bangladeshi elections face several challenges, including a "restricted space for political dialogue; [a] lack of coordination around electoral reform;" and an "absence of leaders equipped to promote peaceful electoral and political processes." The United States has been concerned about political unrest and instability in Bangladesh. Following Bangladesh's most recent election in 2014, former U.S. Principal Deputy Assistant Secretary of State Richard Hoagland opined that "the political impasse and negative governance trends in Bangladesh don't bode well for sustainable growth" in the country. The AL won the 2008 election, as well as the 2014 election that was boycotted by the BNP ( Table 1 ). The BNP boycotted because the AL government did not set up a neutral caretaker government prior to the vote. Starting in 1996, caretaker governments oversaw Bangladesh's general elections. However, in 2011, the AL-controlled parliament ended the caretaker-government system. Partially as a result of the BNP's boycott, the AL won an overwhelming majority in parliament in 2014. After the election, in January 2015, the BNP called for a nationwide blockade and a series of strikes, known as hartals in South Asia. During the resulting demonstrations, over 120 people were killed. Khaleda Zia's motorcade came under attack by AL activists a few months later, while she was campaigning for her party's mayoral candidate in Dhaka, the country's capital. Fifteen members of her entourage were injured. In response to the postelection unrest, the State Department issued a statement, saying it was "gravely concerned" about the "unrest and violence" in Bangladesh. At the moment, the Jatiya Party (Ershad) is supporting the current AL government, even though it is considered the opposition. JI, the largest Islamist party in Bangladesh, historically has been allied with the BNP. Prior to the 2014 vote, the Bangladesh Election Commission banned JI from participating in the election. The commission, as well as the Supreme Court, ruled that the party's charter was not in accordance with the country's constitution. In early 2017, the AL and BNP were able to work together to appoint a new election commission, but the BNP remains doubtful of the commission's independence. The next national election is due in 2019, and some observers believe that Sheikh Hasina is grooming her son, Sajeeb Ahmed Wajed, to become the AL's next leader. Since independence in 1971, there often have been tensions between the military and successive civilian governments. The military ruled the country—both directly and indirectly—for nearly 17 years, and there have been three coups and several mutinies. Two presidents have been killed in military coups, including Sheikh Hasina's father, Sheikh Mujibur Rahman, as well as Khaleda Zia's husband, Ziaur Rahman. (Both men served as president of Bangladesh and were key figures in the country's struggle for independence from Pakistan in 1971.) Bangladesh returned to a parliamentary democracy in 1991 after Lieutenant General H. M. Ershad resigned. (In 1982, he seized power in a coup and served as president until 1990.) Prior to the 2008 general election, the military backed a caretaker government—which represented, according to some, "a de facto coup" since it stayed in power for two years. From 2007 to the end of 2008, the military supported the caretaker government's anticorruption program, which convicted 116 politicians and businessmen. The government tried to convict and exile Sheikh Hasina and Khaleda Zia, but it eventually needed to back down, in order to ensure that both of their parties took part in the December 2008 election. In 2015, some observers believed that the military was potentially planning a coup because of the AL-BNP political feud and the resulting instability. However, there was no such coup. According to the opposition leader, Khaleda Zia, Sheikh Hasina has been "buying" the loyalty of the armed forces by approving military procurement deals and promotions. Tensions between security forces and the government over corruption and low wages led members of a paramilitary unit, known as the Bangladeshi Rifles (BDR), to mutiny in February 2009, killing 74 people, including 57 officers. International Crimes Tribunal The International Crimes Tribunal was established in 2009 to try to prosecute those who committed war crimes, such as murder and rape, during Bangladesh's 1971 war of independence from Pakistan. The U.S. government has supported bringing Bangladeshi war criminals to justice, and it has encouraged the ICT to follow a "fair and transparent" judicial process. Previously, Pakistan (then-West Pakistan) and Bangladesh (then-East Pakistan) were one Muslim-majority country—which came about after the partition of the Indian subcontinent in 1947. During the separatist war between the two territories in 1971, hundreds of thousands to over 1 million people are believed to have died. Perhaps 10 million more were displaced. At the time, Bangladesh's independence forces, along with India, were battling the Pakistani army, which largely was composed of troops from then-West Pakistan and their local sympathizers in Bangladesh. JI's paramilitary wing, Al-Badr, collaborated with the West Pakistani military, and it reportedly targeted students and politicians, among others, who were sympathetic to Bangladesh's independence struggle. As part of the ICT process, a number of leaders from the JI party and the BNP have been arrested and accused of war crimes. Several have been convicted and executed. The BNP and JI have opposed the ongoing trials and view them as being part of an AL effort to further consolidate its political advantage. According to Human Rights Watch, the trials favor the prosecution, and the defense often does not have a chance to "challenge the credibility of prosecution witnesses." According to the State Department, the court has carried out five executions from 2010 through 2016. Four of those individuals were JI members; the other one was from the BNP. In May 2016, the ICT executed Matiur Rahman Nizami, the Amir (or President) of JI. As mentioned above, in April 2017, the ICT also handed down death sentences to two people who were convicted of committing war crimes during the 1971 war. While some observers have been critical of the ICT's use of the death penalty, others have welcomed the strong stance against Islamist extremism. One commentator has observed that "Western governments have been lukewarm to hostile" to the April 2015 execution of senior JI leader Muhammad Kamaruzzaman for his role in war crimes: [T]hough Bangladesh has addressed many concerns about its trials, judicial standards certainly don't match those of Denmark or Switzerland. Yet the chorus of criticism in Western capitals ends up serving a perverse purpose. It strengthens precisely those groups in Bangladesh who most threaten human rights, individual liberty and religious freedom. [Those concerned with human rights] ... ought to applaud Bangladesh for showing pluck to take on a thuggish Islamist movement.... Following Kamaruzzaman's execution, the State Department issued a statement, saying that the United States supports "bringing to justice those who committed atrocities in the 1971 Bangladesh War of independence." However, the statement also emphasized that the ICT process "must be fair and transparent." Human Rights Many observers view politically motivated violence—perpetrated by both opposition- and government-aligned forces—as one of the key threats to human rights in Bangladesh. The United States has expressed concern over the country's political unrest, as well as its lack of labor-rights protections. According to the U.S. Department of State's 2016 Human Rights Report : The most significant human rights problems [in Bangladesh] were extrajudicial killings, arbitrary or unlawful detentions, and forced disappearances by government security forces; the killing of members of marginalized groups and others by groups espousing extremist views; early and forced marriage; gender-based violence, especially against women and children; and poor working conditions and labor rights abuses. More than 500 Bangladeshis died in "2014 election-related violence" and, as mentioned above, Odhikar, the human rights group, reported that 215 people were killed and that 9,050 were injured because of inter- or intra-party clashes in 2016. Unlawful detentions also have occurred, as have forced disappearances. In 2016, Mir Ahmed Bin Quasem and Hummam Quader Chowdhury—the sons of prominent figures in the JI and BNP, respectively—were detained and held without charge. They did not have access to lawyers or their families. Hummam Quader Chowdhury was later released in March 2017, but, according to recent reports, Mir Ahmed Bin Quasem still has not been seen. (Notably, both men's fathers were executed by the ICT.) Over the course of eight days in 2016, Bangladesh's security forces rounded up nearly 15,000 people, following a series of attacks against liberal activists. Many of the detainees were, according to Human Rights Watch, members of the political opposition, including JI's student wing. Additionally, the AL government reportedly has filed 37,000 lawsuits against the BNP. The Rapid Action Battalion (RAB) is an elite unit of Bangladesh's security forces that has been implicated in a number of human rights violations. The AL government has reportedly used accusations of terrorist activity, seen by many as unfounded, to mobilize the RAB against elements within the opposition, including JI members. (The BNP also reportedly used the RAB as a "death squad" when it controlled the government.) Amnesty International found that, of the 20 disappearance cases it investigated between 2012 and 2014, several seemed to suggest that the police or RAB were involved. In the first nine months of 2016, between 118 and 150 individuals were killed in "crossfire" incidents—which are deaths resulting from purported shootouts between suspects and security forces. The RAB, allegedly, was responsible for 34 of those deaths. Observers say that the "crossfire" incidents are likely extrajudicial killings. In January 2017, the Narayanganj District and Sessions Court "sentenced 26 people, including 16 RAB members, to death for their role" in the killing of a local politician. However, such convictions are rare. Bangladesh has of late been clamping down on the country's media, according to observers. In 2016, two editors—who worked for leading newspapers in the country—were charged with several crimes, including criminal defamation and sedition. Since 2013, the staff of one of those newspapers, Proth o m Alo, has faced more than 100 criminal cases. Freedom of expression has come under increasing threat from Islamist extremists in Bangladesh—as evidenced by the recent killing of Dr. Avijit Roy, a secular blogger who was Bangladeshi-American. He was killed by an Islamist extremist group and, in the view of one analyst, Roy's murder, and others like it, "have opened a new front between the values of syncretic, secular, humanistic Bangladeshi culture against a rigid worldview incapable of allowing difference to coexist." Although Bangladesh was founded as a secular country, some say that Islamist extremists have discredited secularism in the eyes of many Bangladeshis. "The politics has been turned into the secular versus the Islamists," according to Abdur Rashid, who is a retired army major general and the executive director of the Institute of Conflict, Law and Development Studies in Dhaka. Bangladesh has struggled with inter-religious tensions and violence, particularly between Islamist extremists and Hindus. Muslims account for about 89.1% of Bangladesh's population. Hindus account for 10.0%. Other religious groups, including Buddhists and Christians, account for about 0.9%. (When Bangladesh gained independence in 1971, Hindus were about 23% of the population.) According to the Hindu American Foundation, 495 Hindu homes, 169 temples, and 585 shops were attacked, damaged, or looted in 2014 election-related violence. In spring 2016, three Hindu priests were killed. There also have been attacks on the country's Buddhist, Christian, and Ahmadiyya communities. According to the advocacy group Hindu-Buddha-Christian-Oikya Parishad, in the first three months of 2016, there were three times as many violent incidents involving minorities than in all of 2015. Human trafficking and unequal rights for women are problems in Bangladesh, as well. While there is a lack of reliable quantitative data, "human trafficking in Bangladesh is believed to be extensive both within the country and to India, Pakistan and the Middle East." Many, including children, are reportedly trafficked into sexual exploitation or forced labor. According to the State Department's T rafficking in Persons Report for 2017, "Observers reported police took bribes and sexual favors to ignore potential trafficking crimes at brothels." The report places Bangladesh on the Tier 2 Watch List. In March 2017, Bangladesh's parliament passed a law making it legal for girls under the age of 18 to marry. Already, around 52% of Bangladeshi girls are married by the time they are 18, and 18% are married by age 15. The government, observers believe, pushed the bill to increase its popularity among religious groups. Child labor is a problem in Bangladesh, as well. In December 2016, the Overseas Development Institute (ODI), a U.K.-based think tank, conducted a survey, examining the prevalence of child labor in eight slum settlements in Dhaka. The results suggested that child labor was "endemic" in the area, affecting 45% of 14-year-old children. (Child labor—as defined by ILO—is work that "deprives children of their childhood, their potential and their dignity, and that is harmful to physical and mental development.") Another survey—conducted in 2013 by the government—reported that about 3.5 million children aged 5 to 17 were working, including 1.7 million as child laborers. Rohingya121 In Burma, the Rohingya, a Muslim minority group, have faced persecution at the hands of the majority Buddhist population. Burma views the Rohingya as illegal immigrants from Bangladesh, and tensions between Burma's Rohingya and Buddhist communities remain high, especially in Arakan (Rakhine) State. Since August 2017, an estimated half a million Rohingya have crossed the border into Bangladesh, fleeing from the latest outbreak of violence in Rakhine. In September 2017, the United Nations high commissioner for human rights condemned Burma, saying that the government was "carrying out 'a textbook example of ethnic cleansing' against the Rohingya." On September 20, 2017, the United States pledged to spend nearly $32 million on an aid package to help displaced Rohingya—in addition to the nearly $63 million that the U.S. government already has provided in humanitarian assistance "for vulnerable communities displaced in and from Burma" since October 2016. Violence in Arakan (Rahkine) State The latest outbreak of violence began in August 2017 when Rohingya insurgents—called the Arakan Rohingya Solidarity Army (ARSA)—carried out attacks against Burmese police and military outposts. Afterward, the Burmese security forces launched "'clearance operations' to root out the insurgents." However, the security forces allegedly have been targeting civilians and burning Rohingya villages. As a result, hundreds of thousands of Rohingya have been displaced and have crossed the border into Bangladesh. Previously, in October 2016, Rohingya militants attacked Border Guard Police bases in Burma and killed nine officers. In response, Burma's security forces conducted a campaign in Rakhine State. It was, observers say, a "disproportionate" response, affecting a large portion of the population. Human rights groups released a series of reports, documenting alleged abuses, including extrajudicial killings and mass rapes "associated with [Burmese] military operations." To escape the security forces' crackdown, about 74,000 Rohingya fled to Bangladesh where they were not granted refugee status. According to Refugees International, before the most recent influx of an estimated 480,000 Rohingya into Bangladesh, there were three categories of displaced Rohingya in the country: (1) 33,000 government-recognized refugees; (2) 200,000-500,000 Rohingya living in Bangladesh as Undocumented Myanmar Nationals (UMN); and (3) 74,000 Rohingya—also considered UMN—who fled Burma between October 2016 and February 2017. (Under Bangladeshi law, the UMN are illegal foreigners residing in the country.) Since the UMN are technically stateless—and in turn lack access to state protections and services—they are vulnerable to exploitation and human trafficking. In 2015, the plight of the Rohingya and some Bangladeshis similarly gained international attention when many of them took to the sea to escape persecution and to find a better life. According to some accounts, armed groups of Buddhists in Burma forced Rohingya to get on migrant boats and leave the country. It is estimated that 25,000 Southeast Asian migrants—including those from Burma and Bangladesh—"took to the seas" during the first three months of 2015. Possible Militant Ties There is much uncertainty related to ARSA and the extent to which it has outside support. ARSA has denied that it has ties to international terrorist groups and portrays itself as an ethno-nationalist group seeking to defend its own people. Despite this, some observers view ARSA as a militant group with possible links to international terrorists. Others emphasize that the recent attacks against the Rohingya have created a situation that may present opportunities for recruitment of Rohingya by international terrorist organizations, such as the Islamic State (IS), even if ARSA itself has no ties to such groups. An International Crisis Group (ICG) report from December 2016 described the emergence of a Muslim insurgent group called the Harakah al-Yaqin (HaY), now known as the ARSA. ICG described HaY as led by a committee of Rohingya emigres in Saudi Arabia and as a group without a terrorist agenda. The ICG report warned that a disproportionate response by Burma "could create conditions for further radicalizing sections of the Rohingya population." Unconfirmed Indian media reports point to ties between elements within the Rohingya community and Pakistan's ISI, as well as with Pakistan- and Bangladesh-based terrorist groups. Even if ARSA has no links with terrorist groups, the presence of so many dispossessed and abused Rohingya in Bangladesh would appear to make it a fertile ground for recruitment for terrorist groups. It is Bangladesh's policy not to allow ARSA to establish a base in Bangladesh, and the country's Minister of State for Foreign Affairs, Mohammed Shahriar Alam, has stated that the Rohingya present a security issue as well as a humanitarian issue and that Bangladesh would take prompt action if ARSA tries to enter the country. U.S. Government Response to the Rohingya Crisis The United States has called on Burma to protect its Rohingya population. In July 2017, U.S. Ambassador to the United Nations Nikki Haley called on Burma to allow a human rights fact-finding mission into the country. "The international community," she said in a statement, "cannot overlook what is happening in" the country. In September 2017, Deputy Assistant Secretary of State for Southeast Asia Patrick Murphy called on the Burmese government to implement the suggestions proposed by the Rakhine Commission. Previously established by the Burmese government, the commission was tasked with "finding conflict-prevention measures, ensuring humanitarian assistance, rights and reconciliation … and promoting long-term development plans in the restive state." Some analysts have criticized the U.S. government for not doing enough to protect the Rohingya. Legislation introduced in Congress would condemn the human rights abuses in Rakhine state, call on Burma's leaders to end persecution of the Rohingya, and possibly impose foreign assistance sanctions. The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2018 ( S. 1780 ) stipulates that Economic Support Funds to Burma may not go to any "individual or organization [that] has committed a gross violation of human rights, including against Rohingya and other minority groups." The bill further specifies that "None of the funds appropriated ... under the headings "International Military Education and Training" and "Foreign Military Financing Program" may be made available for assistance for Burma." H.Res. 528 and S.Res. 250 would condemn "horrific acts of violence against Burma's Rohingya population" and call upon Aung San Suu Kyi "to play an active role in ending this humanitarian tragedy." Representative Edward Royce, chairman of the House Foreign Affairs Committee, issued a letter to Suu Kyi. "Your government and the military," it read, "have a responsibility to protect all of the people of Myanmar [Burma], regardless of their ethnic background or religious beliefs." Bangladesh Government Response to the Rohingya Crisis The government of Bangladesh has opened its borders, admitting an estimated half a million Rohingya since August 25, 2017. Bangladesh's capacity to accommodate the latest influx of Rohingya is limited. It already had an estimated 400,000 Rohingya living in the country, and many Rohingya are living in the open—outside of official camps in the border area with Burma. However, Bangladesh is establishing a new camp for the Rohingya, in addition to two existing official camps. The new camp is planned to have 14,000 shelters, each of which reportedly will be able to accommodate six families. Bangladesh has also considered a plan to relocate Rohingya to Thengar Char Island in the Bay of Bengal. However, the island is considered "uninhabitable" and is "prone to flooding." Respiratory infections, diarrhea, dysentery, and other ailments are reportedly spreading among the Rohingya in Bangladesh, and there is a great need for clean drinking water, food, and sanitation. Foreign Secretary M. Shahidul Haque has stated that Bangladesh considers the Rohingya to be "forcibly displaced Myanmar nationals" and not migrants, or illegals or refugees. Bangladesh has called on Burma to repatriate the displaced Rohingya and on international organizations to assist Bangladesh in caring for the Rohingya until they can return to Burma. Bangladesh has reportedly started biometric registration of Rohingya at camps near Cox's Bazar. Bangladesh's government previously worked with NGOs on immunization campaigns, and in 2014, it came up with a strategy that "led to expanded access and protection services" for Rohingya migrants who are not recognized as refugees. In September 2017, the U.S. State Department issued a statement, saying that the United States "applaud the government of Bangladesh's generosity in responding to this humanitarian crisis and appreciate their continued efforts to ensure assistance reaches the affected population." However, in the past, some international human rights groups such as Human Rights Watch criticized Bangladesh, saying its government forced back Rohingya fleeing from Burma and placed restrictions on international aid organizations operating in the country. An estimated 8 million to 10 million Bangladeshis fled to India in 1971 in the wake of atrocities committed by the West Pakistan army and local sympathizers in East Pakistan during Bangladesh's struggle for independence. Hundreds of thousands of Bengalis died during this conflict. This experience informs many Bangladeshis' sympathetic perspective on the plight of the Rohingya. Labor Issues/Factory Safety155 Workers' rights and safety in Bangladesh have been the focus of much international attention, particularly in the apparel-production industry. In June 2013, the United States suspended Bangladesh's designation as a beneficiary country under the Generalized System of Preferences (GSP) program over concerns about workers' rights in the country. As a result, U.S. imports of GSP-eligible products from Bangladesh lost their duty-free status. So far, the United States has not reinstated Bangladesh's GSP benefits. Bangladesh is an important part of the global textile-supply chain, and its garment industry employs approximately four million workers. Yet successive factory disasters have led to additional global and U.S. scrutiny of Bangladesh's labor rights regime, especially following the Rana Plaza garment factory collapse which killed over 1,000 workers in April 2013. The Rana Plaza factory provided clothing to several European and American brands, reportedly including Children's Place, Benetton, Cato Fashions, and Mango. As of April 2017, many victims' families still had not been compensated, even though a $30 million fund was established to do just that following the disaster. (Reportedly, several international brands and retailers paid less than expected into the fund.) In 2015, Bangladesh police charged the owner of the Rana Plaza factory and 41 others with murder, and in August 2017, he was sentenced to three years in jail. Many Bangladeshi factories reportedly are substandard and unsafe. Following the Rana Plaza collapse, inspections were conducted as part of the Accord for Fire and Building Safety in Bangladesh—an initiative involving over 180 brands and retailers, reportedly including H&M. The inspectors discovered safety hazards in all of the 1,106 garment factories that were examined and requested that Bangladeshi authorities immediately evacuate 17 factories. In 2013, the International Labour Organization (ILO) started an initiative—the Improving Fire and General Building Safety in Bangladesh project—to train building inspectors and improve the capabilities of Bangladesh's Fire Service and Civil Defence (FSCD) force. (The U.S. Department of Labor funded the project.) A 2016 fire broke out at a packaging factory in Tongi, north of Dhaka, killing 23 people. It is difficult to unionize in Bangladesh. A June 2017 report from the International Trade Union Confederation indicated that there were few to any guarantees of worker rights in Bangladesh, and the organization ranked the country among the 10 worst, in terms of worker-rights protections. Some 10% of the country's garment factories are unionized, and registering to create a union is difficult, in part because at least 30% of the workforce—"a relatively high level"—must agree to it. Bangladesh's economy relies heavily on foreign remittances, and the government has tried to protect its citizens working abroad. A bilateral treaty with Saudi Arabia, for instance, stipulates that Saudi Arabian employers must pay for Bangladeshi female workers' travel expenses and that domestic workers must be employed by a third party, not by a private household. However, according to the U.S. State Department's 2017 Trafficking in Persons Report , Bangladesh's government has allowed the Bangladesh Association of International Recruiting Agencies to set high recruitment fees, thereby making many laborers "indebted and vulnerable to trafficking." Despite labor rights abuses, the garment industry has provided many Bangladeshi women with opportunities that have given them some independence. Many women in Bangladesh work in the garment sector—which accounted for over 80% of the country's exports in 2016. According to an ILO study, about 41% of Bangladeshi women are employed—a much higher rate than in India (25.8%) and Pakistan (22%). It reportedly has become "more culturally acceptable for women to enter the labour force in general" in Bangladesh, and currently about 80% of the country's garment employees are women. That has "served as a repellant against early marriage and in turn reductions in fertility." Peacekeeping Bangladesh is today consistently one of the largest contributors of troops, police, and experts to United Nations international peacekeeping efforts. Bangladesh began peacekeeping operations in 1988. As of July 2017, more than 6,900 of the country's troops and police were serving in 13 U.N. peacekeeping operations. Many of Bangladesh's troops have served as U.N. peacekeepers in Africa, including in the Central African Republic and in the Democratic Republic of Congo. In September 2017, three U.N. soldiers from Bangladesh were killed in Mali. Through the Global Peace Operations Initiative (GPOI), which is United States' primary security assistance program for strengthening international capacity and capability to train, sustain, deploy, and effectively conduct peacekeeping operations around the world, the United States is helping Bangladesh to open a new multipurpose training facility at the Bangladesh Institute for Peace Support Operation Training (BIPSOT). In his remarks while visiting the BIPSOT in 2011, then-U.N. Secretary-General Ban Ki Moon observed that approximately 1 in 10 United Nations peacekeepers were from Bangladesh before noting their sacrifice for the global good. Economic Development and Trade Although it remains one of the world's poorest nations, Bangladesh has experienced significant GDP growth over the past decade, expanding at about 6% per year since 1996. The Economist Intelligence Unit projects that Bangladesh's real GDP will grow by about 6.4% in 2017/2018 through 2020/21. However, more will likely need to be done to accommodate the number of Bangladeshis entering the workforce. About 2.1 million youths enter the job market every year, according to one senior World Bank official, and it is seen as vital that the country creates more jobs for them. Nearly half of Bangladeshis work in the agriculture sector. Manufacturing—particularly of ready-made garments—is a key component of Bangladesh's economy. Bangladesh is the second-largest exporter of ready-made garments in the world after China. In 2016, garment exports exceeded $25 billion, accounting for more than 80% of the country's total exports. Bangladesh's economy is one of the world's most dependent on foreign remittances. About $15 billion in remittances came from Bangladeshis working overseas in 2015 constituting the country's largest source of foreign-exchange earnings. However, during the 2016-2017 fiscal year, remittances fell by 14.5% from the previous fiscal year—a drop from about $15 billion to $12.8 billion. According to analysts, the reported drop is in part the result of expatriate workers sending their remittances through informal channels, such as mobile banking and the hundi, which is an illicit fund-transferring system. Many of the new migrant workers went to Saudi Arabia. Estimates of the number of Bangladeshis working abroad vary. By one estimate Bangladesh will send an estimated 1 million workers abroad in 2017. Bangladesh's Energy Regulatory Commission (BERC) reportedly announced that gas prices would be raised by an average of 22.7% in 2017. The decision was met with protests, but it was necessary, according to one BERC official, because gas was sold at half its actual cost and the subsidies were unsustainable. The hike was supposed to take place in two phases, but the second price increase has been held up by the courts. Bangladesh relies on liquefied natural gas (LNG) to cover 53% of its energy needs, and the country's gas reserves will last for another 10 to 12 years, according to some analysts. At present, Bangladesh "is developing an import terminal"—the Moheshkhali Floating LNG project—with the International Finance Corporation and Excelerate Energy, a U.S.-based company. Recently, the IMF reported that the banking sector faces "underlying risks," partially because of large loans that were made to borrowers who have few incentives to repay. In June 2017, the government set aside $250 million to recapitalize the country's state-owned banks. However, according to some observers, the country's regulators have not been effective at tackling the sector's underlying problems, such as poor risk management and few penalties being levied on defaulters. Partially as a result, state-owned banks have a "high level" of nonperforming loans—in other words, loans that are in default or are close to being in default—and operating profits at Bangladesh's six state-owned commercial banks fell by 37% in 2016. According to the World Bank's 2017 Doing Business Index , Bangladesh ranked 176 th out of 190 countries. Major problems include difficulties for businesses in Bangladesh to get access to electricity and to get contracts enforced. (About 60 million people—or about 40% of Bangladesh's population—do not have access to electricity.) The country also has a poor infrastructure-transportation network, and according to Transparency International's 2016 Corruption Perceptions Index , Bangladesh ranked 145 th out of 176 countries. In May 2017, the cabinet approved legislation that would make it easier for businesses to get licenses, register land, and link with utilities. Known as the One-Stop Service Act, parliament must approve the legislation before it can take effect. In 2016, the U.N. Conference on Trade and Development reported that Bangladesh received $2.3 billion in foreign direct investment (FDI) in 2016—a record amount—but some observers say that the country could attract more FDI if it improved its infrastructure, streamlined its bureaucracies, and tackled corruption. Environmental, Climate, and Food Security Demographic pressures and environmental problems—including those linked to climate change—increasingly are challenges for Bangladesh, and they may result in thousands, perhaps millions, of people being displaced in future years. If that does happen, many of these people likely will move to crowded cities or to neighboring countries, such as India, leading to further strains on social services and, perhaps, regional instability. The 2015 Climate Change Vulnerability Index reported that Bangladesh's economy is the most vulnerable in the world to climate change. About 80% of the country's land mass is on a floodplain and is less than 5 meters (some 16 feet) above sea level. It has been projected that seas near Bangladesh could rise by as much as 13 feet by 2100—which is four times the projected global average. According to an Institute of Medicine study released in January 2017, between 2011 and 2050, about 9.6 million people in Bangladesh may be displaced because of climate change. Some scientists suggest that rising sea levels—along with additional factors, such as land settling because of groundwater extraction—will lead to 17% of Bangladesh's land being inundated and will potentially displace up to 18 million people by 2050. Many of the displaced may move to the country's cities, including Dhaka. In recent years, 50,000 to 200,000 people have been displaced annually due to riverbank erosion. Moreover, some analysts believe cyclones likely will become more intense. One cyclone—Cyclone Mora—forced the evacuation of 350,000 people in 2017. Bangladesh's population is projected to increase from about 160 million people to around 200 million in 2050. Population increases may lead to further internal displacement, cross-border migration, and potentially rising tensions between the country and its neighbors, including India. Bangladesh is one of the most densely populated countries on earth with around 1,120 people per square kilometer. Bangladesh's government has invested more than $10 billion to address the potential effects of climate change, and much of that funding has gone toward strengthening river embankments, implementing early warning systems, improving government capacities, and building emergency cyclone shelters. To date, 2,500 such shelters have been built. Bangladesh's government also has discussed the possibility of imposing a carbon tax on fossil fuels. According to EIU's 2016 Global Food Security Index , Bangladesh ranks second-to-last in food security among the 23 countries of the Asia and Pacific region. (Laos is the lowest-ranked country). Of the 113 countries ranked in the Index, Bangladesh ranked 95 th . Bangladesh's total score, though, did improve from 2015. One USDA Foreign Agriculture Service member is reported to have said that "the food safety environment in Bangladesh was ... among the worst he has observed globally." Indeed, Bangladesh has the "highest prevalence of underweight children in South Asia," and more than half of the population does not have access to clean water and sanitation. Bangladesh is the world's fourth-largest rice producer, but much of the crop is consumed domestically, and according to USAID, Bangladesh remains "food deficient. In April 2017, flash floods reportedly "damaged over 700,000 tons of rice." (Unofficial estimates suggest that around 2.2 million tons may have been damaged.) Overall, rice accounts for "about two-thirds of the population's dietary intake." Some studies suggest that Bangladesh's rice production may decrease by 8% by 2050 due to the effects of climate change, including increased salinity levels along the coast. In some areas—particularly the north—droughts already seem to be becoming more common, and rising salinity levels in the Barisal Division in the southwest has made agriculture unprofitable, resulting in internal migration, particularly to Dhaka. The Ministry of Food monitors the government's rice reserves—which are meant to provide price support to rice farmers, if need be—but the reserves have decreased during the last year, in part because of a government-imposed 25% import duty. In June 2017, the government lowered the duty to 10%, following flash floods and an outbreak of rice-blast disease that led to soaring rice prices. Originally, the higher-rate rice duty was imposed to protect farmers from cheap Indian rice. In Bangladesh, waterways and rivers are used as transportation networks, and some projects—including one from the World Bank—have worked to ensure that these waterways remain resilient to the potential effects of climate change. Recently, because of seasonal changes in water levels, Bangladesh's government has resorted to dredging to keep waterways open. For instance, the Gorai River is a major source of freshwater for southwest Bangladesh, and it collects water from the Ganges. Yet, during the dry months, the Gorai becomes disconnected from the Ganges, causing a decrease in its freshwater flow. The government launched the Gorai River Restoration Project in 2009 to dredge and, ultimately, reconnect the two rivers. However, as of April 2017, some accounts suggest that the project has not been particularly successful. Regional Issues Islamist Extremism The U.S. and Bangladeshi governments see a common interest in working to counter extremist Islamists and their ideology. Bangladesh participates in the U.S. State Department's Antiterrorism Assistance program, which provides participating states with counterterrorism training and equipment, and the United States and Bangladesh signed the Counterterrorism Cooperation Initiative in 2013. In July 2016, the State Department sent Assistant Secretary of State for South and Central Asian Affairs, Nisha Desai Biswal, to Dhaka to discuss U.S.-Bangladesh counterterrorism cooperation. The 2016 U.S. State Department Country Report on Terrorism states that Bangladesh experienced a significant increase in terrorist activity in 2016. The Government of Bangladesh has articulated a zero-tolerance policy towards terrorism, made numerous arrests of terrorist suspects, and continued its counterterrorism cooperation with the international community. There are signs that transnational terror networks operate in Bangladesh. In January 2014, Bangladeshi police arrested three suspected members of Tehrik-e-Taliban Pakistan (TTP)—otherwise known as the Pakistani Taliban. Between September 2014 and October 2015, about 15 people with alleged links to IS were arrested in Bangladesh. In April 2016, a local employee at the U.S. Embassy was killed, along with a friend, and Al Qaeda in the Indian Subcontinent (AQIS) claimed responsibility. The Islamic State also has "claimed more than two dozen attacks in Bangladesh since September 2015." One of the attacks killed over 20 people at Dhaka's Holey Artisan Bakery in July 2016. The bakery—which is near the U.S. Embassy—was a popular site with expatriates, and several foreigners were killed, including nine Italians, seven Japanese, one U.S. citizen, and one Indian. The full extent to which domestic Islamist groups have links with the IS or other international terrorist groups is unclear. Bangladesh's government was reluctant to blame IS for the Holey Artisan Bakery attack. Rather, it accused Jama'atul Mujahideen Bangladesh (JMB), a domestic militant group, of carrying out the assault, and it tried to minimize the group's links with IS. (The government banned JMB in 2005.) An aide to Sheikh Hasina said: "[The Islamic State is] not an organized group here. People with Islamic State links are here. But that is not to say [the] Islamic State is here." According to some observers, the government wants to downplay IS's presence in Bangladesh because it is trying to use the alleged threat of domestic militancy "as an excuse to stifle dissent." One observer pointed out: [Choosing a] name decides who takes action against the [terrorist] organization and thereby who reaps the political fruits of its annihilation…. Call it Islamic State and the reins go into the hands of the international community. Naming it neo-JMB makes it home grown and therefore the reins stay in the hands of Sheikh Hasina. And when she keeps saying "BNP-Jamaat BNP-Jamaat," it builds the ground for effectively annihilating the political opposition in the name of fighting terrorists. After the bakery attack, some information came to light suggesting that IS had developed connections with Bangladeshi militants. For instance, IS knew about and approved the attack before it was carried out, according to some reports. Tamim Ahmed Chowdhury—who reportedly was an IS coordinator in Bangladesh and the leader of a JMB branch—praised the attackers "as fallen comrades." (In August 2016, Bangladeshi security forces killed Chowdhury in a shootout.) Some observers say that JMB has "'essentially repurposed' itself by trying to link itself to ISIS." However, some analysts point out that IS likely played little, if any, direct role in planning the Holey Artisan Bakery attack. Increasingly, in Bangladesh, terrorists are using different or bolder tactics. In the past, Bangladeshi militants often would ambush their targets or detonate bombs—in 2005, for instance, JMB detonated bombs in 63 of Bangladesh's 64 districts. But during the assault on the Holey Artisan Bakery, the attackers did not retreat. Rather, they stood their ground until they were killed by security forces. As one journalist observed, "Taken together, the attacks in the second half of 2016 pointed to a whole new level of indoctrination. Where Islamists of the past had killed in the name of religion, the new breed was willing to die for it." More recently, in March 2017, IS claimed responsibility for a suicide-bomber attack on the Hazrat Shahjalal International Airport, as well as a failed attack on the Rapid Action Battalion barracks in Dhaka. Harkat-ul-Jihad-al Islami Bangladesh (HUJI-B) is another U.S.-designated Islamist terrorist group in the country, and it is considered the "fountainhead of the militant groups in Bangladesh." The U.S. State Department reports that HUJI-B is believed to have links with Al Qaeda and with official elements in Pakistan, including Pakistani ISI operatives. According to the Delhi-based South Asia Terrorism Portal, HUJI-B operations commander, Mufti Abdul Hannan, trained in Peshawar, Pakistan before going to fight the Soviets in Afghanistan. HUJI-B has been linked to the Asif Reza Commando Force, which claimed responsibility for a 2002 attack against the American Center in Kolkata. Dhaka banned HUJI-B in 2005. In March 2017, the Supreme Court upheld the death sentence for Hannan. He was sentenced to death due to his role in a 2004 attack on the U.K. high commissioner to Bangladesh. The attack killed three police officers. Seventy other people were injured, but the high commissioner escaped without injury. Other events have shed light on evolving terrorist networks in the region. In October 2014, for instance, an accidental bomb explosion in the Burdwan District of Indian West Bengal killed two suspected members of JMB and wounded another. Members of JMB reportedly have infiltrated from Bangladesh into India's border districts where they have sought out new recruits in several madrassas. Also, since several militant groups have been banned—including HUJI-B and JMB—their members have gone on to form other groups. One of these groups, Jund al-Tawheed wal Khilafah (JTK), has operatives who are former JMB members. Islamist extremists also have targeted secular activists and bloggers, such as Avijit Roy. The Ansarullah Bangla Team (ABT)—which has links to al-Qaeda and is now a banned organization—created a "hit list of 84 'atheist' bloggers," leading to the murders of several liberal activists, including secular blogger Nazimuddin Samad in April 2016. The assailants were members of Ansar al-Islam, which, according to police, has links with AQIS and grew in part from ABT. (For a description of Bangladesh's terrorist groups and their links with IS and AQIS, see Table 2 .) Nevertheless, the AL government has tried to placate some of the country's Islamists. It has, for example, pledged to build a mosque in every town, making use of a $1 billion gift from Saudi Arabia. These gestures, Sheikh Hasina's son reportedly admitted, are meant to shield the AL from religious criticism. At present, there is an ongoing struggle over secularism in Bangladesh. By some accounts, Islamists have largely discredited secularism in the eyes of many Bangladeshis. The chief of Bangladesh's police counterterrorism unit, Monirul Islam, observed that, "'In general, people think they have done the right thing, that it's not unjustifiable to kill' the bloggers, gay people and other secularists." Geopolitical Context Positioned at the intersection of India, China, Southeast Asia, and the Bay of Bengal, Bangladesh occupies a geo-strategically important location—not only to the South Asian sub-region, but also to Asia as a whole. When Bangladesh gained independence in 1971, it weakened Pakistan's position relative to India and set the stage for India to play a larger role beyond South Asia. Some analysts also have pointed to the area's growing importance as a result of China's Belt and Road Initiative—previously known as the One Belt, One Road Initiative—which emphasizes energy investments, trade and transit linkages throughout the region. India and China, according to some observers, are competing for influence in Bangladesh, leading to an uptick in Sino-Indo tensions. India, for instance, reportedly is worried that Sino-Bangladeshi energy cooperation has come to exceed Indo-Bangladeshi energy cooperation. Bangladesh's foreign policy seeks to promote trade, economic development, and diplomatic linkages. Dhaka is a member of the Organization of Islamic Cooperation and values close ties with Muslim states, but it remains a relatively moderate Muslim nation. Bangladesh also is a member of the South Asia Association for Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, which aims to foster regional collaboration on trade, poverty reduction, and efforts to counter transnational crime and terrorism. Additionally, Bangladesh is a member of the Bangladesh-China-India Myanmar (BCIM) group—which has proposed an economic corridor to connect Kolkata, India, with Kunming, China, to facilitate a more integrated regional economy. The group has, however, struggled with internal conflicts—especially between China and India—over market access and trade deficits. India Increasingly, according to observers, China and India are competing for influence in Bangladesh, particularly over trade and energy routes in the region. In 2015, Indian Prime Minister Narendra Modi visited Bangladesh, leading to a 65-point Joint Declaration that addressed several issues, including cooperation on energy, "cross border transport connectivity," and "zero tolerance" for terrorism or extremism. The Joint Declaration "recalled with gratitude India's enormous contribution to the glorious Liberation War of Bangladesh in 1971." Also, during the 2015 summit, Bangladesh and India signed an agreement clarifying their common border, thereby removing a source of tension between the two countries. Historically, India has been more supportive of AL governments, given their more secularist outlooks. India has long been concerned about migrants illicitly crossing into its northeast from Bangladesh. Judging from past estimates, since 1971, about 12 million illegal Bangladeshi migrants have arrived in northeast India. Other estimates put the number of illegal Bangladeshi migrants in India between 20 and 30 million. In 2014, over $4 billion in remittances came to Bangladesh from India. India also has expressed concerns about militant groups using Bangladesh as a "springboard for attacks in its territory." Indian Railways, a state-owned company, has been pushing for an "Iron Silk Road"—or a freight corridor connecting the two countries and the wider region. The initiative is, according to some, aimed at countering China's growing strategic influence in South Asia. Yet constructing railways between the two countries has at times proven difficult because there is little available free land. In April 2017, Prime Minister Hasina visited India to meet with Modi. Their two governments signed 22 agreements—including ones dealing with arms sales—and India extended a $4.5 billion "concessional credit line to Bangladesh for priority infrastructure projects." However, water rights between the two countries remain a point of contention, particularly regarding the Teesta River, which flows through both states. China During Bangladesh's war of independence from Pakistan, China supported Pakistan, but in recent years, Bangladesh and China have strengthened their ties. Some commentators in Bangladesh favor pursuing closer ties with China to balance Bangladesh's relationship with India, while others place greater emphasis on pursuing such ties alongside deeper linkages with India and others. Bangladesh became a full member of the Conference on Interaction and Confidence Building Measures in Asia (CICA)—which focuses primarily on regional security cooperation—in May 2014. China and Russia are considered the "dual cores" of the organization; the United States is an observer, but not an official CICA member. The relatively low cost of labor in Bangladesh may make it an increasingly important component of Chinese value chains. In 2014, China announced plans to contribute $40 billion to establish a "Silk Road infrastructure fund to boost connectivity" throughout Asia, and the China Development Bank announced plans to invest $890 billion in hundreds of Belt and Road Initiative (BRI) projects in 60 countries. Bangladesh figures into China's BRI, in part through its membership in the BCIM group, and the two countries recently agreed to enhance their ties to the strategic partnership level. In October 2016, during Chinese President Xi Jinping's visit to Bangladesh, the two countries signed several investment deals totaling $13.6 billion—much of it going to infrastructure projects, including railway construction. Already, China is financing and building the Padma Bridge, Bangladesh's largest infrastructure project. China also is building a network of ports in the Indian Ocean region. Previously, Bangladesh did not pursue negotiations with China about an $8 billion deep water port in Sonadia. Instead, Dhaka chose a Japanese-financed port project. As part of the project, Japan proposed to finance and build a seaport at Matarbari—which is located about 16 miles from Sonadia—along with 4 power plants. Japan has signed agreements with Bangladesh, financing several infrastructure projects, including the Jamuna Railway Bridge and a "mass rapid-transit system in Dhaka." According to some observers, Japan may be trying to "counter the deepening Chinese influence in the Indian Ocean Region." China is Bangladesh's largest trading partner and supplier of military equipment. From 2009 to 2013, according to the Stockholm International Peace Research Institute (SIPRI), 82% of Bangladesh's arms purchases were from China. In 2016, China delivered two Ming -class submarines to Bangladesh. A former admiral in India's navy called the submarine deal a "provocation."

Bangladesh (the former East Pakistan) is a Muslim-majority nation in South Asia, bordering India, Burma, and the Bay of Bengal. It is the world's eighth most populous country with nearly 160 million people living in a land area about the size of Iowa. It is an economically poor nation, and it suffers from high levels of corruption. In recent years, its democratic system has faced an array of challenges, including political violence, weak governance, poverty, demographic and environmental strains, and Islamist militancy. The United States has a long-standing and supportive relationship with Bangladesh, and it views Bangladesh as a moderate voice in the Islamic world. In relations with Dhaka, Bangladesh's capital, the U.S. government, along with Members of Congress, has focused on a range of issues, especially those relating to economic development, humanitarian concerns, labor rights, human rights, good governance, and counterterrorism. The Awami League (AL) and the Bangladesh Nationalist Party (BNP) dominate Bangladeshi politics. When in opposition, both parties have at times sought to regain control of the government through demonstrations, labor strikes, and transport blockades, as well as at the ballot box. Prime Minister Sheikh Hasina has been in office since 2009, and her AL party was reelected in January 2014 with an overwhelming majority in parliament—in part because the BNP, led by Khaleda Zia, boycotted the vote. The BNP has called for new elections, and in recent years, it has organized a series of blockades and strikes. The AL also has moved forward with a war crimes tribunal to prosecute atrocities committed during Bangladesh's war of independence from Pakistan in 1971. Many of the accused have been political opponents of the AL government. There is little optimism among observers that the AL and the BNP will find a compromise over their political differences, and some analysts are concerned that the political crisis could increase the influence of Islamist extremists and further destabilize the country. Bangladeshi authorities have pursued Islamist militants—with some apparent success—but there have been reports of arbitrary detentions and extrajudicial killings. Several militant groups have re-formed after government operations against them, and some allegedly have developed links with international terrorist organizations, such as the Islamic State (IS) and Al Qaeda in the Indian Subcontinent (AQIS). Also, Islamist extremists increasingly have targeted religious and ethnic minorities—as well as foreigners—in Bangladesh. Bangladesh likely will face a range of other challenges, particularly related to its population growth, population density, and environmental degradation—which many experts believe likely will be exacerbated by climate change. Some experts project that millions could be displaced by climate change in the future. In recent years, Rohingya refugees from Burma have fled to Bangladesh to escape persecution. This movement escalated dramatically between August and September 2017 when violence in Burma's Rakhine State led to a new surge of over half a million Rohingya refugees crossing the border into Bangladesh. Much international attention has focused on working conditions in Bangladesh. The country plays a significant role in the global textile-industry supply chain. In 2016, Bangladesh's garment sector accounted for over 80% (or about $25 billion) of the country's exports. About $5.3 billion of those exports went to the United States. However, the industry has come under increased scrutiny, particularly following the 2013 Rana Plaza factory collapse, which killed over 1,000 workers.

Introduction The authorities and responsibilities of the Environmental Protection Agency (EPA) derive primarily from a dozen major environmental statutes. This report provides a concise summary of one of those statutes, the Clean Air Act. It provides a very brief history of federal involvement in air quality regulation and of the provisions added by legislation in 1970, 1977, and 1990; it explains major authorities contained in the act; it defines key terms; and it lists references for more detailed information on the act and its implementation. While this report attempts to present the essence of the act, it is necessarily incomplete. Many details and secondary provisions are omitted. In addition, the report describes the statute largely without discussing its implementation. Statutory deadlines to control emissions and achieve particular mandates have often been missed as a result of delayed standard-setting by EPA, delayed action on implementation by states and local governments, or law suits brought by interested parties. Other CRS products, including CRS Report R44744, Clean Air Act Issues in the 115th Congress: In Brief , and more than a dozen other CRS reports, discuss implementation concerns and current issues. Readers interested in a more comprehensive discussion of the history of the act are referred to CRS Report 83-34, Environmental Protec tion: An Historical Review of the Legislation and Programs of the Environ mental Protection Agency (available by request). Overview The Clean Air Act, codified as 42 U.S.C. 7401 et seq ., seeks to protect human health and the environment from emissions that pollute ambient, or outdoor, air. It requires the Environmental Protection Agency to establish minimum national standards for air quality, and assigns primary responsibility to the states to assure compliance with the standards. Areas not meeting the standards, referred to as "nonattainment areas," are required to implement specified air pollution control measures. The act establishes federal standards for mobile sources of air pollution and their fuels and for sources of 187 hazardous air pollutants, and it establishes a cap-and-trade program for the emissions that cause acid rain. It establishes a comprehensive permit system for all major sources of air pollution. It also addresses the prevention of pollution in areas with clean air and protection of the stratospheric ozone layer. Like many other programs administered by the Environmental Protection Agency, federal efforts to control air pollution have gone through several phases, beginning with information collection, research, and technical assistance, before being strengthened to establish federal standards and enforcement. Federal legislation addressing air pollution was first passed in 1955, prior to which air pollution was the exclusive responsibility of state and local levels of government. The federal role was strengthened in subsequent amendments, notably the Clean Air Act Amendments of 1970, 1977, and 1990. The 1970 amendments established the procedures under which EPA sets national standards for ambient air quality, required a 90% reduction in emissions from new automobiles by 1975, established a program to require the best available control technology at major new sources of air pollution, established a program to regulate air toxics, and greatly strengthened federal enforcement authority. The 1977 amendments adjusted the auto emission standards, extended deadlines for the attainment of air quality standards, and added the Prevention of Significant Deterioration program to protect air cleaner than national standards. Changes to the act in 1990 included provisions to (1) classify most nonattainment areas according to the extent to which they exceed the standard, tailoring deadlines, planning, and controls to each area's status; (2) tighten auto and other mobile source emission standards; (3) require reformulated and alternative fuels in the most polluted areas; (4) revise the air toxics section, establishing a new program of technology-based standards and addressing the problem of sudden, catastrophic releases of air toxics; (5) establish an acid rain control program, with a marketable allowance scheme to provide flexibility in implementation; (6) require a state-run permit program for the operation of major sources of air pollutants; (7) implement the Montreal Protocol to phase out most ozone-depleting chemicals; and (8) update the enforcement provisions so that they parallel those in other pollution control acts, including authority for EPA to assess administrative penalties. The 1990 amendments also authorized appropriations for clean air programs through FY1998. The act has not been reauthorized since then. House rules require enactment of an authorization before an appropriation bill can be considered; but this requirement can be waived and frequently has been. Thus, while authorization of appropriations in the Clean Air Act (and most other environmental statutes) has expired, programs have continued and have been funded. The act's other legal authorities, to issue and enforce regulations, are, for the most part, permanent and are not affected by the lack of authorization. The remainder of this report describes major programs required by the act, with an emphasis on the changes established by the 1990 amendments. National Ambient Air Quality Standards In section 109, the act requires EPA to establish National Ambient Air Quality Standards (NAAQS) for air pollutants that endanger public health or welfare, in the Administrator's judgment, and whose presence in ambient air results from numerous or diverse sources. The NAAQS must be designed to protect public health with an adequate margin of safety and to protect public welfare from any known or anticipated adverse effects. Using this authority, EPA has promulgated NAAQS for six air pollutants or groups of pollutants: sulfur dioxide (SO 2 ), particulate matter (PM 2.5 and PM 10 ), nitrogen dioxide (NO 2 ), carbon monoxide (CO), ozone, and lead. The act requires EPA to review the scientific data upon which the standards are based every five years, and revise the standards, if necessary. More often than not, EPA has taken more than five years in reviewing the standards, but the establishment of a deadline has allowed interested parties to force review of the standards by filing suit. Originally, the act required that the NAAQS be attained by 1977 at the latest, but the states experienced widespread difficulty in complying with this deadline. As a result, the deadlines for achieving NAAQS have been extended several times. Under the 1990 amendments, most areas not in attainment with NAAQS must meet special compliance schedules, staggered according to the severity of an area's air pollution problem. The amendments also established specific requirements for each nonattainment category, as described below. State Implementation Plans While the act authorizes the EPA to set NAAQS, the states are responsible for establishing procedures to attain and maintain the standards. Under Section 110 of the act, the states adopt plans, known as State Implementation Plans (SIPs), and submit them to EPA to ensure that they are adequate to meet statutory requirements. SIPs are based on emission inventories and computer models to determine whether air quality violations will occur. If these data show that standards would be exceeded, the state must impose additional controls on existing sources to ensure that emissions do not cause "exceedances" of the standards. Proposed new and modified sources must obtain state construction permits in which the applicant shows how the anticipated emissions will not exceed allowable limits. In nonattainment areas, emissions from new or modified sources must also be offset by reductions in emissions from existing sources. The 1990 amendments require EPA to impose sanctions in areas which fail to submit a SIP, fail to submit an adequate SIP, or fail to implement a SIP: unless the state corrects such failures, a 2-to-1 emissions offset for the construction of new polluting sources is imposed 18 months after notification to the state, and a ban on most new federal highway grants is imposed six months later. An additional ban on air quality grants is discretionary. Ultimately, a Federal Implementation Plan may be imposed if the state fails to submit or implement an adequate SIP. The amendments also require that, in nonattainment areas, no federal permits or financial assistance may be granted for activities that do not "conform" to a State Implementation Plan. This requirement can cause a temporary suspension in funding for most new highway and transit projects if an area fails to demonstrate that the emissions caused by such projects are consistent with attainment and maintenance of ambient air quality standards. Demonstrating conformity of transportation plans and SIPs is required in nonattainment areas whenever new plans are submitted. Nonattainment Requirements In a major departure from the prior law, the 1990 Clean Air Act Amendments grouped most nonattainment areas into classifications based on the extent to which the NAAQS was exceeded, and established specific pollution controls and attainment dates for each classification. These requirements are described here as spelled out in Sections 181-193 of the act. Nonattainment areas are classified on the basis of a "design value," which is derived from the pollutant concentration (in parts per million or micrograms per cubic meter) recorded by air quality monitoring devices. The design value for the one-hour ozone standard was the fourth highest hourly reading measured during the most recent three-year period. Using these design values, the act created five classes of ozone nonattainment, as shown in Table 2 . Initially, only Los Angeles fell into the "extreme" class, but 97 other areas were classified in one of the other four ozone categories. The classification system and design values have since been adapted twice as the ozone standard has been revised. Under the 2008 standard, there are 41 nonattainment areas as of February 2017, all but seven of which are classified as "marginal" or "moderate" (see Table 3 ). A simpler classification system established moderate and serious nonattainment areas for carbon monoxide and particulate matter with correspondingly more stringent control requirements for the more polluted class. As shown in Table 2 , the statutory attainment deadlines for ozone nonattainment areas stretched from 1993 to 2010, depending on the severity of the problem. Under the current eight-hour ozone standard, shown in Table 3 , these deadlines are changed to 2015 to 2032. For carbon monoxide, the attainment date for moderate areas was December 31, 1995, and for serious areas, December 31, 2000. Since 2010, there have been no carbon monoxide nonattainment areas. For particulate matter, the deadline for areas designated moderate nonattainment as of 1990 was December 31, 1994; for those areas subsequently designated as moderate, the deadline is six years after designation. For serious areas, the respective deadlines are December 31, 2001, or 10 years after designation. Requirements for Ozone Nonattainment Areas Although areas with more severe air pollution problems have a longer time to meet the standards, more stringent control requirements are imposed in areas with worse pollution. A summary of the primary ozone control requirements for each nonattainment category follows. Marginal Areas Inventory emissions sources (to be updated every three years). Require 1.1 to 1 offsets (i.e., new major emission sources of volatile organic compounds [VOCs] must reduce VOC emissions from existing facilities in the area by 10% more than the emissions of the new facility). Impose reasonably available control technology (RACT) on all major sources emitting more than 100 tons per year for the nine industrial categories where EPA had already issued control technique guidelines describing RACT prior to 1990. Moderate Areas Meet all requirements for marginal areas. Impose a 15% reduction in VOC emissions in six years. Adopt a basic vehicle inspection and maintenance program. Impose RACT on all major sources emitting more than 100 tons per year for all additional industrial categories where EPA will issue control technique guidelines describing RACT. Require vapor recovery at gas stations selling more than 10,000 gallons per month. Require 1.15 to 1 offsets. Serious Areas Meet all requirements for moderate areas. Reduce definition of a major source of VOCs from emissions of 100 tons per year to 50 tons per year for the purpose of imposing RACT. Reduce VOCs 3% annually for years 7 to 9 after the 15% reduction already required by year 6. Improve monitoring, in order to obtain more comprehensive and representative data on ozone pollution. Adopt an enhanced vehicle inspection and maintenance program. Require fleet vehicles to use clean alternative fuels. Adopt transportation control measures if the number of vehicle miles traveled in the area is greater than expected. Require 1.2 to 1 offsets. Adopt contingency measures if the area does not meet required VOC reductions. Severe Areas Meet all requirements for serious areas. Reduce definition of a major source of VOCs from emissions of 50 tons per year to 25 tons per year for the purpose of imposing RACT. Adopt specified transportation control measures. Implement a reformulated gasoline program. Require 1.3 to 1 offsets. Impose $5,000 per ton penalties on major sources if the area does not meet required reductions. Extreme Areas Meet all requirements for severe areas. Reduce definition of a major source of VOCs from emissions of 25 tons per year to 10 tons per year for the purpose of imposing RACT. Require clean fuels or advanced control technology for boilers emitting more than 25 tons per year of NO x . Require 1.5 to 1 offsets. Requirements for Carbon Monoxide Nonattainment Areas As with ozone nonattainment areas, carbon monoxide (CO) nonattainment areas are subjected to specified control requirements, with more stringent requirements in Serious nonattainment areas. A summary of the primary CO control requirements for each nonattainment category follows. Moderate Areas Conduct an inventory of emissions sources. Forecast total vehicle miles traveled in the area. Adopt an enhanced vehicle inspection and maintenance program. Demonstrate annual improvements sufficient to attain the standard. Serious Areas Adopt specified transportation control measures. Implement an oxygenated fuels program for all vehicles in the area. Reduce definition of a major source of CO from emissions of 100 tons per year to 50 tons per year if stationary sources contribute significantly to the CO problem. Serious areas failing to attain the standard by the deadline had to revise their SIP and demonstrate reductions of 5% per year until the standard was attained. As stated earlier, all areas have now attained the standard. Requirements for Particulate Nonattainment Areas Particulate (PM 10 ) nonattainment areas are also subject to specified control requirements. These are: Moderate Areas Require permits for new and modified major stationary sources of PM 10 . Impose reasonably available control measures (RACM). Serious Areas Impose best available control measures (BACM). Reduce definition of a major source of PM 10 from 100 tons per year to 70 tons per year. In July 1997, EPA promulgated new standards for fine particulates (PM 2.5 ). Implementation of the PM 2.5 standards was delayed by court challenges and by the initial absence of a monitoring network capable of measuring the pollutant. Nonattainment areas for PM 2.5 were designated on April 14, 2005. States had three years subsequent to designation to submit State Implementation Plans. Revisions to the NAAQS promulgated in October 2006 and January 2013 strengthened the PM 2.5 standard and triggered new rounds of nonattainment area designations. Transported Air Pollution Meeting the nation's clean air standards can be complicated, as air pollution is no respecter of political boundaries or subdivisions. This problem of transported air pollutants has come into particular focus as states and EPA attempt to develop effective compliance strategies to achieve both the ozone and the PM 2.5 NAAQS. Under Section 110(a)(2)(D), SIPs must include adequate provisions to prevent sources within that state from contributing significantly to nonattainment in one or more downwind states. This provision is often referred to as the act's "good neighbor" provision. If EPA finds a SIP inadequate to achieve a NAAQS, it must require the affected state to submit a revised SIP that includes sufficient measures to bring that state into compliance. This is known as a "SIP Call." The 1990 Clean Air Act amendments provided EPA and the states with new tools to address the transport problem through this provision. One of those tools is Section 176A, a provision that permits the EPA, either on its own or by petition from any state, to establish a transport region to address regional pollution problems contributing to violations of a primary NAAQS. A commission of EPA and state officials is constituted to make recommendations to EPA on appropriate mitigation strategies. Based on the commission's findings and recommendations, EPA is then required under section 110(k)(5) to notify affected states of inadequacies in their current state implementation plans and to establish deadlines (not to exceed 18 months) for submitting necessary revisions. Besides authorizing administratively-created transport regions, the 1990 amendments statutorily created an Ozone Transport Region (OTR) in the Northeast. This provision (Section 184 of the act) required specific additional controls for all areas (not only nonattainment areas) in that region, and established the Ozone Transport Commission for the purpose of recommending to EPA regionwide controls affecting all areas in the region. The transport issue may also be addressed by affected downwind states through a Section 126 petition. As amended by the 1990 Clean Air Act amendments, under Section 126(b) any state or political subdivision may petition EPA for a finding that a major source or group of stationary sources located in another state is emitting pollutants that "significantly contribute" to the nonattainment of a NAAQS by their state. EPA is to respond to the petition within 60 days. If the petition is granted, the offending sources must cease operations within three months unless the sources comply with emission controls and the compliance schedules as determined by EPA to bring them into compliance with the section. Section 126 has rarely been used, although it has proven useful to EPA in some cases as backup authority where there might be challenges to a SIP call. Emission Standards for Mobile Sources Title II of the Clean Air Act has required emission standards for automobiles since 1968. The 1990 amendments significantly tightened these standards: for light-duty vehicles (a category that includes cars, SUVs, minivans, and most pickup trucks), the hydrocarbon standard was reduced by 40% and the nitrogen oxides (NO x ) standard by 50%. These standards—referred to as "Tier 1" standards—were phased in over the 1994-1996 model years. The amendments envisioned a further set of reductions ("Tier 2" standards), but not before model year 2004. For Tier 2 standards to be promulgated, the agency was first required to report to Congress concerning the need for further emission reductions, the availability of technology to achieve such reductions, and the cost-effectiveness of such controls compared to other means of attaining air quality standards. EPA submitted this report to Congress in August 1998, concluding that further emission reductions were needed and that technology to achieve such reductions was available and cost-effective. Tier 2 standards, requiring emission reductions of 77% to 95% from cars and light trucks were promulgated in February 2000, and were phased in over the 2004-2009 model years. To facilitate the use of more effective emission controls, the standards also required a more than 90% reduction in the sulfur content of gasoline, beginning in 2004. In 2014, EPA completed a similar process to impose "Tier 3" standards on light duty vehicles and gasoline. The Tier 3 standards, which are being phased in between 2017 and 2025, will require further reductions of 70-80% in emissions, as compared to Tier 2, and have already cut the remaining sulfur in gasoline by two-thirds. The 1990 amendments also required that oxygenated gasoline, designed to reduce emissions of carbon monoxide, be sold in the worst CO nonattainment areas and that "reformulated" gasoline (RFG), designed to reduce emissions of volatile organic compounds and toxic air pollutants, be sold in the nine worst ozone nonattainment areas (Los Angeles, San Diego, Houston, Baltimore, Philadelphia, New York, Hartford, Chicago, and Milwaukee); metropolitan Washington DC and four areas in California were added to the mandatory list later. Other ozone nonattainment areas can opt in to the RFG program; additional areas in 14 states have done so, although several subsequently opted out. The fuels provisions were modified by the Energy Policy Act of 2005 (EPACT), removing the requirement that RFG contain oxygenates. Instead, EPACT required the use of increasing amounts of renewable fuel, most likely to be ethanol, in motor fuels, beginning in 2006. The Energy Independence and Security Act of 2007 further strengthened the renewable fuel requirements. Use of alternative fuels and development of cleaner engines was also to be stimulated by the Clean-Fuel Fleet Program. In all of the most seriously polluted ozone and CO nonattainment areas, centrally fueled fleets of 10 or more passenger cars and light-duty trucks had to purchase at least 30% clean-fuel vehicles when they add new vehicles to existing fleets, starting in 1999. (The act originally required the program to begin in 1998, but the start was delayed by a year.) The percentage rose to 50% in 2000 and 70% in 2001. Heavy-duty fleets were required to purchase at least 50% clean-fuel vehicles annually. A clean fuel vehicle is one which meets Low Emission Vehicle (LEV) standards and operates on reformulated gasoline, reformulated diesel, methanol, ethanol, natural gas, liquefied petroleum gas, hydrogen, or electricity. In addition to the above program, California's Zero Emission Vehicle (ZEV) program also is intended to promote the development of alternative fuels and vehicles. Section 209(b) of the Clean Air Act allows the EPA Administrator to grant California the authority to develop its own vehicle emissions standards if those standards are at least as stringent as the federal standards and if the state demonstrates that it needs the standards to meet compelling and extraordinary conditions. In addition to setting more stringent standards for all vehicles, California used this authority to establish a program requiring auto manufacturers to sell ZEVs (electric or hydrogen fuel cell vehicles) in the state beginning in 2003. This program has been substantially modified since it was enacted, and now allows credit for hybrid and partial ZEV vehicles in addition to true ZEVs, but it has served as an incubator for lower emission technologies since its adoption. Section 177 of the act allows other states to adopt California's stricter standards: 13 states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington) and the District of Columbia have adopted them. The 1990 amendments also imposed tighter requirements on emissions allowed during refueling, on low temperature CO emissions, on in-use performance over time, on warranties for the most expensive emission control components (8 years/80,000 miles for the catalytic converter, electronic emissions control unit, and onboard emissions diagnostic unit), and on certification (an auto's useful life was defined as 100,000 miles instead of the earlier 50,000 miles—a figure since increased through regulation to 120,000 or 150,000 miles depending on the standards). Regulations were also extended to include nonroad fuels and engines. Standards for trucks and buses using diesel engines were also strengthened. The 1990 amendments required new urban buses to reduce emissions of diesel particulates 92% by 1996, and all other heavy-duty diesel engines to achieve an 83% reduction by the same year. NO x emissions must also be reduced, 33% by 1998. Authority to further strengthen these standards led to promulgation in January 2001 of new emission standards requiring a further 90%-95% reduction in emissions phased in over the 2007-2010 model years, and a reduction of 97% in the allowable amount of sulfur in highway diesel fuel. These regulations were followed in May 2004 by similar requirements for nonroad diesel equipment, which were phased in between 2007 and 2015. In addition to the CAA's specific requirements discussed above, Section 202 of the act requires the EPA Administrator to prescribe "standards applicable to the emission of any air pollutant [emphasis added] from any class or classes of new motor vehicles or new motor vehicle engines, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare." Beginning in 2010, this language has been used to authorize standards for greenhouse gas (GHG) emissions from cars and trucks. EPA has promulgated two rounds of GHG standards for light duty vehicles, covering model years 2012-2025, and two rounds of GHG standards for medium- and heavy-duty trucks, covering model years 2014-2027. Hazardous Air Pollutants Completely rewritten by the Clean Air Act Amendments of 1990, Section 112 of the act establishes programs for protecting public health and the environment from exposure to toxic air pollutants. As revised by the 1990 amendments, the section contains four major provisions: Maximum Achievable Control Technology (MACT) requirements; health-based standards; Generally Available Control Technology (GACT) standards for stationary "area sources" (small, but numerous sources, such as gas stations or dry cleaners, that collectively emit significant quantities of hazardous pollutants); and requirements for the prevention of catastrophic releases. First, EPA is to establish technology-based emission standards, called MACT standards, for sources of 187 pollutants listed in the legislation, and to specify categories of sources subject to the emission standards. EPA is to revise the standards periodically (at least every eight years). EPA can, on its own initiative or in response to a petition, add or delete substances or source categories from the lists. Section 112 establishes a presumption in favor of regulation for the designated chemicals; it requires regulation of a designated pollutant unless EPA or a petitioner is able to show "that there is adequate data on the health and environmental effects of the substance to determine that emissions, ambient concentrations, bioaccumulation or deposition of the substance may not reasonably be anticipated to cause any adverse effects to human health or adverse environmental effects." EPA is required to set standards for sources of the listed pollutants that achieve "the maximum degree of reduction in emissions" taking into account cost and other non-air-quality factors. These MACT standards for new sources "shall not be less stringent than the most stringent emissions level that is achieved in practice by the best controlled similar source." The standards for existing sources may be less stringent than those for new sources, but must be no less stringent than the emission limitations achieved by either the best performing 12% of existing sources (if there are more than 30 such sources in the category or subcategory) or the best performing 5 similar sources (if there are fewer than 30). Existing sources are given three years following promulgation of standards to achieve compliance, with a possible one-year extension; additional extensions may be available for special circumstances or for certain categories of sources. Existing sources that achieve voluntary early emissions reductions received a six-year extension for compliance with MACT. The second major provision of Section 112 directs EPA to set health-based standards to address situations in which a significant residual risk of adverse health effects or a threat of adverse environmental effects remains after installation of MACT. This provision requires that EPA, after consultation with the Surgeon General of the United States, submit a report to Congress on the public health significance of residual risks, and recommend legislation regarding such risks. If Congress does not legislate in response to EPA's recommendations, then EPA is required to issue standards for categories of sources of hazardous air pollutants as necessary to protect the public health with an ample margin of safety or to prevent an adverse environmental effect. A residual risk standard is required for any source emitting a cancer-causing pollutant that poses an added risk to the most exposed person of more than one-in-a-million. Residual risk standards are due eight years after promulgation of MACT for the affected source category. Existing sources have 90 days to comply with a residual risk standard, with a possible two-year extension. In general, residual risk standards do not apply to area sources. The law directed EPA to contract with the National Academy of Sciences (NAS) for a study of risk assessment methodology, and created a Risk Assessment and Management Commission to investigate and report on policy implications and appropriate uses of risk assessment and risk management. In 1994 NAS published its report, Science and Judgment in Risk Assessment . The Commission study, Framework for Environmental Health Risk Management , was released in 1997. Third, in addition to the technology-based and health-based programs for major sources of hazardous air pollution, EPA is to establish standards for stationary "area sources" determined to present a threat of adverse effects to human health or the environment. The provision requires EPA to regulate the stationary area sources responsible for 90% of the emissions of the 30 hazardous air pollutants that present the greatest risk to public health in the largest number of urban areas. In setting the standard, EPA can impose less stringent "generally available" control technologies, rather than MACT. Finally, Section 112 addresses prevention of sudden, catastrophic releases of air toxics by establishing an independent Chemical Safety and Hazard Investigation Board. The Board is responsible for investigating accidents involving releases of hazardous substances, conducting studies, and preparing reports on the handling of toxic materials and measures to reduce the risk of accidents. EPA is also directed to issue prevention, detection, and correction requirements for catastrophic releases of air toxics by major sources. Section 112(r) requires owners and operators to prepare risk management plans including hazard assessments, measures to prevent releases, and a response program. New Source Performance Standards Section 111 of the act requires EPA to establish nationally uniform, technology-based standards (called New Source Performance Standards, or NSPS) for categories of new industrial facilities. These standards accomplish two goals: first, they establish a consistent baseline for pollution control that competing firms must meet, and thereby remove any incentive for states or communities to weaken air pollution standards in order to attract polluting industry; and second, they preserve clean air to accommodate future growth, as well as for its own benefits. NSPS establish maximum emission levels for new major stationary sources—power plants, steel mills, and smelters, for example—with the emission levels determined by the best system of emission reduction (BSER) "adequately demonstrated," taking costs into account. At least every eight years, EPA must review and, if appropriate, revise NSPS applicable to designated sources, since the goal is to prevent new pollution problems from developing and to force the installation of new control technology. The standards also apply to modifications of existing facilities, through a process called New Source Review (NSR). The law's ambiguity regarding what constitutes a modification (subject to NSR) as opposed to routine maintenance of a facility has led to litigation, with EPA proposing in recent years to modify its interpretation of the requirements of this section. Section 111 can also be used to set standards for existing stationary sources of pollution. Under Section 111(d), EPA is to require the states to submit plans establishing standards of performance for existing sources that would be subject to NSPS if they were new, unless the sources or the pollutants regulated by the NSPS are already subject to standards under other sections of the act. This authority has rarely been used, because most pollutants and sources are subject to regulation under other sections of the act; but it served as the basis of EPA's Clean Power Plan for greenhouse gas emissions from existing fossil-fueled power plants, promulgated in 2015. Solid Waste Incinerators Prior to 1990, solid waste incinerators, which emit a wide range of pollutants, were subject to varying degrees of state and federal regulation depending on their size, age, and the type of waste burned. In a new Section 129, the 1990 amendments established more consistent federal requirements specifying that emissions of 10 categories of pollutants be regulated at new and existing incinerators burning municipal solid waste, medical waste, and commercial and industrial waste. The amendments also established emissions monitoring and operator training requirements. Prevention of Significant Deterioration / Regional Haze Sections 160-169 of the act establish requirements for the prevention of significant deterioration of air quality (PSD). The PSD program reflects the principle that areas where air quality is better than that required by NAAQS should be protected from significant new air pollution even if NAAQS would not be violated. The act divides clean air areas into three classes, and specifies the increments of sulfur dioxide (SO 2 ) and particulate pollution allowed in each. Class I areas include international and national parks, wilderness and other pristine areas; allowable increments of new pollution are very small. Class II areas include all attainment and not classifiable areas, not designated as Class I; allowable increments of new pollution are modest. Class III represents selected areas that states may designate for development; allowable increments of new pollution are large (but not so large that the area would exceed NAAQS). Through an elaborate hearing and review process, a state can have regions redesignated from Class II to Class III (although no Class III areas have yet been designated). While the 1977 amendments only stipulated PSD standards for two pollutants, SO 2 and particulates, EPA is supposed to establish standards for other criteria pollutants. Thus far, only one of the other four (NO 2 ) has been addressed: the agency promulgated standards for NO 2 in 1988. Newly constructed polluting sources in PSD areas must install best available control technology (BACT) that may be more strict than that required by NSPS. The justifications of the policy are that it protects air quality, provides an added margin of health protection, preserves clean air for future development, and prevents firms from gaining a competitive edge by "shopping" for clean air to pollute. In Sections 169A and B, the act also sets a national goal of preventing and remedying impairment of visibility in national parks and wilderness areas, and requires EPA to promulgate regulations to assure reasonable progress toward that goal. In the 1990 Amendments, Congress strengthened these provisions, which had not been implemented. The amendments required EPA to establish a Grand Canyon Visibility Transport Commission, composed of Governors from each state in the affected region, an EPA designee, and a representative of each of the national parks or wilderness areas in the region. Other visibility transport commissions can be established upon EPA's discretion or upon petition from at least two states. Within 18 months of receiving a report from one of these commissions, EPA is required to promulgate regulations to assure reasonable progress toward the visibility goal, including requirements that states update their State Implementation Plans to contain emission limits, schedules of compliance, and other measures necessary to make reasonable progress. Specifically mentioned is a requirement that states impose Best Available Retrofit Technology on existing sources of emissions impairing visibility. The Grand Canyon Commission delivered a set of recommendations to EPA in June 1996, and the agency subsequently promulgated a "regional haze" program applicable to all 50 states under this authority. Acid Deposition Control The Clean Air Act Amendments of 1990 added an acid deposition control program (Title IV) to the act. It set goals for the year 2000 of reducing annual SO 2 emissions by 10 million tons from 1980 levels and reducing annual NO x emissions by 2 million tons, also from 1980 levels. The SO 2 reductions were imposed in two steps. Under Phase 1, owners/operators of 110 high-emitting electric generating facilities listed in the law had to meet tonnage emission limitations by January 1, 1995. This would reduce SO 2 emissions by about 3.5 million tons. Phase 2 included facilities with a nameplate capacity greater than or equal to 75 megawatts, with a deadline of January 1, 2000. Compliance was 100%. To introduce some flexibility in the distribution and timing of reductions, the act creates a comprehensive permit and emissions allowance system. An allowance is a limited authorization to emit a ton of SO 2 . Issued by EPA, the allowances would be allocated to Phase 1 and Phase 2 units in accordance with baseline emissions estimates. Power plants which commence operation after November 15, 1990 would not receive any allowances. These new units would have to obtain allowances (offsets) from holders of existing allowances. Allowances were allowed to be traded nationally during either phase. The law also permitted industrial sources and power plants to sell allowances to utility systems under regulations developed by EPA. Allowances were allowed to be banked by a utility for future use or sale. The act provided for two types of sales to improve the liquidity of the allowance system and to ensure the availability of allowances for utilities and independent power producers who need them. First, a special reserve fund consisting of 2.8% of Phase 1 and Phase 2 allowance allocations was set aside for sale. Allowances from this fund (25,000 annually from 1993 to 1999 and 50,000 thereafter) were sold at a fixed price of $1,500 an allowance. Independent power producers had guaranteed rights to these allowances under certain conditions. Second, an annual, open auction sold allowances (150,000 from 1993 to 1995, and 250,000 from 1996 to 1999) with no minimum price. Utilities with excess allowances could have them auctioned off at this auction, and any person could buy allowances. The act essentially capped SO 2 emissions at individual existing sources through a tonnage limitation, and at future plants through the allowance system. First, emissions from most existing sources were capped at a specified emission rate times an historic baseline level. Second, for plants commencing operation after November 15, 1990, emissions had to be completely offset with additional reductions at existing facilities beginning after Phase 2 compliance. However, as noted above, the law provided some allowances to future power plants which met certain criteria. The utility SO 2 emission cap was set at 8.9 million tons, with some exceptions. The act provided that if an affected unit did not have sufficient allowances to cover its emissions, it would be subject to an excess emission penalty of $2,000 per ton of SO 2 and required to reduce an additional ton of SO 2 the next year for each ton of excess pollutant emitted. The act also required EPA to inventory industrial emissions of SO 2 and to report every five years, beginning in 1995. If the inventory showed that industrial emissions may reach levels above 5.60 million tons per year, then EPA was to take action under the act to ensure that the 5.60 million ton cap would not be exceeded. The act required EPA to set specific NO x emission rate limitations—0.45 lb. per million Btu for tangentially-fired boilers and 0.50 lb. per million Btu for wall-fired boilers—unless those rates cannot be achieved by low-NO x burner technology. Tangentially and wall-fired boilers affected by Phase 1 SO 2 controls must also meet NO x requirements. EPA was to set emission limitations for other types of boilers by 1997 based on low-NO x burner costs, which EPA did. In addition, EPA was to propose and promulgate a revised new source performance standard for NO x from fossil fuel steam generating units, which EPA also did, in 1998. In 2005, 2011, and 2016, EPA used the authority described in the section on "Transported Air Pollution" to further lower the caps on SO 2 and NO x emissions in the eastern half of the country. As a result, SO 2 and NO x emissions have been reduced by at least a further 50% since 2005. Permits The Clean Air Act Amendments of 1990 added a Title V to the act which requires states to administer a comprehensive permit program for the operation of sources emitting air pollutants. These requirements are modeled after similar provisions in the Clean Water Act. Previously, the Clean Air Act contained limited provision for permits, requiring only new or modified major stationary sources to obtain construction permits (under Section 165 of the act). Sources subject to the permit requirements generally include major sources that emit or have the potential to emit 100 tons per year of any regulated pollutant, plus stationary and area sources that emit or have potential to emit lesser specified amounts of hazardous air pollutants. However, in nonattainment areas, the permit requirements also include sources which emit as little as 50, 25, or 10 tons per year of VOCs, depending on the severity of the region's ozone nonattainment status (serious, severe, or extreme). States were required to develop permit programs and to submit those programs for EPA approval by November 15, 1993. EPA had one year to approve or disapprove a state's submission in whole or in part. After the effective date of a state plan, sources had 12 months to submit an actual permit application. States are to collect annual fees from sources sufficient to cover the "reasonable costs" of administering the permit program, with revenues to be used to support the agency's air pollution control program. The fee must be at least $25 per ton of regulated pollutants (excluding carbon monoxide). Permitting authorities have discretion not to collect fees on emissions in excess of 4,000 tons per year and may collect other fee amounts, if appropriate. The permit states how much of which air pollutants a source is allowed to emit. As a part of the permit process, a source must prepare a compliance plan and certify compliance. The term of permits is limited to no more than five years; sources are required to renew permits at that time. State permit authorities must notify contiguous states of permit applications that may affect them; the application and any comments of contiguous states must be forwarded to EPA for review. EPA can veto a permit; however, this authority is essentially limited to major permit changes. EPA review need not include permits which simply codify elements of a state's overall clean air plan, and EPA has discretion to not review permits for small sources. Holding a permit to some extent shields a source from enforcement actions: the act provides that a source cannot be held in violation if it is complying with explicit requirements addressed in a permit, or if the state finds that certain provisions do not apply to that source. Enforcement Section 113 of the act, which was also strengthened by the 1990 amendments, covers enforcement. The section establishes federal authority to issue agency and court orders requiring compliance and to impose penalties for violations of Act requirements. Section 114 authorizes EPA to require sources to submit reports, monitor emissions, and certify compliance with the act's requirements, and authorizes EPA personnel to conduct inspections. Like most federal environmental statutes, the Clean Air Act is enforced primarily by states or local governments; they issue most permits, monitor compliance, and conduct the majority of inspections. The federal government functions as a backstop, with authority to review state actions. The agency may act independently or may file its own enforcement action in cases where it concludes that a state's response was inadequate. The act also provides for citizen suits both against persons (including corporations or government agencies) alleged to have violated emissions standards or permit requirements, and against EPA in cases where the Administrator has failed to perform an action that is not discretionary under the act. Citizen groups have often used the latter provision to compel the Administrator to promulgate regulations required by the statute. The 1990 Amendments elevated penalties for some knowing violations from misdemeanors to felonies; removed the ability of a source to avoid an enforcement order or civil penalty by ceasing a violation within 60 days of notice; gave authority to EPA to assess administrative penalties; and authorized $10,000 awards to persons supplying information leading to convictions under the act. Stratospheric Ozone Protection Title VI of the 1990 Clean Air Act Amendments represents the United States' primary response on the domestic front to the stratospheric ozone depletion issue. It also implements the U.S. international responsibilities under the Montreal Protocol on Substances that Deplete the Ozone Layer (and its amendments). Indeed, Section 606(a)(3) provides that the Environmental Protection Agency shall adjust phase-out schedules for ozone-depleting substances in accordance with any future changes in Montreal Protocol schedules. As a result, the phase-out schedules contained in Title VI for various ozone-depleting compounds have now been superseded by subsequent amendments to the Montreal Protocol. Since passage of Title VI, depleting substances such as CFCs, methyl chloroform, carbon tetrachloride, and halons (referred to as Class 1 substances) have been phased out by industrial countries, including the United States. New uses of hydrochlorofluorocarbons (HCFCs) (called Class 2 substances under Title VI) were banned beginning January 1, 2015, unless the HCFCs are recycled, used as a feedstock, or used as a refrigerant for appliances manufactured prior to January 1, 2020. Production of HCFCs is to be frozen January 1, 2015 and phased out by January 1, 2030. Exemptions consistent with the Montreal Protocol are allowed. The EPA is required to add any substance with an ozone depletion potential (ODP) of 0.2 or greater to the list of Class 1 substances and set a phase-out schedule of no more than seven years. For example, methyl bromide (ODP estimated by EPA at 0.7) was added to the list in December 1993, requiring its phaseout by January 1, 2001; this decision was altered by Congress in 1998 to harmonize the U.S. methyl bromide phase-out schedule with the 2005 deadline set by the parties to the Montreal Protocol in 1997. Also, EPA is required to add any substance that is known or may be reasonably anticipated to harm the stratosphere to the list of Class 2 substances and set a phase-out schedule of no more than ten years. Title VI contains several implementing strategies to avoid releases of ozone-depleting chemicals to the atmosphere, including (1) for Class 1 substances used as refrigerants—lowest achievable level of use and emissions, maximum recycling, and safe disposal required by July 1, 1992; (2) for servicing or disposing refrigeration equipment containing Class 1 and 2 substances—venting banned as of July 1, 1992; (3) for motor vehicle air conditioners containing Class 1 or 2 substances—recycling required by January 1, 1992 (smaller shops by January 1, 1993); (4) sale of small containers of class 1 and 2 substances—banned within two years of enactment; and (5) nonessential products—banned within two years of enactment. Selected References U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Air Trends . Compiled annually, and available at http://www.epa.gov/airtrends/ . Julie R. Domike and Alec Chatham Zacaroli (eds.), The Clean Air Act Handbook , 4 th edition (Chicago: American Bar Association) 2016, 864 p. CRS Report R43699, Key Historical Court Decisions Shaping EPA's Program Under the Clean Air Act , by [author name scrubbed] and [author name scrubbed]. CRS Report R44744, Clean Air Act Issues in the 115th Congress: In Brief , by [author name scrubbed].

This report summarizes the Clean Air Act and its major regulatory requirements. It excerpts, with minor modifications, the Clean Air Act chapter of CRS Report RL30798, Environmental Laws: Summaries of Major Statutes Administered by the Environmental Protection Agency, which summarizes a dozen environmental statutes that form the basis for the programs of the Environmental Protection Agency. The principal statute addressing air quality concerns, the Clean Air Act was first enacted in 1955, with major revisions in 1970, 1977, and 1990. The act requires EPA to set health-based standards for ambient air quality, sets deadlines for the achievement of those standards by state and local governments, and requires EPA to set national emission standards for large or ubiquitous sources of air pollution, including motor vehicles, power plants, and other industrial sources. In addition, the act mandates emission controls for sources of 187 hazardous air pollutants, establishes a cap-and-trade program to limit acid rain, requires the prevention of significant deterioration of air quality in areas with clean air, requires a program to restore visibility impaired by regional haze in national parks and wilderness areas, and implements the Montreal Protocol to phase out most ozone-depleting chemicals. This report describes the act's major provisions and provides tables listing all major amendments, with the year of enactment and Public Law number, and cross-referencing sections of the act with the major U.S. Code sections of the codified statute.

Introduction One of the primary tasks of the Federal Communications Commission (FCC) is to encourage the deployment of broadband throughout the United States. Broadband technology is now available over a wide array of delivery systems including cable, wireless, telephone, and fiber optic networks. The FCC moved, in recent years, to ease some of the regulatory burdens inherent in erecting new broadband facilities within the current legal framework. Congress has also taken steps to encourage the deployment of wireless facilities. This report will discuss some of the important legal developments related to broadband facilities deployment. Federal Law Governing the Placement of Wireless Telecommunications Facilities Section 704 of the Telecommunications Act of 1996 governs federal, state, and local regulation of the siting of "personal wireless service facilities" or cellular communication towers. Under the 1996 act, state and local governments are prohibited from unreasonably discriminating among "providers of functionally equivalent services." This prohibition has been interpreted to provide state and local governments with the "flexibility to treat facilities that create different visual, aesthetic, or safety concerns differently to the extent permitted under generally applicable zoning requirements even if those facilities provide functionally equivalent services." However, state and local governments cannot adopt policies that prohibit or have the effect of prohibiting the provision of personal wireless services. This provision not only applies to outright bans on tower siting, but also to situations where a state or local government's "criteria or their administration effectively preclude towers no matter what the carrier does." In these cases, the carrier must show "not just that this application has been rejected but that further reasonable efforts are so likely to be fruitless that it is a waste of time even to try." The act also prescribes certain procedures that a state or local government must follow when reviewing a request to place, construct, or modify personal wireless service facilities. The state or local government must "act on any request for authorization to place, construct or modify personal wireless service facilities within a reasonable period of time after the request is duly filed." If the state or local government denies the request, the denial must be in writing and supported by "substantial evidence contained in a written record." Substantial evidence has been defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Recently, Section 6409(a) of the Middle Class Tax Relief and Job Creation Act of 2012 contained a provision that appears intended to streamline the local approval process by easing restrictions on what is known as "collocation." State and local governments now must grant the requests for modifications of existing wireless towers or base stations if the request would not substantially change the physical dimensions of the tower or base station. No definition is provided in the statute for the terms "tower" or "base station." Furthermore, no definition is provided for what it might mean to "substantially change the physical dimensions" of a tower. These ambiguities may cause difficulty in applying the new provision to future collocation requests. However, ambiguities may be resolved either by federal courts or by the FCC in a rulemaking to define the terms. Assuming that the new exception does not apply to an application to site a new tower, courts have found that aesthetics may constitute a valid basis for the denial of a wireless permit so long as there is substantial evidence of the adverse visual impact of the proposed tower. In fact, according to one court, "nothing in the Telecommunications Act forbids local authorities from applying general and nondiscriminatory standards derived from their zoning codes, and ... aesthetic harmony is a prominent goal underlying almost every such code." Federal courts therefore have routinely upheld the denials of applications to construct wireless towers where the decisions of local entities were in writing and based on evidence that the tower would diminish property values, reduce the ability of property owners in the vicinity of the proposed tower to enjoy their property, or damage the scenic qualities of the proposed location. However, generalized aesthetic concerns will not be considered "substantial evidence" to support the denial of a permit. For example, the Seventh Circuit upheld the reversal of a denial of a petition based on aesthetic concerns where the only evidence that the proposed tower would be unsightly was the testimony of a few residents that they did not like poles in general, and those residents admitted that they had no objection to flagpoles, the proposed disguise for the wireless tower. Blanket opposition to poles could not constitute "substantial evidence," in the opinion of the court. Many community groups also oppose the siting of towers based on health and environmental concerns. However, the Telecommunications Act of 1996 prohibits state and local governments from regulating the placement of personal wireless service facilities on the basis of the effects of radio frequency emissions if the facility in question complies with the Federal Communications Commission's regulations concerning such emissions. "As written, the purpose of the requirement is to prevent telecommunications siting decisions from being based upon unscientific or irrational fears that emissions from the telecommunications sites may cause undesirable health effects." Courts have enforced this provision of the act and have noted that "concerns of health risks due to the emissions may not constitute substantial evidence in support of denial." The FCC announced that it would be reviewing its regulations concerning radio frequency emissions in the coming months. The act also provides for the appeal of a state or local government's denial of a request to place, construct, or modify a facility. Section 704(c) of the Telecommunications Act provided that within 180 days of the enactment of the act, "the President or his designee shall prescribe procedures by which Federal departments and agencies may make available on a fair, reasonable, and nondiscriminatory basis, property, rights-of-way, and easements under their control for the placement of new telecommunications services." President Clinton issued a memorandum on August 10, 1995, directing the Administrator of General Services, "in consultation with the Secretaries of Agriculture, Interior, Defense, and the heads of such other agencies as the Administrator may determine, to develop procedures necessary to facilitate appropriate access to Federal property for the siting of mobile services antennas." The General Services Administration published procedures for the placement of commercial antennas on federal property in the Federal Register on March 29, 1996. On March 14, 2007, the General Services Administration published updated procedures for the placement of commercial antennas on federal property in the Federal Register. The agency also declared that these replacement procedures should remain in effect indefinitely. However, in 2012, Congress required the Administrator of General Services to refine the process for granting easements for wireless infrastructure on federal property. Section 6409 of the Middle Class Tax Relief and Job Creation Act of 2012 contained provisions intended to standardize and facilitate the placement of towers on federal property. First Section 6409(b) granted the authority for placing towers on buildings controlled by federal agencies to the agencies controlling that building or property. The Administrator of General Services is required to develop a standard application for easements related to siting wireless towers on federally controlled property, which can be used for submission to the agency that controls that property and will be in charge of granting the easement. The General Services Administration is also required by Section 6409(c) to develop master contracts for wireless facilities siting. The contracts will govern the placement of wireless antenna structures on buildings and other property owned by the federal government. In developing the contracts, the GSA is required to standardize the treatment of the placement of wireless antennae on federal property, among other considerations. The FCC's November 2009 Declaratory Ruling: What Constitutes Unreasonable Delay? In 2008, The Wireless Association (CTIA) asked the FCC to issue a declaratory ruling to define the length of time that local authorities had, under federal law, to permit or to deny an application to site a new wireless tower. To that end, CTIA filed a petition with the Commission requesting a declaratory ruling clarifying the provisions of the Communications Act that apply to the siting of wireless facilities, particularly 47 U.S.C. §332(c)(7). CTIA, and other commenters in the proceeding, expressed concern that when applying to construct wireless facilities wireless services providers were encountering unreasonably long delays, some that stretched beyond two years. The Communications Act grants applicants seeking to construct wireless facilities the right to file suit in court when a state or local government authority fails to act upon a tower siting application. CTIA argued that, without guidance on the subject from the FCC, it was unclear when a state or local authority had failed to act. CTIA further alleged that some states and localities were denying applications to place towers in certain areas solely on the basis of the presence of another wireless service provider in that area. CTIA asked the FCC to declare that such denials were the equivalent of an effective prohibition on the provision of personal wireless services in violation of the Communications Act. As corporations that won recent large spectrum auctions begin to build out new facilities, new towers may need to be constructed. These industry participants expressed concern to the Commission over the length of time frequently taken for action on tower siting applications. On November 18, 2009, the FCC issued a declaratory ruling to clarify certain portions of Section 332 of the Communications Act. This decision may be significant because it could streamline the tower siting application process across the country. The ruling defines a reasonable time period in which state and local governments should act upon tower siting requests as 90 days for the review of collocation applications and 150 days for the review of applications other than those for collocation. Also, the FCC held that the denial of a tower siting application solely because "one or more carriers serve a given geographic market" is an action that prohibits or has the effect of prohibiting the provision of personal wireless services and is a violation of the Communications Act. The FCC found that the evidence in the record supported CTIA's allegations that there were unreasonable delays in the review and final action upon applications for the siting of wireless facilities. In the FCC's estimation, these delays are inhibiting the deployment of next generation wireless technologies to an unacceptable degree. Consequently, the Commission adopted the presumption that state and local governments should act on applications for collocation within 90 days, and that applications other than those for collocation should be acted upon within 150 days. The rule applying to collocation requests may be affected by Section 6409 of the Middle Class Tax Relief Act discussed in the previous section. As mentioned, Section 6409 requires local authorities to grant applications for collocations if the collocation would not substantially change the physical dimensions of a tower. The FCC may wish to clarify what types of applications would qualify for this required approval. CTIA also had requested that, if state or local governments failed to act within the time delineated by the FCC, the application to site the wireless facility be deemed granted. The FCC declined to issue that form of relief. Rather, upon the expiration of the applicable period of time, the applicant may file suit alleging violation of Section 332 in the appropriate federal court. If more time is needed to process the application, the parties may consent to extend the review period or the state or locality may argue in court that the length of time for processing the particular application was reasonable under the circumstances. The FCC also determined that "a State or local government that denies an application for personal wireless service facilities siting solely because 'one or more carriers serve a given geographic market' has engaged in unlawful regulation that 'prohibits or ha[s] the effect of prohibiting the provision of personal wireless services.'" This determination adds the FCC's voice to a split in the circuits regarding whether denying applications to serve an area amounts to the effective prohibition of wireless services if the denial occurs solely because another company already provides the area with wireless services. The First Circuit, for example, had observed that "a straight forward reading is that 'services' refers to more than one carrier." Consequently, the presence of another carrier serving an area does not necessarily mean that an effective prohibition on the provision of wireless services is not occurring. Whereas, the Fourth Circuit has found that the statute limits localities from prohibiting all personal wireless services, not from preventing any one company from serving that particular area. Under this reasoning, if one carrier is serving an area, then wireless services are not being effectively prohibited. The FCC determined that the better reading of the statute was to apply the provision to all carriers seeking to enter a particular wireless market, adopting the reasoning of the First Circuit. Therefore, if a carrier is effectively prohibited from serving a particular area by the denial to site its facilities, then the Communications Act may have been violated even if wireless services are available in that area from another carrier. The agency found that the word "services" in the statute applied to multiple wireless carriers. Furthermore, a first entrant into a market may not provide services to the entire area. Therefore, the presence of one carrier in an area does not necessarily mean that wireless services have not been effectively prohibited for others, according to the Commission's reasoning. The Commission also reasoned that its interpretation of the statute was more consistent with the broader goals of the Communications Act, in that it could allow for increased competition among wireless providers, and decrease gaps in wireless service coverage across the country. Opponents to the declaratory ruling raised questions about the FCC's authority to interpret this particular provision, on the grounds that the provision is judicially enforced and the meaning of the words were meant to be interpreted by the courts. The Commission disagreed, finding that it did have the authority to interpret the provision, even though the agency does not actively enforce the provision. To support its contention, the FCC cited the Sixth Circuit's decision upholding the FCC's authority to issue its order interpreting Section 621 of the Communications Act, also known as the Local Franchising Order. The Local Franchising Order provided guidance for interpreting the statutory phrase "unreasonably refus[ing] to award" cable franchises, the granting of which is traditionally determined by local franchising authorities. The Sixth Circuit found that the FCC possessed "clear jurisdictional authority to formulate rules and regulations interpreting the contours of section 621." The FCC argued that the Sixth Circuit decision applies similarly to this order because Section 332's silence on the FCC's rulemaking authority "does not divest the agency of its express authority [elsewhere in the Communications Act] to prescribe rules interpreting" the act, as the Sixth Circuit found to be the case for Section 621. This issue may be raised in subsequent litigation by state and local governments facing lawsuits for failing to grant applications within the time period described by the FCC. In January of 2012, the Fifth Circuit Court of Appeals agreed with the FCC and upheld the FCC's authority to issue this declaratory order. State Statutory Provisions Apart from the specific limitations set forth in the Telecommunications Act of 1996, federal law does not appear to affect state or local zoning authority with regard to the placement of wireless communications towers. Most states delegate zoning authority to local bodies. However, some states offer guidance on what factors should be considered by the local entities when considering applications for permits to construct wireless communications facilities. For example, the state of New Hampshire has enacted a law concerning the visual effects of tall wireless antennas. The law does not alter any municipal zoning ordinance or preempt the Telecommunications Act of 1996. It does, however, recognize that the visual effects of tall antennas "may go well beyond the physical borders between municipalities," and in doing so it encourages local governing bodies to address the issue "so as to require that all affected parties have the opportunity to be heard." The statute also provides that carriers wishing to build personal wireless service facilities should consider commercially available alternatives to the tall towers, such as lower antenna mounts, disguised or camouflaged towers, and custom-designed facilities to minimize the visual impact on the surrounding area. An Illinois law sets forth guidelines for telecommunications carriers to consider when choosing a location for and designing a facility. The law specifically states that it does "not abridge any rights created by or authority confirmed in the federal Telecommunications Act of 1996." Rather, the law offers a list of locations—from "most desirable" to "least desirable"—for the siting of telecommunications facilities, with non-residentially zoned lots as the most desirable and residentially zoned lots that are less than 2 acres in size and used for residential purposes as the least desirable. The guidelines set forth for designing a facility include preserving trees in the area or replacing trees removed during construction, landscaping around the facility, and designing facilities that are compatible with the residential character of the area. In addition to the alternatives listed above, states can encourage the use of existing infrastructure as opposed to the construction of new facilities in order to reduce the total number of towers in an area. For example, in Kentucky, state law allows the local planning commission to require the company applying for the construction permit "to make a reasonable attempt to co-locate" its equipment on existing towers if space is available and the co-location does not interfere with the structural integrity of the tower or require substantial alterations to the tower. The statute gives the planning commission the authority to deny an application for construction based on the company's unwillingness to attempt to co-locate. Connecticut has also enacted a law which allows local entities to require the sharing of towers whenever it is "technically, legally, environmentally and economically feasible, and whenever such sharing meets public safety concerns." Local (Municipal or County) Law Many local governments, through the use of their zoning authority, attempt to limit the impact cellular towers have on the surrounding environment. One county in Georgia enacted a "Telecommunications Tower and Antenna Ordinance," which set up a new permit system for the construction of cellular towers in an effort to encourage construction in nonresidential areas. In commercial or light industrial areas, a wireless service provider can build a tower without review by the County Board of Commissioners as long as a certain set of specifications are met. However, if a service provider wants to construct a tower in a residential area, a hearing is held on the matter, and construction permits are subject to denial if a set of nine criteria is not met. In an effort to reduce the number of facilities in the area, the City of Bloomington, MN, enacted an ordinance that requires wireless facilities to be designed to accommodate multiple users. In direct response to the limitations set forth in the Telecommunications Act of 1996, several communities enacted moratoria on permits for cellular towers in an effort to prevent or delay the construction of cellular communications towers. Under the act, local governments cannot act to prohibit or have the effect of prohibiting wireless communication services in their communities. Local governments justify the imposition of moratoria by claiming that they need time to study the problems with tower siting and how they should change their zoning ordinances to accommodate construction. Courts have upheld moratoria that have a fixed length, such as six months. However, they are less likely to uphold those that are for long periods of time or indefinite. Pole Attachment Rule Amendments Similar to the FCC's efforts to increase the deployment of wireless facilities across the country, the agency launched a similar effort to streamline the process of collocation of equipment on existing poles owned by utility companies. Section 224 of the Communications Act grants the Commission the authority to regulate the rates, terms, and conditions for pole attachments, which are defined by the statute as "any attachment by a cable television system or provider of a telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility." In 2011, the FCC issued an order revising its interpretation of Section 224 to allow incumbent local exchange carriers (ILECs) for the first time to share some of the benefits of Section 224; reformulate (i.e., lower) the rates utilities could charge telecommunications carriers bringing those rates closer to the rates charged to cable providers; and reformulate the timing of the calculation of refunds when attachers are overcharged. Utility companies challenged the FCC's authority to make these changes, claiming that ILECs were excluded from the definition of telecommunications service providers under Section 224 and could not be eligible for pole attachment rights under Section 224 as a result. The Court of Appeals for the D.C. Circuit disagreed, upholding the FCC's interpretation of the statute. The Court found, that while Section 224 did exclude ILECs from the definition of telecommunications carriers, that exclusion only applied to Section 224(e) which permits the FCC to regulate charges for pole attachments to telecommunications carriers when the parties fail to resolve a dispute regarding those charges. The FCC was permitted to interpret Section 224(a), which allows the Commission to regulate pole attachments for providers of telecommunications services more generally, to apply to ILECs. The utility companies also challenged the FCC's decision to adopt telecom rates that were substantially equivalent to cable rates for pole attachments and the amendments to the calculation of the so-called "refund period." The court accorded deference to the FCC's interpretation of Section 224 in both of those instances, as well, and denied the utility companies' petition to review the FCC's order amending its regulations under Section 224 in full.

One of the primary tasks of the Federal Communications Commission (FCC) is to encourage the deployment of broadband throughout the United States. Broadband technology is now available over a wide array of delivery systems including cable, wireless, telephone, and fiber optic networks. The FCC moved, in recent years, to ease some of the regulatory burdens inherent in erecting new broadband facilities within the current legal framework. Congress has also taken steps to encourage the deployment of wireless facilities. This report will discuss some of the important legal developments related to broadband deployment. The siting of wireless communications facilities has been a topic of controversy in communities all over the United States. Telecommunications carriers need to place towers in areas where coverage is insufficient or lacking to provide better service to consumers, while local governing boards and community groups often oppose the siting of towers in residential neighborhoods and scenic areas. The Telecommunications Act of 1996 governs federal, state, and local regulation of the siting of communications towers by placing certain limitations on local zoning authority without totally preempting state and local law. This report provides an overview of the federal, state, and local laws governing the siting of wireless communications facilities, including recent amendments to federal law governing tower siting contained in the Middle Class Tax Relief and Job Creation Act of 2012. This report will also discuss the Federal Communications Commission's (FCC's or Commission's) recent actions related to streamlining the tower siting application process at the state and local level. As corporations that won recent spectrum auctions begin to build out new facilities, new towers may need to be constructed. These industry participants expressed concern to the Commission over the length of time frequently taken for action on tower siting applications. On November 18, 2009, the FCC issued a declaratory ruling to clarify certain portions of Section 332 of the Communications Act. This decision was intended to streamline the tower siting application process across the country. The FCC has also amended regulations for pole attachments to currently existing poles owned by utilities. The amendments were intended to increase the number of pole attachments, thereby increasing broadband availability. The utility companies challenged the FCC's interpretation of the statute granting it the authority to regulate pole attachments. The D.C. Circuit upheld the FCC's rules.

Limited Use of Federal Reservoir Storage for Municipal and Industrial (M&I) Water Supply Increasing pressures on the quantity and quality of available water supplies are raising interest in—and concern about—changing operations at Corps facilities to meet municipal and industrial (M&I) demands. Corps M&I reallocations at Lake Lanier (GA) are central to an ongoing tri-state conflict involving Alabama, Florida, and Georgia. Furthermore, the agency is studying whether to reallocate storage to M&I use at dams in numerous states (e.g., Colorado, Kentucky, and Georgia), and Corps data indicate that more reallocation requests are forthcoming. A reallocation embodies tradeoffs; shifting storage to M&I use from a currently authorized purpose (e.g., hydropower or navigation) changes the types of benefits produced by a dam and the stakeholders served. The federal role in M&I water supply development is constrained, with states and local entities having the prominent role. Congress recognized state primacy in developing M&I supplies in the Water Supply Act of 1958 (1958 WSA; P.L. 85-500; 72 Stat. 319; 43 U.S.C 390b) as follows: It is hereby declared to be the policy of the Congress to recognize the primary responsibilities of the States and local interests in developing water supplies for domestic, municipal, industrial, and other purposes and that the Federal Government should participate and cooperate with States and local interests in developing such water supplies in connection with the construction, maintenance, and operation of Federal navigation, flood control, irrigation, or multiple purpose projects. Therefore, although the federal government has made significant investments in water resources infrastructure, these investments primarily have been to support flood control, navigation, irrigation, multipurpose dams (including hydropower), and diversion facilities. The largest federal projects were constructed by the Department of the Interior's Bureau of Reclamation under the Reclamation Act of 1902 and subsequent project authorizations known as Reclamation Law, and by the Department of Defense's Army Corps of Engineers (hereafter referred to as the Corps) through myriad Rivers and Harbors, Flood Control, and Water Resources Development Act (WRDA) legislation. Since the 1960s, construction of large federal dams has slowed markedly, in response to their high cost, their ecological and social impacts, and the availability of appropriate sites. Reservoir planning in recent decades largely has focused on balancing competing objectives in operating existing reservoirs (as opposed to planning new projects), and in some cases on managing for new objectives. M&I Water Storage at Corps Facilities Authority for M&I Storage Can Be Project-Specific or General Congress authorizes the Corps to undertake construction of dams and other water resources infrastructure. Each dam and the reservoir it creates are operated in large measure to meet the project's authorized purposes and for compliance with federal laws. For each project (or set of projects in a basin), the principal purposes generally are laid out in the language authorizing project construction or in agency documents supporting the authorization, and in subsequent legislation specific to that project. Approximately 91 Corps reservoirs have M&I storage as a specifically authorized purpose (e.g., Lake Sakakawea, ND; Joe Pool Lake, TX). Congress, through general legislation, has included additional requirements (e.g., fish and wildlife protection and coordination) for all Corps facilities, and has given the Corps authority to provide some additional benefits from its projects, such as recreation. The 1958 WSA and Section 6 of the Flood Control Act of 1944 (58 Stat. 890, 33 U.S.C. 708) provide the Corps some general, but limited, authority to provide M&I water supply. The 1944 authority allows the Corps to provide surplus water at its facilities (i.e., water not assigned to a project purpose) for M&I use on a temporary basis. This report does not analyze the Corps' use of the 1944 authority because it is not likely to have a significant future role in the permanent reallocation of significant quantities of water for M&I purposes. Instead, this report focuses on how the 1958 WSA has been implemented by the Corps, and provides data on the 44 Corps reservoirs that have had all or some of their storage reallocated under the Corps' 1958 WSA discretionary authority. For a discussion of legal issues related to the 1958 WSA, see CRS Report R40714, Use of Federal Water Projects for Municipal and Industrial Water Supply: Legal Issues Related to the Water Supply Act of 1958 (43 U.S.C. § 390b) , by Cynthia Brougher. Congress Limited Agency Discretion for Reallocating Storage In the 1958 WSA, Congress provided the Corps some general M&I water supply authority, but limited the agency's decision-making without congressional approval. Specifically, Section 301 of the 1958 WSA provides: Modifications of a reservoir project heretofore authorized, surveyed, planned, or constructed to include storage [for water supply] which would seriously affect the purposes for which the project was authorized, surveyed, planned, or constructed, or which would involve major structural or operational changes shall be made only upon the approval of Congress. That is, M&I water supply can be provided as long as it is accomplished incidental to operations for the authorized purposes. If provision of water supply seriously affects a facility's authorized purposes or would cause a major operational change, the reallocation requires congressional authorization. How to gauge whether an effect is serious or a change is major was not defined by Congress. After passage of the 1958 WSA, the Corps developed a guidance manual for implementing this authority (EM 1165-2-105). In March 1977, the Corps adopted as part of its manual the following provision for determining when a reallocation does not require congressional approval: Modifications of reservoir projects to allocate all or part of the storage serving any authorized purpose from such purpose to storage serving domestic, municipal, or industrial water supply purposes are considered insignificant if the total reallocation of storage that may be made for such water supply uses in the modified project is not greater than 15 per centum of total storage capacity allocated to all authorized purposes or 50,000 acre feet, whichever is less. Earlier guidance had not included numeric criteria. 2009 Court Order Found the Corps Exceeded Its Authority The questions of whether the Corps has regularly exceeded its discretionary authority and how many reservoirs have storage reallocated under this authority have received attention in the wake of a federal court decision related to Corps operations and reallocations at Lake Lanier (GA). Numerous lawsuits related to Lake Lanier were consolidated and transferred to the U.S. District Court for the Middle District of Florida in 2007. A July 17, 2009, court order addressed a fundamental question common to many of the cases: whether the Corps violated Section 301 of the 1958 WSA by not seeking congressional approval for changes made in Lake Lanier operations to provide M&I water supply. The court order largely agreed with Florida, Alabama, the Alabama Power Company, and the Southeastern Federal Power Customers. These litigants had contended that the Corps was obligated to seek congressional approval, because the provision of water supply required major operational changes that harmed authorized purposes. The court estimated that, since the mid-1970s, the Corps had reallocated more than 21% of Lake Lanier's usable storage without seeking congressional authorization; this reallocation represents roughly 260,000 acre-feet (AF). The court found that "de facto reallocations" started in the mid-1970s with operational changes that shifted storage from hydropower to M&I supply. Subsequently the Corps contracted with M&I water providers for storage space for withdrawals directly from the lake. The court found that the cumulative impacts of the Corps' actions exceeded its discretionary authority to reallocate. The court order and its effect on M&I water supply for communities in northern Georgia have raised questions about how the Corps has reallocated water at its other facilities. Corps Reallocations Under 1958 WSA A total of 135 Corps reservoirs have roughly 11 million acre-feet (AF) of storage designated for M&I water. Most of the M&I water stored is authorized under project-specific authorities. However, 44 reservoirs derive all or part of their M&I storage authority from the 1958 WSA (see Table 1 for a list of the reservoirs). The 1958 WSA is the basis for less than 640,000 AF of the Corps' M&I storage. Table 1 shows that the Corps has reallocated more than 50,000 AF of storage space for M&I use at only one reservoir, Lake Texoma (TX/OK). The Corps has used its discretionary authority to perform four reallocations at Lake Texoma—one for 84,099 AF and three smaller reallocations, for a total of 103,003 AF. Other Texoma reallocations have been made with specific congressional approval. The 84,099 AF reallocation from hydropower to M&I use was approved in a 1985 Corps document that included a compensation arrangement for lost hydropower, which had been negotiated among Lake Texoma stakeholders. The Corps found that the reallocation would neither significantly harm the lake's authorized purposes (in part because of the compensation arrangement), nor require significant structural modifications. The Corps thus concluded that the transfer could be performed under the 1958 WSA without congressional approval, even though it exceeded the agency-established policy limiting reallocations without congressional approval to 50,000 AF. Table 1 shows that the Corps stayed below the 15% of usable storage criterion, except at Cowanesque Lake (PA), where reallocated water supply represents almost 30% of storage. The Cowanesque Lake case is unusual in that it represents a mix of project-specific reallocation direction from Congress and use of the Corps' discretionary authority under the 1958 WSA. The Cowanesque reallocation was mentioned in P.L. 99-88 , the Supplemental Appropriations Act of 1985, and was discussed as occurring under the Corps' 1958 WSA discretionary authority in the accompanying H.Rept. 99-236. As previously noted, the 1958 WSA indicates that the reallocation to water supply should not be made if it seriously affects authorized purposes or results in a major operational or structural change. The Corps is to evaluate these potential effects when studying whether to make or recommend to Congress a reallocation. Whether the studies used to support the reallocations shown in Table 1 sufficiently evaluated how an M&I reallocation may affect authorized purposes or may constitute a major operational change is a general concern raised by the 2009 court order's questioning of the Corps evaluations related to Lake Lanier operations. An evaluation of the sufficiency of Corps reallocation analyses is beyond the scope of this CRS report. Lake Lanier is not in Table 1 because the July 2009 court order found that the M&I uses exceeded the 1958 WSA authority. Similarly, Lake Cumberland (KY) is not included, although M&I withdrawals occur there, because these withdrawals have not been authorized. Enforcement action to stop the withdrawals at Lake Cumberland has not been taken. How many other unauthorized withdrawals and operational actions that support M&I uses occur at other Corps facilities is largely unknown; many Corps dams are decades old, often predating the 1958 WSA, and their operations have evolved incrementally over time. Questions and Challenges for M&I Water Supply Storage at Federal Reservoirs To date, the Corps' operation of Lake Lanier for M&I water supply has constituted the agency's most controversial provision of M&I water supply. The 2009 court order raised numerous concerns, including the possibility that previous reallocations at other Corps facilities could be disputed, and uncertainty about how future reallocation at Corps facilities will be evaluated and performed. Thus far, most Corps reallocations have taken place without the national attention or litigation of Lake Lanier, either using the Corps' delegated authority or through specific congressional legislative direction. As shown in Table 1 , existing reallocations under the 1958 WSA, with few exceptions, were within the numeric criteria that the Corps established for implementing its discretionary authority. Whether Congress agrees with the Corps' interpretation and use of its discretionary authority is a policy issue of increasing relevance as interest grows in M&I reallocation at federal facilities. Other issues raised by current use of the discretionary authority and reservoir operations include whether multiple reallocations in a single basin are to be treated separately or on a watershed basis, how much discretion the agency should have in making reallocation agreements with stakeholders, including financial charging and crediting arrangements, and how the agency should handle ongoing unauthorized withdrawals. Current policies on M&I reallocations at Corps facilities reflect numerous decisions and tradeoffs that may be reexamined as more reallocations are requested. For example, if reallocations to M&I are made, how is the transition to be carried out, given that stakeholders, such as recreation interests and hydropower customers, have developed around existing operations? How should the federal government charge for the M&I storage space provided? Should the federal government credit for return flows (i.e., water not consumed by M&I uses that is returned to a Corps reservoir)? M&I water supply at Corps facilities also is part of several broader water policy questions for Congress. For example, what is the appropriate federal role in municipal water supply? Should that role change if a community's existing water supply is reduced by potential climate change effects, such as extended drought? Do current water resources infrastructure operations, laws, divisions of responsibilities, and institutions reflect the national interest and present challenges? Addressing these questions is complicated by the wide range of opinions on the proper response and the difficulty of enacting any change to how federal facilities are operated, other than incremental change or project-specific measures, because of the many affected constituencies.

Congress has limited the use of Army Corps of Engineers dams and reservoirs for municipal and industrial (M&I) water supply. Growing M&I demands have raised interest in—and concern about—changing current law and reservoir operations to give Corps facilities a greater role in M&I water storage. A reallocation of storage to M&I use from a currently authorized purpose (e.g., hydropower or navigation) changes the types of benefits produced by a facility and the stakeholders served. While Congress has specifically authorized 91 Corps multi-purpose facilities for M&I supply, it also has delegated to the Secretary of the Army constrained authority to reallocate storage to M&I water supply. In the Water Supply Act of 1958 (1958 WSA; P.L. 85-500), Congress provided that storage at Corps facilities could be allocated to M&I water supply without congressional approval if this reallocation did not seriously harm authorized project purposes or involve major structural or operational changes. Whether the Corps has regularly exceeded its discretion to reallocate is a concern raised in response to a July 2009 federal court order that found the Corps exceeded its discretion at Lake Lanier (GA). In order to guide its implementation of the discretionary authority to reallocate, the agency developed guidance on what may constitute a major change or serious harm to an authorized purpose. Since 1977 that guidance has included quantitative limits on reallocations conducted without congressional authorization. Issues for Congress include whether the Corps' interpretation of its discretionary authority is consistent with congressional intent and whether current law and policy are appropriate for current demands and constraints on water resources. CRS analysis of available data indicates that the Corps generally has not exceeded agency-established quantitative limits, with two exceptions in addition to Lake Lanier. One of the exceptions, Cowanesque Lake (PA), was made with the consent of Congress but conducted under the 1958 WSA authority. The other exception was a 1985 reallocation from hydropower to M&I use at Lake Texoma (TX/OK). The Corps found that a reallocation at Lake Texoma would neither require significant modification of the project, nor seriously harm authorized purposes (as the result of compensation being provided for lost hydropower). The Corps concluded that it could make the reallocation without congressional approval using its discretionary authority, in spite of the reallocation exceeding the agency-established quantitative limit. Whether this or other Corps reallocations and operational changes performed without congressional authorization (including those that have fallen within agency-established quantitative guidelines) have seriously harmed other project purposes or constituted a major operational change cannot be independently determined by available data, and is beyond the scope of the analysis herein.

Introduction Enacted on January 17, 2014, the Consolidated Appropriations Act, 2014 ( P.L. 113-76 , H.R. 3547 ) appropriated funding for the full fiscal year through September 30, 2014, for all of the 12 regular appropriations acts. The Interior, Environment, and Related Agencies appropriations act, which includes funding for the Environmental Protection Agency (EPA), is contained in Division G of the act. Title II of Division G provided $8.20 billion for EPA for FY2014, $47.0 million (0.6%) more than the President's FY2014 request of $8.15 billion, and $298.9 million (3.8%) above the FY2013 enacted appropriation of $7.90 billion (post-sequestration and rescission) provided in the Consolidated Appropriations Act, 2013 ( P.L. 113-6 ) as presented by EPA in its FY2013 Operating Plan. The FY2014 enacted appropriations were a $278.4 million (3.3%) decrease below the total FY2013 appropriations of $8.48 billion for EPA, when accounting for the $577.3 million (post-sequestration) in supplemental funds provided in the Disaster Relief Appropriations Act, 2013 ( P.L. 113-2 ). These supplemental funds were dedicated to water infrastructure, cleanup, and other recovery efforts in areas of states affected by Hurricane Sandy in late October 2012. Congress considered FY2014 discretionary appropriations for federal departments and agencies, including EPA, under the parameters of the Budget Control Act of 2011 (BCA; P.L. 112-25 ) as amended by the American Taxpayer Relief Act (ATRA; P.L. 112-240 ). That act established, among other things, a statutory limit on discretionary spending through FY2021 and required a sequestration of budgetary resources if the President and Congress failed to enact legislation reducing the federal deficit by a specified date. Initially during the FY2014 budget process, the House and the Senate adopted separate budget resolutions with differing total discretionary spending levels, and allocations between defense and nondefense spending. The chairs of the House and Senate Budget Committees announced an agreement ( H.J.Res. 59 ) amending the BCA FY2014 and FY2015 discretionary spending limits. Enacted into law on December 26, 2013, the Bipartisan Budget Act of 2013 (Division A of the Continuing Appropriations Resolution, 2014, P.L. 113-67 , H.J.Res. 59 ) established a total cap of $1.012 trillion for FY2014 and $1.014 trillion for FY2015 for non-defense and defense discretionary spending. No regular FY2014 appropriations bill for Interior, Environment, and Related Agencies was introduced in the House or Senate prior to the start of the fiscal year on October 1, 2013. The House Appropriations Committee began markup of an FY2014 Interior appropriations bill on July 31, 2013, but the markup was suspended and not concluded. On August 1, 2013, the leaders of the Senate Appropriations Subcommittee on Interior, Environment, and Related Agencies released a draft FY2014 Interior appropriations bill with an accompanying explanatory statement intended to serve as a starting point for the Senate debate. The largest dollar difference between the House and Senate Subcommittee drafts was the funding level for EPA in Title II. The Senate Subcommittee draft bill had included $8.48 billion for EPA, $2.96 billion (53.6%) higher than the level of $5.52 billion that the House had included in its draft bill. None of the 12 regular appropriations bills were enacted prior to the start of FY2014. Absent enacted appropriations, a temporary 16-day lapse in discretionary appropriations occurred between October 1, 2013, and October 16, 2013, resulting in a partial shutdown of the federal government. Enacted on October 17, 2013, the Continuing Appropriations Act, 2014 ( P.L. 113-46 ) ended this lapse in funding and provided temporary appropriations generally at FY2013 levels through January 15, 2014. P.L. 113-73 extended appropriations at these levels thereafter until the enactment of P.L. 113-46 on January 17, 2014, funding federal departments and agencies for the full fiscal year. The following sections of this CRS report present the levels of FY2014 enacted appropriations for EPA by the nine statutory appropriations accounts that fund the agency, with a breakout within these accounts for selected programs and activities that have received more prominent attention in the congressional debate. The discussions and tables presented in this report compare the FY2014 enacted appropriations for these accounts, programs, and activities to the President's FY2014 budget request and the FY2013 enacted appropriations (post-sequestration and rescission), including $577.3 million in supplemental funds provided for four EPA accounts in the Disaster Relief Appropriations Act, 2013 ( P.L. 113-2 ). These supplemental funds were dedicated to water infrastructure, cleanup, and other recovery efforts in areas of states affected by Hurricane Sandy in late October 2012. The Joint Explanatory Statement accompanying the Consolidated Appropriations Act, 2014 (issued in the January 15, 2014, Congressional Record ) is the primary source of information presented in this CRS report for the FY2014 enacted appropriations and the President's FY2014 budget request unless otherwise specified. The House Committee on Appropriations also presented the FY2014 enacted amounts in its report ( H.Rept. 113-551 ) accompanying H.R. 5171 , the Department of the Interior, Environment and Related Agencies Appropriations Act, 2015. The levels of FY2013 enacted appropriations indicated in this CRS report are as presented in EPA's FY2013 Operating Plan provided to CRS by the House Committee on Appropriations. These amounts for FY2013 reflect the application of sequestration under the Budget Control Act of 2011 ( P.L. 112-25 ) as amended, and the additional 0.2% across-the-board rescission required under criteria specified in P.L. 113-6 . A breakout also is presented for the supplemental funding provided in P.L. 113-2 (post-sequestration). For a more detailed discussion of EPA's FY2013 appropriations, see CRS Report R43207, Environmental Protection Agency (EPA): Appropriations for FY2013 in P.L. 113-6 . Table A-1 in Appendix A of this report provides a historical comparison of enacted appropriations (not adjusted for inflation) by EPA appropriations account from FY2008 through FY2014. Figure A-1 depicts historical funding trends (adjusted for inflation) for the agency readily available back to FY1976, and Figure A-2 presents EPA's full-time-equivalent (FTE) employment ceiling readily available from FY2001 through FY2014. With the exception of the historical funding presented in Figure A-1 in Appendix A , the enacted appropriations for prior fiscal years presented throughout this report have not been adjusted for inflation. In some cases, small increases above the prior-year funding level may reflect a decrease in real dollar values when adjusted for inflation. In general, the term appropriations used in this report refers to total discretionary funds made available to EPA for obligation, including regular fiscal year and emergency supplemental appropriations, as well as any rescissions, transfers, and deferrals in a particular fiscal year, but excludes permanent or mandatory appropriations that are not subject to the annual appropriations process. This latter category of funding constitutes a very small portion of EPA's annual funding. The vast majority of the agency's annual funding consists of discretionary appropriations. From FY1996 through FY2013, EPA's appropriations had been requested by the Administration and appropriated by Congress within eight statutory appropriations accounts. A different account structure was in place prior to that time. P.L. 113-76 added a ninth account for FY2014, the Hazardous Waste Electronic Manifest System Fund. The Hazardous Waste Electronic Manifest Establishment Act ( P.L. 112-195 ) authorized the development of an electronic system to track hazardous waste shipments and a fund to finance it that would be supported with start-up appropriations and user fees thereafter. The explanatory statement accompanying H.R. 3547 noted that this dedicated account is intended to support the development of "... a cost-effective IT system to manage manifest transactions electronically" under Subtitle C of the Resource Conservation and Recovery Act (RCRA)/Solid Waste Disposal Act. See Appendix B for more information on the scope of each of the nine statutory appropriations accounts that fund EPA. A breakout of FY2014 enacted appropriations by each EPA account is presented below. EPA FY2014 Appropriations by Account Table 1 presents the levels of FY2014 enacted appropriations for EPA provided in P.L. 113-76 compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). The FY2013 enacted appropriations include funding provided in P.L. 113-6 and the $577.3 million in supplemental funds for Hurricane Sandy disaster relief provided in P.L. 113-2 . The table presents a breakout of these amounts for each of the nine EPA statutory appropriations accounts, including the new Hazardous Waste Electronic Manifest System Fund discussed above. In creating this new account, P.L. 113-76 consolidated funding that the President had requested within other existing EPA accounts. The table also identifies transfers of funds between appropriations accounts, and funding levels for selected program areas within various accounts that have received more prominent attention in the congressional debate. Figure 1 following the table presents the allocation of the total FY2014 enacted appropriations among the individual EPA appropriations accounts, compared to the allocation of the FY2013 enacted appropriations (post-sequestration and rescission). Figure 1 presents two comparisons for the allocations of FY2013 appropriations, one including the Hurricane Sandy disaster relief supplemental funds provided in P.L. 113-2 and the other excluding the supplemental funds. As shown in Table 1 , the total FY2014 enacted appropriations of $8.20 billion for EPA was $47.0 million (0.6%) more than the President's FY2014 request of $8.15 billion and $298.9 million (3.8%) above the FY2013 enacted appropriations of $7.90 billion provided in P.L. 113-6 (post-sequestration and rescission). The FY2014 enacted appropriations were $278.4 million (3.3%) less than the total FY2013 enacted appropriations of $8.48 billion for EPA, when accounting for the $577.3 million in supplemental funds provided in P.L. 113-2 (post-sequestration). P.L. 113-76 and the President's FY2014 request did not include rescissions of unobligated balances of prior EPA appropriations, as in previous fiscal years beginning in FY2006. For FY2013, Section 1406 of P.L. 113-6 required a rescission of $50.0 million from unobligated balances of prior appropriations to the Hazardous Substance Superfund account ($15.0 million) and the State and Tribal Assistance Grants (STAG) account ($35.0 million). FY2013 rescissions of unobligated balances specified within the STAG account included $5.0 million from categorical grants, $10.0 million each from Clean Water and Drinking Water State Revolving Fund (SRF) grants, and $10.0 million from Brownfields grants. The President's FY2013 request had proposed a $30.0 million rescission of unobligated balances of prior EPA appropriations, but did not specify which agency accounts would be affected. Following the table and figure below, this report presents a discussion of the FY2014 enacted appropriations for selected EPA programs and activities highlighted in the congressional debate. Selected EPA Programs and Activities Considerable attention during the debate and hearings on the EPA's appropriations for FY2014 focused on federal financial assistance to states for wastewater and drinking water infrastructure projects, various categorical grants to states to support general implementation and enforcement of federal environmental programs as delegated to the states, funding for implementation and research support for air pollution control requirements, climate change and greenhouse gas emissions, and funding for environmental cleanup. Also garnering congressional interest were the funding levels for several geographic-specific initiatives, including the Great Lakes and certain other inland and coastal bodies of water. The following sections of this report discuss the levels of FY2014 appropriations for selected EPA programs and activities within the above areas that received prominent attention in the congressional debate leading to the enactment of P.L. 113-76 . A comprehensive summary of funding for all EPA programs and activities is beyond the scope of this report. A more detailed breakout of the FY2014 enacted appropriations is presented in the Joint Explanatory Statement accompanying H.R. 3547 , issued in the Congressional Record on January 15, 2014. The EPA FY2015 congressional budget justification also presents information on FY2014 enacted appropriations in comparison to the President's FY2015 budget request. Wastewater and Drinking Water Infrastructure Historically, funding within the State and Tribal Assistance Grants (STAG) account for grants to aid states and territories in capitalizing their Clean Water and Drinking Water State Revolving Funds (SRFs) has represented a sizable portion of the total appropriations for EPA, ranging from one-fourth to one-third of the agency's funding in recent fiscal years. The FY2014 funding level for SRF grants specified in P.L. 113-76 constituted roughly 29% of the total EPA appropriations. Including the disaster relief supplemental funding provided in P.L. 113-2 , SRF grants for FY2013 represented more than 33% of the total appropriations for EPA in FY2014. In contrast, the President's FY2014 budget request for the SRF grants represented about 23% of the total request for EPA. In FY2011 and FY2012, enacted funding for the SRF grants was more than 28% of the total appropriations for EPA in those fiscal years, similar to the proportion for FY2013 excluding the disaster relief supplemental funding. The SRF capitalization grants to states and territories support local wastewater and drinking water infrastructure projects, such as construction of and modifications to municipal sewage treatment plants and drinking water treatment plants, to facilitate compliance with the Clean Water Act and the Safe Drinking Water Act, respectively. EPA awards SRF grants to states and territories based on formulas. P.L. 113-76 appropriated a combined $2.36 billion for the Clean Water and Drinking Water SRFs for FY2014. The combined total was $443.8 million (23.2%) more than the President's FY2014 request of $1.91 billion, and was $118.4 million (5.3%) more than the $2.24 billion enacted for FY2013 (post-sequestration and rescission), excluding the supplemental appropriations. The FY2014 combined total for the SRFs was $451.6 million (16.1%) less than the total FY2013 funding level of $2.81 billion when accounting for the $570.0 million in supplemental appropriations. The combined amount for FY2014 was also less than the FY2012, FY2011, and FY2010 enacted levels (see Table A-1 in Appendix A ). Table 2 presents the FY2014 enacted appropriations for the Clean Water and Drinking Water SRF capitalization grants, compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). The table presents a breakout for FY2013 to identify the disaster relief supplemental appropriations. Water Infrastructure in Geographic-Specific Areas As in past appropriations, P.L. 113-76 also included funding within the STAG account for FY2014 to support other water infrastructure projects in two geographic-specific areas: Alaska Native Villages and the U.S.-Mexico Border region. The FY2014 amount for the construction of wastewater and drinking water facilities in Alaska Native Villages was $10.0 million, the same as the President's FY2014 request. The FY2013 funding level was $9.5 million (post-sequestration and rescission). The FY2014 enacted appropriations included $5.0 million within the STAG account for wastewater infrastructure projects along the U.S.-Mexico border, the same as the President's FY2014 request and slightly more than the FY2013 funding level of $4.7 million (post-sequestration and rescission). Categorical Grants to States and Tribes Another $1.05 billion was included within the STAG account for FY2014 to support state and tribal "categorical" grant programs, $81.4 million (7.2%) below the President's FY2014 request of $1.14 billion, and $22.4 million (2.2%) more than the FY2013 enacted level of $1.03 billion (post-sequestration and rescission). These funds are allocated among multiple grants generally to states and tribes to support the day-to-day implementation of federal environmental laws and regulations and to support various activities that address particular environmental media (air, water, hazardous waste, etc.). Implementation by states involves a range of activities such as monitoring, permitting and standard setting, training, and other pollution control and prevention activities. These grants also assist multimedia projects such as pollution prevention, pesticides and toxic substances enforcement, the tribal general assistance program, and environmental information. Categorical grants to assist states and tribes with the implementation of federal air quality requirements are discussed in more detail in the following section on " Air Quality and Climate Change Activities ." Table 3 presents the FY2014 enacted appropriations for EPA categorical grant programs, compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). Air Quality and Climate Change Activities Several EPA air quality and climate change activities received attention during the consideration of FY2014 appropriations. Many of these activities are associated with regulations under the Clean Air Act to address emissions of greenhouse gases, hazardous air pollutants such as mercury, and particulate matter. Although generally not included in P.L. 113-76 , the draft FY2014 appropriations bill considered by the House Committee on Appropriations during its markup that was suspended on July 31, 2013, included a number of provisions that would have limited or restricted EPA's use of FY2014 funds to support the development, implementation, or enforcement of various Clean Air Act regulations, as well as directives for conducting evaluations of certain activities and providing reports to the committee. Some of these provisions were similar to those included for FY2012 in Division E of P.L. 112-74 , and a subset of those proposed during deliberations on the FY2013, FY2012, and FY2011 EPA appropriations. P.L. 113-76 included two general provisions in Title IV of Division G preventing EPA from using any funds provided in the act for two specific air quality regulatory activities related to greenhouse gas emissions. Section 420 addressed regulations for the issuance of permits under Title V of the Clean Air Act that would govern greenhouse gas emissions from biological processes associated with livestock production. Section 421 addressed reporting requirements for greenhouse gas emissions associated with manure management systems. Additionally, Title II of Division G of the Joint Explanatory Statement accompanying P.L. 113-76 contained a number of directives regarding EPA. Two directives addressed air quality and climate change program activities related to regional haze and the role of states in Clean Air Act implementation. EPA is one of 17 federal agencies that have received appropriations for climate change activities in recent fiscal years. EPA's share of this funding is relatively small, but EPA's policy and regulatory roles are proportionately larger than other federal agencies and departments. Appropriated funds for EPA's climate change and air quality activities are distributed across several program activities under multiple appropriations accounts. Because of variability in these activities and modifications to account structures from year to year, it is difficult to compare the overall combined funding included in appropriations bills with the President's request and prior-year enacted appropriations. However, comparisons can be made among certain activities for which Congress does specify a line-item in the appropriations process. Table 4 presents the FY2014 enacted appropriations for EPA air quality and climate change activities by account for which a breakout is readily available. The table presents a comparison of these amounts to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). As presented in the table, EPA "clean air and climate" activities constitute the single largest air quality program area funded within the Environmental Programs and Management (EPM) and Science and Technology (S&T) accounts. The total FY2014 enacted appropriation for this program area was $397.9 million within these two accounts combined, $36.4 million (8.4%) less than the President's FY2014 request of $434.3 million, but $11.7 million (3.0%) more than the FY2013 enacted appropriation of $386.2 million (post-sequestration and rescission). State and Local Air Quality Management grants are the single-largest air quality activity funded within the STAG account. The FY2014 enacted appropriation for these grants was $228.2 million, $29.0 million (11.3%) less than the President's FY2014 request of $257.2 million, but $4.8 million (2.1%) more than the FY2013 enacted appropriation of $223.4 million (post-sequestration and rescission). States use these grants to help pay the costs of operating air pollution control programs. Much of the day-to-day operations of these programs (i.e., monitoring, permitting, enforcement, and developing site-specific regulations) are done by the state and local agencies with Clean Air Act authorities delegated by EPA. The STAG account also included $20.0 million for FY2014 for the Diesel Emission Reduction Grants program, $14.0 million (233.3%) more than the President's FY2014 request of $6.0 million, and $1.1 million (5.8%) more than the FY2013 enacted appropriation of $18.9 million (post-sequestration and rescission). Funding for these grants has declined overall in comparison to prior fiscal years. The FY2012 enacted level was $30.0 million. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) had provided an additional $300.0 million in supplemental funds for these grants in FY2009 for a total of $360.0 million in that fiscal year, much of which was awarded in FY2010. The Energy Policy Act of 2005 (EPAct 2005) originally had authorized $200.0 million annually for these grants from FY2007 through FY2011. P.L. 113-76 included $8.1 million for state indoor radon (categorical) grants within the STAG account, a slight increase above the FY2013 enacted appropriation of $7.6 million (post-sequestration and rescission). As proposed in the FY2013 request, the FY2014 President's request again had proposed eliminating the state indoor radon grant program, based on the Administration's position that states had established the necessary technical expertise and program funding to continue radon protection efforts without federal funding. Congress has continued to appropriate funds to provide this financial assistance to states. Cleanup of Superfund Sites The Hazardous Substance Superfund (Superfund) account supports the assessment and cleanup of sites contaminated from the release of hazardous substances. EPA carries out these activities under the Superfund program. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) authorized this program, and established the Superfund Trust Fund to finance discretionary appropriations to fund it . P.L. 113-76 included a total of $1.09 billion for the Superfund account in FY2014 prior to transfers to other EPA accounts, $91.6 million (7.8%) less than the President's FY2014 request of $1.18 billion, and $26.4 million (2.4%) less than the FY2013 enacted appropriations of $1.12 billion (post-sequestration and rescission). The total funding level for FY2013 included $1.9 million in disaster relief supplemental appropriations (post-sequestration) provided in P.L. 113-2 for Superfund sites affected by Hurricane Sandy in New York and New Jersey. The FY2014 and FY2013 enacted appropriations reflect an overall downward funding trend since FY2010 (see Table A-1 in Appendix A ). For the previous decade, annual funding levels for the Superfund account had remained fairly steady, averaging approximately $1.25 billion annually. However, some have observed that the funding levels declined during this period when accounting for the effects of inflation. As amended, CERCLA authorizes EPA's Superfund program to clean up sites that are among the nation's most hazardous and to enforce the liability of parties who are responsible for the cleanup costs. Many states also have developed their own cleanup programs to address contaminated sites that are not pursued at the federal level. These state programs complement federal cleanup efforts. At sites that are addressed under the federal Superfund program, EPA first attempts to identify the responsible parties to enforce their liability for the cleanup costs. Sites financed by the responsible parties do not rely upon Superfund appropriations, except for situations in which EPA may use the appropriations up front and later recover the costs from the responsible parties. If the responsible parties cannot be found or do not have the ability to pay, EPA is authorized to use Superfund appropriations to pay for the cleanup of a site under a cost-share agreement with the state in which the site is located. Sites at which there are no viable parties to assume responsibility for the cleanup are referred to as "orphan" sites. The use of Superfund appropriations has focused primarily on cleaning up contamination from the release of hazardous substances at high-risk sites that EPA has placed on the National Priorities List (NPL). The cleanup of federal facilities on the NPL is funded apart from the Superfund program by the federal agencies that administer those facilities. Annual funding for the cleanup of all contaminated federal facilities combined exceeds EPA's Superfund appropriations by several billion dollars. Although Superfund appropriations are not eligible to pay for the cleanup of federal facilities, EPA oversees their cleanup through the Superfund program in conjunction with the states in which the facilities are located. Just over half of the Superfund account is allocated to the performance of response actions at non-federal facilities that are elevated for federal attention. CERCLA authorizes two types of response actions. Remedial actions are intended to address long-term risks to human health and the environment, whereas removal actions are intended to address more imminent hazards or emergency situations. Removal actions may precede remedial actions to stabilize site conditions while long-term measures are developed. Only sites listed on the NPL are eligible for Superfund appropriations to pay for remedial actions, whereas removal actions may be funded with Superfund appropriations regardless of whether a site is listed on the NPL. The remainder of the Superfund account funds EPA's homeland security responsibilities to prepare for the federal response to incidents that may involve the intentional release of hazardous substances, EPA's operational and administrative expenses in carrying out the Superfund program, and EPA's enforcement of cleanup liability under CERCLA. Enforcement is a core tenet of the statute intended to ensure that the responsible parties pay for the cleanup of contamination whenever possible, in order to focus the use of Superfund appropriations at orphan sites. Historically, funding within the Superfund account also has been transferred to EPA's Science and Technology account for the research and development of cleanup technologies, and to EPA's Office of Inspector General account for independent auditing, evaluation, and investigation of the Superfund program. Annual appropriations acts typically have included statutory language authorizing these transfers. Table 5 presents the FY2014 enacted appropriations for the Superfund account by major program area, compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). A breakout of the FY2013 enacted appropriations is provided for the disaster relief supplemental appropriations provided in P.L. 113-2 . The net total for the Superfund account also is presented after the transfers to the Science and Technology and Office of Inspector General accounts. Brownfields EPA also administers another cleanup program to provide financial assistance to state, local, and tribal governmental entities for certain types of sites, referred to as "brownfields." Sites eligible for this assistance tend to be sites where the known or suspected presence of contamination may present an impediment to economic development, but where the risks generally are not high enough for the site to be addressed under the Superfund program or other related cleanup authorities. Consistent with liability under CERCLA, responsible parties at these brownfields sites are not eligible for this federal financial assistance, as they are to be held accountable for the cleanup costs. Accordingly, the Brownfields program focuses on providing federal financial assistance for "orphan" sites at which the potential need for cleanup remains unaddressed. EPA's Brownfields program awards two different categories of grants, one competitive and one formula-based. Section 104(k) of CERCLA authorizes EPA to award competitive grants to state, local, and tribal governmental entities for the assessment and remediation (i.e., cleanup) of eligible brownfields sites, job training for cleanup workers, and technical assistance. Section 128 authorizes EPA to award formula-based grants to help states and tribes enhance their own similar cleanup programs. These grants are funded within the STAG account, whereas EPA's expenses to administer the Brownfields program are funded within the Environmental Programs and Management (EPM) account. P.L. 113-76 provided a total of $163.7 million for EPA's Brownfields program in FY2014, $5.1 million (3.2%) more than the President's FY2014 request of $158.6 million and $5.5 million (3.5%) more than the FY2013 enacted appropriations of $158.2 million (post-sequestration and rescission). Table 6 presents the FY2014 enacted appropriations for EPA's Brownfields program broken out by type of grant and program administrative expenses, compared to the President's FY2014 request and the FY2013 enacted appropriations. Underground Storage Tanks38 Under Subtitle I of the Solid Waste Disposal Act, EPA's Office of Underground Storage Tanks addresses the cleanup of releases from underground storage tanks (USTs) containing petroleum or oxygenated fuels (e.g., ethanol) and administers regulations to prevent leaks from underground storage tanks containing petroleum or hazardous substances. These activities are supported by a combination of appropriations from the Leaking Underground Storage Tank (LUST) Trust Fund and appropriations within the EPM and STAG accounts funded with revenues from the General Fund of the U.S. Treasury. Appropriations from the LUST Trust Fund provide most of the funding and are used by the states and EPA to perform or enforce corrective actions to clean up contamination from petroleum leaks, and to enforce leak detection and prevention requirements. Appropriations within the EPM and STAG accounts are available for certain other regulatory and support activities. P.L. 113-76 appropriated $94.6 million from the LUST Trust Fund to EPA for FY2014, $4.6 million (4.6%) less than the President's FY2014 request of $99.2 million and $8.8 million (8.5%) less than the FY2013 enacted appropriations of $103.4 million (post-sequestration and rescission). The funding level for FY2013 included $4.8 million (post-sequestration) in disaster relief supplemental appropriations provided in P.L. 113-2 to address problems with leaking underground storage tanks in areas of states affected by Hurricane Sandy. P.L. 113-76 provided $12.7 million for FY2014 within the EPM account to support EPA staff and extramural costs of efforts to prevent releases from underground storage tanks. The FY2014 enacted level for this activity is somewhat more than the President's FY2014 request of $12.3 million and the FY2013 enacted appropriations of $12.1 million (post-sequestration and rescission). P.L. 113-76 provided $1.5 million within the STAG account, roughly the same as the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). Congress established the LUST Trust Fund to provide a dedicated source of funds for EPA and the states to enforce corrective actions by UST owners or operators responsible for releases; conduct cleanups where no responsible party has been identified, where a responsible party fails to comply with a cleanup order, or in the event of an emergency; and take cost recovery actions against the parties. EPA and the states have generally been successful in getting responsible parties to perform most cleanups. Historically, the states have used the bulk of their annual LUST Trust Fund monies (provided through cooperative agreements with EPA) to oversee and enforce corrective actions performed by tank owners and operators using their own funds. The LUST Trust Fund is financed by a 0.1 cent-per-gallon motor fuels tax. The balance has been declining through redirection of these funds for surface transportation projects via a transfer to the federal Highway Trust Fund. Section 40201 of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141 ) had transferred $2.4 billion from the LUST Trust Fund to the federal Highway Trust Fund in FY2012 to increase resources for federal surface transportation spending. MAP-21 also extended the financing rate for the LUST Trust Fund through September 30, 2016. Section 2002 of the Highway and Transportation Funding Act of 2014 ( P.L. 113-159 , H.R. 5021 ) authorizes the transfer of an additional $1 billion from the LUST Trust Fund to the Highway Trust Fund. Prior to this second transfer, OMB had estimated that $1.35 billion would have been available for appropriation from the LUST Trust Fund, as of the beginning of FY2015. Although these transfers reduce the availability of monies from the LUST Trust Fund for purposes authorized in Subtitle I, the receipts have outpaced the levels of annual discretionary appropriations over time, resulting in the balance growing faster than the use of the funds. The Energy Policy Act of 2005 (EPAct 2005; P.L. 109-58 ) expanded the UST leak prevention provisions under Subtitle I and imposed new responsibilities on the states and EPA, such as requiring states to inspect all tanks every three years. EPAct also broadened the authorized uses of the LUST Trust Fund to support state implementation of most leak prevention and detection requirements, in addition to supporting the LUST cleanup program. Congress now appropriates monies from the trust fund to support both cleanup and underground storage tank leak prevention and detection regulations. Before EPAct 2005, the regulation of underground storage tanks to prevent and detect leaks had been supported entirely from general revenues. As noted above, a relatively small portion of the funding is now derived from general revenues. Table 7 presents the FY2014 enacted appropriations from the LUST Trust Fund to EPA, and within the EPM and STAG accounts, to support the cleanup and UST leak prevention and detection activities, compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission), with a breakout for the disaster relief supplemental appropriations provided in P.L. 113-2 . Geographic-Specific/Ecosystem Programs The EPM account includes funding for several ecosystem restoration programs to address water quality and sources of pollution associated with environmental and human health risks in a number of geographic-specific areas of the United States. These programs often involve collaboration among EPA, other federal agencies, state and local governments, communities, and nonprofit organizations. Table 8 presents the FY2014 enacted appropriations for EPA geographic-specific ecosystem restoration programs, compared to the President's FY2014 request and the FY2013 enacted appropriations (post-sequestration and rescission). Efforts to restore the Great Lakes and Chesapeake Bay have received the largest portions of this funding, discussed below. Great Lakes Restoration Initiative In 2004, President Bush established a Great Lakes Interagency Task Force, chaired by EPA, to develop a strategy (released in 2005) that would guide federal Great Lakes protection and restoration efforts under existing law. In furtherance of this strategy, President Obama proposed the establishment of a Great Lakes Restoration Initiative in FY2010, which Congress subsequently approved in the Interior, Environment, and Related Agencies Appropriations Act, 2010 ( P.L. 111-88 ). The initiative is intended to improve coordination among existing federal programs and projects administered by EPA and eight other federal agencies. The purpose of the initiative is to target the most significant problems in the ecosystem, such as aquatic invasive species, nonpoint source pollution, and toxics and contaminated sediment. Projects and programs are to be implemented through grants and cooperative agreements with states, tribes, municipalities, universities, and other organizations. The initiative consolidates funding for a number of existing federal Great Lakes programs, including EPA's Great Lakes National Program Office, the agency's implementation of the Great Lakes Legacy Act to clean up contaminated sediments, and Great Lakes programs administered by other federal agencies. As the President had requested for FY2010, P.L. 111-88 initially appropriated $475 million to EPA to establish the Great Lakes Restoration Initiative. EPA was responsible for allocating a portion of these funds among its own Great Lakes programs and the Great Lakes programs administered by other federal agencies. Since FY2010, Congress has continued to appropriate funding for the Great Lakes Restoration Initiative to EPA for allocation among the participating federal agencies, but at lower levels. As indicated in Table 8 above, $300.0 million was provided for FY2014 for the Great Lakes Restoration Initiative within the EPM account, the same as the President's FY2014 request and $16.3 million (5.7%) more than the FY2013 enacted appropriations of $283.7 million (post-sequestration and rescission). Chesapeake Bay In May 2009, President Obama issued Executive Order 13508, Chesapeake Bay Protection and Restoration , which directed federal departments and agencies to exercise greater leadership in implementing their existing authorities to restore the bay. Despite restoration efforts of the past 25 years, which have resulted in some successes in specific parts of the ecosystem, the overall health of the bay remains degraded by excessive levels of nutrients and sediment. As indicated in Table 8 above, $70.0 million was appropriated for EPA's Chesapeake Bay program for FY2014, $3.0 million (4.1%) less than the President's FY2014 request of $73.0 million, and $15.7 million (28.9%) more than the FY2013 enacted appropriations of $54.3 million (post-sequestration and rescission). National (Congressional) Priorities and Earmarks P.L. 113-76 included a total of $16.9 million for "National Priorities" within the Science and Technology (S&T) and the Environmental Programs and Management (EPM) accounts for FY2014, roughly the same amount appropriated for this purpose for FY2013 (post-sequestration and rescission). As in previous fiscal years, the President's FY2014 request did not include funding for these priorities, which the Administration has characterized as "Congressional Priorities" because it has not sought funds for these purposes. Of the $16.9 million total, $4.2 million was included within the S&T account for FY2014 for "Research: National Priorities." These funds were to be used for competitive extramural research grants to support high-priority water quality and availability research of national scope by "not-for-profit organizations who often partner with the Agency." The grants were subject to a 25% matching funds requirement. The remaining $12.7 million was included within the EPM account for FY2014 for "Environmental Protection: National Priorities." These funds were to be used for competitive grants to qualified not-for-profit organizations to provide rural and urban communities or individual private well owners with technical assistance to improve water quality or safe drinking water. The grants were subject to a 10% matching funds requirement (including in-kind contributions). Of the $12.7 million, $11.0 million was allocated for training and technical assistance on a national level, or multi-state regional basis, and $1.7 million was allocated for technical assistance to individual private well owners. Although Congress has dedicated funding for these "National" or "Congressional" priorities, they have not been categorized as earmarks by the House or Senate generally because the language would not direct the funding to one specific entity or specific location and the funding would be awarded on a competitive basis. The House and Senate Appropriations Committees have adhered to an earmark moratorium during the 112 th and 113 th Congress as put forth by the leadership in both chambers. This moratorium generally has precluded earmarks in annual appropriations bills for FY2011, FY2012, FY2013, and FY2014. The moratorium followed the adoption of definitions of earmarks in House and Senate rules. While there is no consensus on a single earmark definition among all practitioners and observers of the appropriations process, the Senate and House both in 2007 adopted separate definitions for purposes of implementing new earmark transparency requirements in their respective chambers. In the House rule, such a funding item is referred to as a congressional earmark (or earmark ), while, in the Senate rule, it is referred to as a congressionally directed spending item (or spending item ). Appendix A. Historical Funding Trends and Staffing Levels The Nixon Administration established EPA in 1970 in response to growing public concern about environmental pollution, consolidating federal pollution control responsibilities that had been divided among several federal agencies. Congress has enacted an increasing number of environmental laws, as well as major amendments to these statutes, over three decades following EPA's creation. Annual appropriations provide the funds necessary for EPA to carry out its responsibilities under these laws, such as the regulation of air and water quality, use of pesticides and toxic substances, management and disposal of solid and hazardous wastes, and cleanup of environmental contamination. EPA also awards grants to assist state, tribal, and local governments in controlling pollution in order to comply with federal environmental requirements, and to help fund the implementation and enforcement of federal laws and regulations delegated to the states and tribes. Since FY2006, Congress has funded EPA programs and activities within the Interior, Environment, and Related Agencies annual appropriations bill. The statutory authorization of appropriations for many of the programs and activities administered by EPA has expired, but Congress has continued to fund them through the appropriations process. Although House and Senate rules generally do not allow the appropriation of funding that has not been authorized, these rules are subject to points of order and are not self-enforcing. Congress may appropriate funding for a program or activity for which the authorization of appropriations has expired, if no Member raises a point of order, or the rules are waived for consideration of a particular bill. Congress typically has done so to continue the appropriation of funding for EPA programs and activities for which the authorization of appropriations has expired, but may opt not to fund an unauthorized program or activity. Table A-1 presents the level of FY2008-FY2014 enacted appropriations for EPA by each of the agency's statutory accounts. Figure A-1 presents a history of total discretionary budget authority for EPA from FY1976 through FY2014, as reported by the Office of Management and Budget (OMB) in the "Historical Tables" accompanying the President's Budget of the U.S. Government, Fiscal Year 2015 . Levels of agency budget authority prior to FY1976 were not reported by OMB in the Historical Tables. In Figure A-1 , discretionary budget authority is presented in nominal dollars as reported by OMB, and adjusted for inflation by CRS to reflect the trend in real dollar values over time. EPA's funding over the long term generally has reflected an increase in overall appropriations to fulfill a rising number of statutory responsibilities. EPA's historical funding trends tend to parallel the evolution of the agency's responsibilities over time, as Congress has enacted legislation to authorize the agency to develop and administer programs and activities in response to a range of environmental issues and concerns. In terms of the overall federal budget, EPA's annual appropriations have represented a relatively small portion of the total discretionary federal budget (just under 1% in recent years). Without adjusting for inflation, EPA's funding has grown from $1.0 billion when EPA was established in FY1970 to a peak funding level of $14.86 billion in FY2009. This peak includes regular fiscal year appropriations of $7.64 billion provided for FY2009 in P.L. 111-8 and the supplemental appropriations of $7.22 billion provided for FY2009 in P.L. 111-5 , the American Recovery and Reinvestment Act of 2009. However, in real dollar values (adjusted for inflation), EPA's funding in FY1978 was slightly more than the level in FY2009, as presented in Figure A-1 . EPA Staff Levels Figure A-2 below presents the trend in EPA's authorized "Full Time Equivalent" (FTE) employment ceiling from FY2001 through FY2014. Information prior to FY2001 is available in March 2000 testimony by the General Accounting Office (GAO), in which GAO reported that EPA FTEs increased by about 18% from FY1990 through FY1999, with the largest increase (13%, from 15,277 to 17,280 FTEs) occurring from FY1990 though FY1993. From FY1993 through FY1999, GAO indicated that EPA's FTEs grew at a more moderate rate, at less than 1% per year. As indicated in Figure A-2 , with the exception of increases in four fiscal years, the general trend has been downward since FY2001. Appendix B. Descriptions of EPA's Nine Appropriations Accounts From FY1996 through FY2013, annual appropriations for EPA had been requested by the Administration and appropriated by Congress under eight statutory accounts. P.L. 113-76 established a ninth account for FY2014, the Hazardous Waste Electronic Manifest System Fund. Table B-1 describes the scope of the programs and activities funded within each of these accounts. Prior to FY1996, Congress appropriated funding for EPA under a different account structure, making it difficult to compare funding for the agency historically over time by the individual accounts.

Enacted on January 17, 2014, Title II of Division G of the Consolidated Appropriations Act, 2014 (P.L. 113-76, H.R. 3547) provided $8.20 billion for the Environmental Protection Agency (EPA) for FY2014. The act appropriated funding for the full fiscal year through September 30, 2014, for all of the 12 regular appropriations acts, including EPA within Interior, Environment, and Related Agencies. Total discretionary appropriations available in FY2014 for all federal departments and agencies were based on a cap of $1.012 trillion set in the Bipartisan Budget Act of 2013 (P.L. 113-67). The White House Office of Management and Budget (OMB) determined that this spending level in FY2014 would not trigger sequestration under the Budget Control Act of 2011 (BCA; P.L. 112-25), as amended by the American Taxpayer Relief Act (ATRA; P.L. 112-240). Unlike FY2013, the FY2014 appropriations therefore were not reduced through sequestration. The total FY2014 enacted appropriations of $8.20 billion for EPA were $47.0 million (0.6%) more than the President's FY2014 request of $8.15 billion, and $298.9 million (3.8%) above the FY2013 enacted appropriations of $7.90 billion (post-sequestration and rescission) provided in the Consolidated Appropriations Act, 2013 (P.L. 113-6) as reported by EPA in its FY2013 Operating Plan. The FY2014 enacted appropriations are a $278.4 million (3.3%) decrease compared to the total FY2013 appropriations of $8.48 billion for EPA, when accounting for the $577.3 million (post-sequestration) in supplemental funds provided in the Disaster Relief Appropriations Act, 2013 (P.L. 113-2). These supplemental funds were dedicated to water infrastructure, cleanup, and other recovery efforts in areas of states affected by Hurricane Sandy in late October 2012. No regular FY2014 appropriations bill for Interior, Environment, and Related Agencies was introduced in the House or Senate prior to the start of the fiscal year on October 1, 2013. On July 31, 2013, the House Appropriations Committee began, but did not conclude, markup of an FY2014 Interior appropriations bill. On August 1, 2013, the Senate Appropriations Subcommittee on Interior, Environment, and Related Agencies released a draft FY2014 Interior appropriations bill with an accompanying explanatory statement to serve as a starting point for debate in the Senate. No regular appropriations bills for FY2014 were enacted prior to the beginning of that fiscal year. Following a temporary lapse in funding through October 16, 2013, EPA and other federal departments and agencies operated under two continuing resolutions (P.L. 113-46 and P.L. 113-73) prior to the enactment of P.L. 113-76 to fund the full fiscal year. Considerable attention during the debate and hearings on the EPA's appropriations for FY2014 focused on federal financial assistance to states for wastewater and drinking water infrastructure projects, various categorical grants to states to support general implementation and enforcement of federal environmental programs as delegated to the states, funding for implementation and research support for air pollution control requirements, climate change and greenhouse gas emissions, and funding for environmental cleanup. In addition to funding for specific programs and activities, several recent and pending EPA regulatory actions received attention during hearings on FY2014 appropriations for EPA, similar to the debate regarding appropriations for the agency for recent fiscal years. Although a number of provisions to prohibit or restrict the use of FY2014 appropriations for certain EPA actions were considered in the House Appropriations Committee markup, most of these provisions were not included in the Senate Appropriations Subcommittee draft, the partial-fiscal year continuing resolutions noted above, or P.L. 113-76 that provided funding for the full fiscal year. This report summarizes actions on FY2014 appropriations for EPA and presents a breakout of the FY2014 enacted appropriations for the agency by each of the nine appropriations accounts and by selected programs and activities within those accounts that received more prominent attention in the congressional debate. The discussions and tables presented in this report compare the FY2014 enacted appropriations for EPA to the President's FY2014 budget request, and the FY2013 enacted appropriations (post-sequestration and rescission), including funding provided in P.L. 113-6 and the disaster relief supplemental funds provided P.L. 113-2.

Introduction to HUD Most of the funding for the activities of the Department of Housing and Urban Development (HUD) comes from discretionary appropriations provided each year in the annual appropriations acts enacted by Congress. HUD's programs are primarily designed to address housing problems faced by households with very low incomes or other special housing needs. Three rental assistance programs—Public Housing, Section 8 tenant-based rental assistance (which funds Section 8 Vouchers), and Section 8 project-based rental assistance—account for the majority of the department's funding (more than three-quarters of total HUD appropriations in FY2014). Two flexible block grant programs—HOME and the Community Development Block Grant (CDBG) program—help communities finance a variety of housing and community development activities designed to serve low- and moderate-income families. In addition, in some years Congress appropriates funds to CDBG to assist in disaster recovery. Other more specialized grant programs help communities meet the needs of homeless persons, including those living with HIV/AIDS. HUD's Federal Housing Administration (FHA) insures mortgages made by lenders to home buyers with low down payments and to developers of multifamily rental buildings containing relatively affordable units. FHA collects fees from insured borrowers, which are used to sustain the insurance fund. Surplus FHA funds have been used to offset the cost of the HUD budget. Table 1 presents total net enacted appropriations for HUD over the past five years, including emergency appropriations, rescissions, offsetting collections, and receipts. (For more information, see CRS Report R42542, Department of Housing and Urban Development (HUD): Funding Trends Since FY2002 , by [author name scrubbed].) FY2014 Enacted Funding Levels The Consolidated Appropriations Act of 2014 ( P.L. 113-76 ) was signed into law on January 17, 2014. The final appropriations law provided year-long appropriations for all federal agencies, including HUD. Congress did not enact any final FY2014 appropriations prior to the start of the fiscal year on October 1, 2013, resulting in a funding lapse and partial government shutdown that lasted until a short-term continuing resolution (CR) was enacted on October 17, 2013. Under the terms of that CR ( P.L. 113-46 ), federal departments and agencies, including those typically funded by the Departments of Transportation, Housing and Urban Development, and Related Agencies appropriations bill, were funded at their FY2013 levels, post-rescission and post-sequestration, back-dated from October 1, 2013, through January 15, 2014. Following enactment of another short-term CR ( P.L. 113-73 ), final FY2014 appropriations were enacted for all federal agencies. The final appropriation provided $32.8 billion in net budget authority for HUD, which is about 4% more than was provided post-sequestration in FY2013 (not including $15.2 billion in disaster funding in FY2013). Net budget authority is calculated by subtracting rescissions and offsetting collections and receipts from gross budget authority (appropriations) provided for HUD programs. The reductions in FY2014 primarily consisted of FHA receipts. In FY2014, gross funding for HUD programs was $45.5 billion, an increase of nearly 7% compared to FY2013 (not including FY2013 disaster funding). Unlike FY2013 HUD funding, FY2014 discretionary appropriations were not subject to sequestration. For more information about sequestration, see the Appendix . FY2015 Appropriations Final FY2015 Appropriations On December 16, 2014, the President signed the FY2015 Consolidated and Further Continuing Appropriations Act ( P.L. 113-235 ), funding most federal agencies, including HUD, for the fiscal year. The House passed the bill on December 11, 2014, and the Senate passed it on December 13, 2014. Prior to enactment of P.L. 113-235 , the government had been funded with three continuing resolutions. The first, P.L. 113-164 , the FY2015 Continuing Appropriations Resolution provided funding from October 1, 2014, through December 11, 2014, at FY2014 levels, less an across-the-board (ATB) rescission of 0.0554% (unless otherwise specified). Congress enacted two additional CRs, P.L. 113-202 through December 15, 2014, and P.L. 113-203 through December 17, 2014, before enactment of P.L. 113-235 . P.L. 113-235 provides $45.4 billion in gross discretionary appropriations for HUD programs, not accounting for savings from offsets and other sources, about $90 million less than in FY2014 ($45.5 billion). However, net budget authority is higher than in FY2014, approximately $35.6 billion in FY2015 compared to $32.8 billion in FY2014. The primary difference between FY2015 and FY2014 is that estimated receipts from the Federal Housing Administration (FHA) loan insurance program dropped by about $3 billion in FY2015 so that there were fewer offsets. House Action The House Appropriations Committee approved its version of the FY2015 Departments of Transportation, Housing and Urban Development, and Related Agencies (THUD) Appropriations Act ( H.R. 4745 ) on May 27, 2014. Two weeks later, on June 10, 2014, the full House approved the bill after voting on a number of amendments. None of the adopted amendments changed overall funding for HUD programs. H.R. 4745 would have provided $44.7 billion in gross budget authority, and $35.0 billion in net budget authority. Senate Action The Senate Appropriations Committee approved the FY2015 THUD appropriations bill ( S. 2438 ) on June 5, 2014. Senate appropriators had planned to consider the THUD bill as part of a "minibus" with two other appropriations bills (those for the Department of Commerce, Department of Justice, Science and Related Agencies; and the Department of Agriculture) the week of June 16, 2014, but parties were unable to reach agreement on the amendment process, and the measure did not proceed to the floor. The Senate Committee-passed bill would have provided $45.8 billion in gross budget authority, and $36.0 billion in net budget authority. President's Budget On March 4, 2014, the Obama Administration submitted its FY2015 budget request. It included $46.7 billion in gross discretionary budget authority for HUD, which did not account for savings from rescissions and offsets from receipts and collections. The President's gross funding request was about $1.2 billion more than the amount provided in FY2014 ($45.5 billion). The amount of net budget authority requested in the President's budget was also higher than the amount provided in FY2014. This was largely attributable to reduced savings estimated to be available from the Federal Housing Administration (FHA) mortgage insurance fund. While HUD estimated that FHA offsets would increase by about $1.3 billion compared to FY2014, Congress uses the Congressional Budget Office's (CBO's) estimates of FHA receipts. CBO's estimate for the amount of offsetting receipts that will be generated by the loans insured under FHA's Mutual Mortgage Insurance Fund (MMI Fund) in FY2015 was $4.2 billion lower than the estimate included in the President's budget. After the President's request was reduced to account for CBO's estimates of offsetting collections and receipts, net budget authority would have been $36.9 billion (compared to $32.8 billion in FY2014). Table 2 presents account-level funding information for HUD, with column (a) showing FY2014 enacted funding levels, column (b) the President's FY2015 proposal, column (c) the funding levels in the House-passed FY2015 THUD appropriations bill ( H.R. 4745 ), column (d) the funding levels in the Senate Committee-passed FY2015 THUD appropriations bill ( S. 2438 ), and column (e) FY2015-enacted funding levels in P.L. 113-235 . Selected FY2015 Funding Issues Funding for Assisted Housing Programs More than 75% of discretionary funding for HUD supports three programs: Section 8 tenant-based rental assistance (which funds Section 8 Housing Choice Vouchers), Section 8 project-based rental assistance, and the Public Housing program. Together, these three programs serve more than 4 million low-income households. The following subsections discuss appropriations for these three programs, along with smaller associated programs, Choice Neighborhoods and the Rental Assistance Demonstration. Section 8 Tenant-Based Rental Assistance The tenant-based rental assistance (TBRA) account funds the Section 8 Housing Choice Voucher program; it is the largest account in HUD's budget. Most of the funding provided to the account each year is for the annual renewal of more than 2 million vouchers that are currently authorized and being used by families to subsidize their housing costs. The account also provides funding for the administrative costs incurred by the Public Housing Authorities (PHAs) that administer the program. The account is funded using both current-year appropriations and advance appropriations provided for use in the following fiscal year. (For more information about the program, see CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals , by [author name scrubbed].) As shown in Table 3 , the President's FY2015 budget proposed that total funding for the Section 8 tenant-based rental assistance account increase from $19.2 billion in FY2014 to $20.0 billion in FY2015, an increase of 4.5%. The President's budget documents indicated that the requested funding level would be sufficient to renew the roughly 2.2 million vouchers currently funded, and to provide new HUD-VASH vouchers for homeless veterans as well as tenant-protection vouchers for residents in properties that no longer provide subsidized housing. The President's budget request proposed to increase the amount of administrative fees paid to the local PHAs that administer the program. In FY2014, the amount provided for administrative fees within the TBRA account was sufficient to fund only about 75% of eligible fees; HUD estimated that the requested funding level in FY2015 would increase the "proration level" to 83%. Both the House- and Senate Committee-passed THUD appropriations bills would have reduced TBRA funding relative to the President's budget request, but increased funding compared to FY2014 levels. The House-passed bill ( H.R. 4745 ) would have provided a total of $19.4 billion for TBRA, and the Senate Committee-passed bill ( S. 2438 ) would have provided $19.6 billion. The administrative fees funding level in H.R. 4745 would have been $1.350 billion, $150 million less than in FY2014, while the amount proposed in S. 2438 would have been slightly more than was appropriated in FY2014, at $1.555 billion. Both bills would have provided less than was requested in the President's budget. The final FY2015 appropriations law provides $19.3 billion for the TBRA account, slightly more than was provided in FY2014 (+0.7%), but less than was requested by the President (-3.7%) or proposed by H.R. 4745 (-0.3%) or S. 2438 (-1.3%). The law provides less for voucher renewals than was requested or included in H.R. 4745 or S. 2438 , but the explanatory statement accompanying the law notes that the funding reduction reflects revised estimates from HUD of the amount needed to renew existing vouchers. While the law increases the funding level for administrative fees, they were not increased to the level that was requested by the President (a $30 million increase relative to a proposed $205 million increase). The House-passed bill would have prevented HUD from approving Section 8 payment standards above 120% of fair market rent. PHAs may ask HUD for permission to use higher payment standards, the basis for rents paid to landlords, when certain circumstances are met. Higher payment standards are used where they are needed either to help families find housing outside of high-poverty areas or because families are unable to find housing within the voucher term. This restriction was not included in the final law. Section 8 Project-Based Rental Assistance The Section 8 project-based rental assistance (PBRA) account provides funding to administer and renew existing project-based Section 8 rental assistance contracts between HUD and private multifamily property owners. Under those contracts, HUD provides subsidies to the owners to make up the difference between what eligible low-income families pay to live in subsidized units (30% of their incomes) and a previously agreed-upon rent for the unit. No contracts for newly subsidized units have been entered into under this program since the early 1980s. When the program was active, Congress funded the contracts for 20- to 40-year periods, so the monthly payments for owners came from old appropriations. However, once those contracts expire, they require new annual appropriations if they are renewed. Further, some old contracts do not have sufficient funding to finish their existing terms, so new funding is needed to complete the contract (referred to as amendment funding). As more contracts have shifted from long-term appropriations to new appropriations, this account has grown and become the second-largest account in HUD's budget. The President's FY2015 budget proposed a decrease of not-quite $200 million in PBRA compared to FY2014 ($9.7 billion compared to $9.9 billion). The budget also proposed that all PBRA contracts be funded on a calendar year (CY) schedule, from January through December. Currently, PBRA funding is based on the month in which contracts were entered into. HUD has sometimes "short-funded" contracts in recent years, providing owners with less than one year of funding due to funding levels for the program. The President's budget proposed that FY2015 funding be used to fund all contracts through CY2015 (in some cases, this would mean less than one year of funding would be needed). Then, FY2016 funding would be used to fund all contracts for the full 2016 calendar year at an estimated cost of $10.8 billion. A change to calendar year funding would not only provide a one-time appropriations savings for the account, but it would also bring PBRA in line with Section 8 tenant-based rental assistance and Public Housing, where units are already funded on a calendar year basis. Both the House-passed bill ( H.R. 4745 ) and Senate Appropriations Committee-passed bill ( S. 2438 ) followed the President's proposal for calendar year funding and proposed $9.7 billion for PBRA. The Senate Appropriations Committee "reluctantly" agreed with the proposal to shift to calendar year funding, and stated that " due to the budget constraints for fiscal year 2015, the Committee accepts this approach as the best option for preserving HUD's housing assistance programs." (See S.Rept. 113-182 .) The House Appropriations Committee reported that it expected HUD to "plan for the sustainability of the new payment cycle beyond calendar year 2015, and ... to accurately reflect the twelve months of funding required to support the new approach in its annual budget request for fiscal year 2016." (See H.Rept. 113-464 .) The final FY2015 funding law appropriates $9.73 billion for PBRA, $16 million (0.2%) less than the amount requested by the President and proposed by H.R. 4745 and S. 2438 . The law permits the Secretary of HUD to supplement the appropriations provided with recaptured and unobligated funds, including funds from certain property owners' residual receipts accounts. While the explanatory statement accompanying the law is silent on the calendar year funding proposal, the funding level provided would not be sufficient to fully fund all PBRA contracts for 12 months and thus is consistent with the President's proposal to convert to calendar year funding. Public Housing and Choice Neighborhoods The Public Housing program provides publicly owned and subsidized rental units for very low-income families. Created in 1937, it is the federal government's oldest housing assistance program for poor families, and it is arguably HUD's most well-known assistance program. (For more information, see CRS Report R41654, Introduction to Public Housing , by [author name scrubbed].) Although no new Public Housing developments have been built for many years, Congress continues to provide funds to the more than 3,100 PHAs that own and maintain the existing stock of more than 1 million units. Public Housing receives federal funding under two primary accounts, which, when combined, result in Public Housing being the third-highest funded program in HUD's budget (following the two Section 8 programs). Through the operating fund, HUD provides funding to PHAs to help fill the gap between tenants' rent contributions and the cost of ongoing maintenance, utilities, and administration of public housing properties. Through the capital fund, HUD provides funding to PHAs for capital projects and modernization of their public housing properties. In terms of total funding for the Public Housing program—both the operating fund and capital fund—the President's FY2015 budget requested a 4% increase compared to FY2014, up from approximately $6.3 billion to $6.5 billion. As shown in Table 4 , the operating fund request included a 4.5% increase (from $4.400 billion to $4.600 billion) and the capital fund request a 2.7% increase (from $1.875 billion to $1.925 billion) over FY2014. The budget proposed to eliminate funding for the Resident Opportunities and Self Sufficiency (ROSS) program and requested $25 million for the Jobs Plus Pilot Initiative. The Jobs Plus Initiative is based on the original Jobs Plus demonstration, which identified several place-based work support strategies that appeared to increase employment and earnings for residents of public housing. It was funded for the first time at $15 million in FY2014. The House-passed THUD appropriations bill ( H.R. 4745 ) would have reduced funding for the capital fund relative to both FY2014 and the President's request, proposing about $1.8 billion, and would have maintained the FY2014 funding level for the operating fund at $4.4 billion. The Senate Committee-passed bill ( S. 2438 ) included $1.9 billion for the capital fund, splitting the difference between FY2014 ($1.875 billion) and the President's request ($1.925 billion), and proposed to increase funding for the operating fund compared to FY2014, providing about $4.5 billion. Both H.R. 4745 and S. 2438 would have maintain funding at FY2014 levels for both ROSS ($45 million) and the Jobs Plus Initiative ($15 million). The final FY2015 appropriations law funds the operating fund and the capital fund at FY2014 levels. Choice Neighborhoods The FY2015 budget requested $120 million for Choice Neighborhoods, an increase from FY2014 when the program received $90 million. The Choice Neighborhoods program is an Obama Administration initiative that provides competitive grants to local communities to redevelop distressed assisted housing. Choice Neighborhoods was designed to replace HOPE VI, which provided competitive grants to PHAs to redevelop distressed public housing. While PHAs are eligible to receive Choice Neighborhood grants, other entities may also apply. FY2012 was the first year that Choice Neighborhoods was funded while HOPE VI was not. The House-passed THUD appropriations bill included $25 million for Choice Neighborhoods, and the Senate Committee-passed bill would have maintained funding at the FY2014 level of $90 million. The final FY2015 appropriations law funds the account at $80 million, which is $10 million less than was provided in FY2014 and proposed in S. 2438 and $40 million less than was requested in the President's budget; however, it is $55 million more than was proposed in H.R. 4745 . The Rental Assistance Demonstration Program The FY2012 Consolidated Appropriations Act ( P.L. 112-55 ) established the Rental Assistance Demonstration (RAD). RAD allows existing housing subsidy programs to convert to Section 8 project-based rental assistance (PBRA) or Section 8 project-based vouchers (PBV). RAD has two components: (1) Public Housing units and Section 8 Moderate Rehabilitation (Mod. Rehab.) units can convert to PBRA or PBV, and (2) two legacy rental assistance programs, Rent Supplement and the Rental Assistance Program, can convert to PBV assistance. The law limited the number of conversions under the first RAD component to 60,000 units; there is no limit on the number of units that can convert under the second component. RAD was not funded, so conversions from one form of assistance to PBRA or PBV must be cost neutral. The first component of RAD was initially authorized through FY2015 and the second component through December 31, 2014. For FY2015, the President's budget included several proposals regarding RAD: eliminate the cap on units that can convert under the first RAD component; provide $10 million to fund Public Housing conversions where additional rental assistance is needed; allow Mod. Rehab. Single Room Occupancy units for homeless individuals to convert (they are not currently included); and allow units eligible to convert under the second RAD component to convert to PBRA in addition to PBV. The House-passed THUD bill ( H.R. 4745 ) included neither funding for RAD nor changes to the way it operates. The Senate Committee-passed bill ( S. 2438 ) included $10 million for the conversion of Public Housing units and proposed to raise the cap on units that can convert under the first RAD component to 185,000; extend the authorization dates for both RAD components (through FY2018 and December 31, 2016, respectively); allow Mod. Rehab. Single Room Occupancy units for homeless individuals to convert under the first RAD component; and allow units eligible to convert under the second RAD component to convert to PBRA in addition to PBV. The final FY2015 HUD appropriations law includes the RAD provisions from S. 2438 , with two exceptions: (1) no funding is provided for RAD; and (2) the deadline for conversion under the second component of RAD is eliminated. Community Development Funding: The CDF, CDBG, and Section 108 The Community Development Fund (CDF) funds several community development-related activities, including the Community Development Block Grant (CDBG) program. CDBG is the federal government's largest and most widely available source of financial assistance supporting state and local government-directed neighborhood revitalization, housing rehabilitation, and economic development activities. These formula-based grants are allocated to approximately 1,196 entitlement communities (metropolitan cities with populations of 50,000, principal cities of metropolitan areas, and urban counties), the 50 states, Puerto Rico, and the insular areas of American Samoa, Guam, the Virgin Islands, and the Northern Mariana Islands. Grants are used to implement plans intended to address housing, community development, and economic development needs, as determined by local officials. (For a detailed review of recent CDF funding issues and a detailed description of CDBG, see CRS Report R43208, Community Development Block Grants: Funding Issues in the 113 th Congress , by [author name scrubbed]. And for related programs see CRS Report R43520, Community Development Block Grants and Related Programs: A Primer , by [author name scrubbed].) Administration Request The Obama Administration's budget request for FY2015 included $2.870 billion for activities funded under the CDF account. The requested amount represented 6.1% of the total budget authority requested by the agency for FY2015. As shown in Table 5 , the Administration's FY2015 budget proposed to decrease total funding for CDF account activities by 7.4%, or $230 million. The budget proposal also requested funding, under separate HUD accounts, for several activities that were previously funded under the CDF account: Section 4 capacity building ($20 million in its own discretionary account, see Table 2 ), Integrated Planning and Investment Grants, a component of the Administration's previously funded Sustainable Communities Initiative ($75 million through the Opportunity, Growth, and Security Initiative; see " The Opportunity, Growth, and Security Initiative "), and Neighborhood Stabilization Initiative activities under its Project Rebuild proposal ($15 billion in mandatory funding). Under the Administration's FY2015 budget proposal for the CDBG program, formula grants would have declined by $230 million from the amounts appropriated for FY2014. For FY2015, the Administration requested $2.800 billion for the CDBG formula component of the CDF account, including $1.955 billion for CDBG entitlement communities; $838 million for CDBG state administered programs; and $7 million for insular areas. This was approximately 7.4% less than the amount appropriated for FY2014. The Administration also requested $70 million for Indian tribes. This was the same amount that was appropriated for FY2014. The Administration, when releasing its FY2015 budget request, noted that it planned to propose revisions and reforms to the CDBG program. According to the Administration's budget documents, the proposed reforms would focus on the CDBG formula, promoting regional planning and coordination, reducing the number of small grantees, and targeting resources to areas of greatest need. The Administration also identified proposed reforms to the program when submitting its FY2014 budget request, but it did not submit a formal proposal. Again during the FY2015 budget cycle the Administration announced, but did not submit, a formal proposal for consideration by Congress. The CDBG Section 108 Loan Guarantee program (Section 108) allows states and entitlement communities to collateralize their annual CDBG allocation in an effort to attract private capital to support economic development activities, housing, public facilities, and infrastructure projects. Communities may borrow up to five times their annual allocation for a term of 20 years through the public issuance of bonds. The proceeds from the bonds must be used to finance activities that support job creation and that meet one of the national goals of the CDBG program. The Administration's budget proposed a loan commitment ceiling of $500 million in FY2015. FY2015 marks the first year the program will charge a fee to access the program rather than provide a credit subsidy. The fee-based proposal, which was first floated by the Administration in its FY2010 budget request, was not approved by Congress until the FY2014 appropriations act. HUD announced that it would issue regulations sometime in 2014. In the interim, grantees were directed to continue to apply for the credit subsidy until it is depleted. House-Passed Bill (H.R. 4745) The House-passed bill ( H.R. 4745 ) recommended $3.060 billion for activities funded under the CDF account, including $3.0 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was $30 million (1%) less than the $3.030 billion appropriated in FY2014 for formula grants, $200 million (7%) more than requested by the Administration and $20 million (0.7%) less than recommended by the Senate bill, S. 2438 . The bill would have appropriated $10 million less than the $70 million recommended by the Senate bill and requested by the Administration for Indian tribes. During floor consideration of the bill, the House approved an amendment ( H.Amdt. 828 ) that would have prohibited HUD from terminating the CDBG entitlement status of any community. The provision was an effort to protect the entitlement status of communities that no longer meet statutory requirements for direct formula-based allocations since it was anticipated that the Administration would seek statutory changes in the program eligibility requirements that would have had the net effect of reducing the number of entitlement communities. H.R. 4745 did not include funds to support a new round of funding for Integrated Planning Grant activities. The House bill did include language supporting the conversion of Section 108 loan guarantees to a fee-based structure and recommended a loan guarantee ceiling of $500 million. The bill would have funded Section 4 (Capacity Building for Community Development and Affordable Housing) under a separate, stand-alone account and not as a component of the CDF account, or its current account, the Self-Help Homeownership Opportunity Program account. Senate Appropriations Committee-Passed Bill (S. 2438) The Senate Committee-passed bill ( S. 2438 ) recommended $3.090 billion for activities funded under the CDF account, including $3.020 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was $10 million less than the $3.030 billion appropriated in FY2014 for formula grants and $220 million more than requested by the Administration. S. 2438 supported the Administration's $70 million funding request for Indian tribes, including a set-aside of $10 million in grant funds for mold remediation and prevention in Indian housing. The bill also supported a loan commitment ceiling of $500 million for the Section 108 loan guarantee program and recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $35 million appropriation level. The bill did not support the Administration's request to transfer the Section 4 program from its current account, the Self-Help Homeownership Opportunity Program account, to a new stand-alone account; nor did the bill recommend funding the Administration's Neighborhood Stabilization Initiative proposal. The bill included a provision that would have prohibited a community from exchanging or transferring its CDBG allocation to another community in exchange for non-CDBG funds. The provision was intended to stop the practice, most prevalent in Los Angeles County, of affluent communities, such as Beverly Hills, not participating in the county's CDBG program. In addition, the report that accompanied the bill ( S.Rept. 113-182 ) included language that would have directed HUD to establish a demonstration program using $2 million in CDBG funds to develop best practices that would aid communities in expediting their post-disaster recovery efforts. Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235 P.L. 113-235 includes a total appropriation of $3.066 billion exclusively for CDBG activities, including $3 billion for CDBG formula grants to states ($898 million), entitlement communities ($2.095 billion), and insular areas ($7 million). The act also sets aside $66 million for the Indian CDBG (ICDBG) program. The $3 billion CDBG formula grants appropriation represents a 7% increase above the Administration's request and a 1% decline below the $3.030 billion appropriated for FY2014. The $3 billion appropriated for CDBG formula grants is the same amount recommended by the House bill, $20 million less than recommended by the Senate Committee-passed bill, $30 million less than appropriated for the previous year's activities, but $200 million more than requested by the Administration. The act appropriates $4 million less for the ICDBG program than appropriated in FY2014. Of the amount set aside for ICDBG projects, $6 million is to be made available to undertake mold remediation and prevention in Indian housing. P.L. 113-235 also supports a fee-based loan commitment ceiling of $500 million for the CDBG Section 108 loan guarantee program. In addition, the act continues funding of capacity building activities, but under a separate account, including $35 million for Section 4 activities (Capacity Building for Community Development and Affordable Housing) to be carried out by the following national organizations: Local Initiative Support Corporation, Enterprise Foundation, and Habitat for Humanity; and an additional $5 million for capacity building by national rural housing organizations. P.L. 113-235 does not support the Administration's request to transfer the Section 4 program from its current account, the Self-Help Homeownership Opportunity Program account, to a new stand-alone account; nor does the act appropriate funding for the Administration's Neighborhood Stabilization Initiative proposal. The act also includes CDBG-related provisions included in House or Senate bills, including a provision prohibiting a community from exchanging or transferring its CDBG allocation to another community in exchange for non-CDBG funds, and provisions prohibiting the use of CDF funds for Economic Development Initiative and Neighborhood Initiative projects. Last funded in FY2010, these are two programs that had been used exclusively for congressional earmarks. In addition, FY2015 CDF appropriations are not to be used to fund projects under the Rural Innovation Fund, or discretionary activities authorized under 42 U.S.C. §5307 of the CDBG program's authorizing statute (for special purpose grants as defined in that section). HOME Investment Partnerships Program The HOME Investment Partnerships Program is a flexible block grant that provides formula funding to states and certain local jurisdictions (referred to as "participating jurisdictions") to use for a wide range of affordable housing activities that benefit low-income households. Along with states, about 600 local jurisdictions received formula funding through HOME in FY2013. The President's budget requested $950 million for the HOME program, a 5% decrease from the FY2014 enacted level of $1 billion. The request included up to $10 million as a set-aside for the Self-Help Homeownership Opportunity Program (SHOP), which is currently funded in its own account. The House-passed bill would have provided $700 million for HOME, which was $250 million less than the President's budget request and $300 million less than was provided in FY2014. Like the President's budget request, it would have provided up to $10 million for SHOP within the HOME account, rather than funding SHOP within its own account. The Senate Committee-passed bill would have provided $950 million for HOME, and would have provided $10 million for SHOP in its own account. The President's budget also included several legislative proposals related to HOME, including a proposal that would affect the number of local jurisdictions that would be eligible to become participating jurisdictions. To become a participating jurisdiction, a locality must be a metropolitan city or an urban county, and must meet certain funding thresholds. The statute provides that a locality can become a participating jurisdiction if it is eligible for a formula allocation of at least $500,000, or at least $335,000 in years when less than $1.5 billion is appropriated for the program. The President's budget proposed eliminating the lower $335,000 threshold, so that local jurisdictions would only become eligible if they would receive a formula allocation of at least $500,000 regardless of the total amount of appropriations for the program in a given year. The budget also proposed revising provisions regarding "grandfathering" of participating jurisdictions. Currently, a locality that has been participating in the program can continue to participate in future years, even if its formula allocation falls below the threshold. The proposal in the budget would have eliminated this continuous grandfathering, and instead would have allowed a locality to continue to qualify as a participating jurisdiction for a five-year period. The budget noted that, due to a higher number of participating jurisdictions and decreasing appropriations in recent years, many jurisdictions are receiving allocations that may be too small to effectively administer affordable housing programs. Removing the lower threshold and ending continuous grandfathering would result in fewer participating localities, but higher grant amounts for localities that continue to participate. Both the House-passed bill and the Senate Appropriations Committee-passed bill contained language that has been included in recent appropriations laws that would disregard the lower threshold for localities to become participating jurisdictions during the fiscal year, meaning that localities would have to reach the higher $500,000 threshold in order to become new participating jurisdictions even with a total program appropriation of less than $1.5 billion. Neither bill included the permanent changes that were included in the President's budget, such as permanently changing the threshold requirement or making changes to the grandfathering provision. The FY2015-enacted appropriations law provides $900 million for the HOME program, which is $100 million below the FY2014 funding level. It also continues to provide $10 million for SHOP within its own account. The final law continues the language from recent years that disregards the lower threshold for localities to become participating jurisdictions during the fiscal year, but does not include any of the permanent changes that were proposed in the President's budget request. The Federal Housing Administration (FHA) The Federal Housing Administration (FHA) insures private mortgage lenders against losses on certain home mortgages made to eligible borrowers, such as households with low down payments. If the borrower defaults on the mortgages, FHA repays the lender the remaining amount that the borrower owes on the mortgage. The provision of FHA insurance helps to make mortgage credit more widely available, and at a lower cost, than it might be in the absence of the insurance. (For more information on the features of FHA-insured mortgages, see CRS Report RS20530, FHA-Insured Home Loans: An Overview , by [author name scrubbed].) The FHA insurance programs are administered primarily through two program accounts in the HUD budget: the Mutual Mortgage Insurance Fund (MMI Fund) account and the General Insurance/Special Risk Insurance Fund account (GI/SRI Fund). The MMI Fund includes mortgages for single-family home loans and FHA-insured reverse mortgages (known as Home Equity Conversion Mortgages, or HECMs), while the GI/SRI Fund includes mortgages on multifamily buildings and healthcare facilities such as hospitals and nursing homes. The MMI Fund is the largest of the FHA insurance funds, and when there is public discussion of "FHA insurance" or "FHA loans," it is usually related to the MMI Fund and the single-family home loans insured under that fund. The discussion in the remainder of this section focuses on the MMI Fund, unless otherwise noted. Credit Subsidy and Offsetting Receipts The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget. The FCRA requires the cost of loans insured in a given fiscal year to be recorded in the budget as the net present value of all of the expected future cash flows from the loans that will be insured in that year. This is referred to as credit subsidy (and the net value of the cash flows expressed as a percentage of the volume of loans expected to be insured in that year is the credit subsidy rate ). If the estimated cash inflows exceed the estimated cash outflows, the net present value of these cash flows is reflected in the budget as a negative number because it represents negative outlays (referred to as negative credit subsidy). Negative credit subsidy results in offsetting receipts, which, in the case of the MMI Fund, can offset other costs of the HUD budget. If the estimated cash outflows exceed the cash inflows, the program has positive credit subsidy, and that program requires an appropriation of credit subsidy in the budget year that the loans are originated. Historically, the MMI Fund has had a negative subsidy rate and therefore has been estimated to generate negative credit subsidy. For FY2015, the President's budget estimated that the MMI Fund would generate $12.2 billion in negative credit subsidy. Combined with an additional $876 million in negative credit subsidy from the GI/SRI Fund, the President's budget estimated that FHA would generate about $13.1 billion in negative credit subsidy in FY2015 that could be used as offsetting receipts. The Congressional Budget Office (CBO) does its own estimates of FHA's credit subsidy rate and offsetting receipts, and the CBO estimates are the ones that are used by congressional appropriators to determine budget authority. CBO's estimates for loans insured under the MMI Fund in FY2015 were lower than those included in the President's budget. CBO estimated that the credit subsidy rate for loans insured under the MMI Fund would be lower (-5.3%, compared to -9.03% in the President's budget), resulting in about $8 billion in negative credit subsidy rather than $12.2 billion. The lower estimates from CBO result in a smaller amount of offsets available to appropriators to offset the cost of the HUD budget. Lower amounts of offsets mean that appropriators have to provide less in gross new appropriations in order to remain within specified limits on net new budget authority. Appropriations and Commitment Authority Because the loans insured under the MMI Fund have historically been estimated to have negative credit subsidy, the MMI Fund has never needed an appropriation to cover the costs of loans guaranteed in a given fiscal year. However, FHA does receive appropriations every year for salaries (included in the salaries and expenses account for the overall HUD budget) and administrative contract expenses. For FY2015, the President's budget requested an appropriation of $170 million for administrative contract expenses. The budget also proposed charging an administrative support fee to lenders, which HUD estimated would generate up to $30 million in fees that would offset some of the funding provided for administrative contract expenses. The House-passed bill would have provided $130 million for administrative contract expenses, and would not have provided the authority for FHA to charge a new administrative support fee to lenders. The Senate Committee-passed bill would have provided $145 million for administrative contract expenses, and would have authorized FHA to charge a fee to lenders to offset some of the cost. The final FY2015 appropriations law provides $130 million for administrative contract expenses for FHA. It does not provide FHA with the authority to charge an administrative support fee to lenders. Annual appropriations acts also authorize FHA to enter into commitments to insure up to a certain aggregate dollar volume of loans during the fiscal year. This is referred to as FHA's "commitment authority." The FY2015 President's budget requested authority, to remain available for a two-year period, to insure up to $400 billion in new single-family mortgages under the MMI Fund and up to $30 billion in mortgages under the GI/SRI Fund. Both the House-passed bill and the Senate Committee-passed bill would have provided the same amount of commitment authority, and this is the amount of commitment authority that the final FY2015 appropriations law provides. Permanent and Indefinite Budget Authority The credit subsidy rates for loans insured in a given year are re-estimated each subsequent year, taking into account updated assumptions and actual loan performance. Given that estimates of the future performance of insured or guaranteed loans are inherently uncertain, the FCRA provides permanent and indefinite budget authority to government loan guarantee programs to cover future increases in the costs of loan guarantees based on these re-estimates. This includes the FHA programs administered through the MMIF. Therefore, if the MMIF ever does not have enough money to cover projected future claims on defaulted loans, it can draw on its permanent and indefinite budget authority with the U.S. Treasury to cover any shortfalls without congressional action. FHA needed to draw on its permanent and indefinite authority with Treasury to receive $1.7 billion in mandatory funding at the end of FY2013. This mandatory appropriation was needed to ensure that FHA held enough funds to cover all of its expected future costs on the loans that it currently insures. This represented the first time that FHA has needed to draw on its permanent and indefinite budget authority for its single-family program. FHA did not need any additional funds from Treasury during FY2014. Selected General Provisions Each year, in addition to proposing funding levels for HUD programs, the President's budget request and congressional appropriations bills include provisions that may affect the operation of HUD programs, implement new initiatives, or keep HUD from using funds for particular purposes. These proposals are often included in the General Provisions sections of HUD's budget justifications and appropriations bills. While some provisions are included in appropriations bills every year, there may be new changes proposed as well. Following are several selected provisions for FY2015 that were included in P.L. 113-235 . (Note that other proposals in the General Provisions section may be discussed elsewhere in this report in conjunction with the programs they would affect.) These provisions restrict HUD from using funding in the bill to implement certain programs or activities. The House-passed bill included a provision to prevent any funds appropriated in the bill from being used to implement FHA's Homeowners Armed with Knowledge (FHA-HAWK) program, which would provide incentives for certain FHA-insured mortgage borrowers to obtain housing counseling. The final FY2015 appropriations law includes this provision. The House-passed bill included a provision to prevent HUD (including FHA and Ginnie Mae) from using any funds appropriated in the bill to insure, securitize, or guarantee any mortgage or mortgage-backed security that replaces a mortgage that had been seized through eminent domain. Some cities have considered using eminent domain to seize certain mortgages where the borrower owes more than the home is currently worth, providing some compensation to the mortgage investor, and restructuring the mortgage for the borrower. The final FY2015 appropriations law includes this provision. The House-passed bill included a provision to prevent HUD from using any funds provided in the bill to relocate its staff who work on multifamily asset management. The final FY2015 appropriations law includes this provision. As part of its Multifamily Transformation initiative, HUD plans to consolidate its multifamily operations in the field into a smaller number of field offices. This change would mean that some multifamily staff, including asset management staff, would relocate to different field offices. While HUD is currently moving forward with most of its multifamily transformation plan, Congress has directed HUD not to require multifamily asset management staff to move at this time. There were numerous other proposals in the President's budget request, Housed-passed appropriations bill ( H.R. 4745 ), and Senate Appropriations Committee-passed bill ( S. 2438 ) that were not included in P.L. 113-235 . Some of these proposals would have promoted savings in assisted housing programs and others would have restricted HUD from using funding in the bill to implement certain programs or activities. The President's budget proposed to revise allowable medical and related deductions in calculating adjusted income (on which most rents are calculated) in the Section 8 tenant-based rental assistance and Public Housing programs. Neither the House- nor Senate Appropriations Committee-passed bills included this provision. The President's budget requested authority to use funds provided under the Section 8 tenant-based rental assistance and Public Housing programs to test different rent-setting models designed to promote family self-sufficiency and income growth. Neither the House- nor Senate Appropriations Committee-passed bills included this proposal. The President's budget proposed to permit PHAs to have full fungibility between their capital and operating funds. Currently, only PHAs with fewer than 250 units are allowed to use capital and operating funds interchangeably, and all PHAs have the authority to use up to 20% of capital funds for operating fund expenses. While neither the House nor the Senate Appropriations Committee adopted this proposal, the Senate Appropriations Committee-passed bill would have allowed PHAs to use up to 20% of operating funds for capital fund expenses. The President's budget proposed a demonstration to conserve energy and water in multifamily housing. Under the proposal, HUD would use funds from the project-based rental assistance account to support energy and water conservation in up to 20,000 units. The Senate Committee-passed bill included a similar conservation proposal for Section 8, Section 202, and Section 811 properties. Entities undertaking energy and water conservation improvements were to be paid for utility and water savings, with funding coming from contract renewal funds for each program. The President's budget proposed withholding some Native American Housing Block Grant (NAHBG) funds from tribes that have undisbursed funds from previous years total more than three times their expected grant amount. The proposal would not have applied to tribes whose formula grant amount is less than $5 million. The House-passed bill included this proposal. The House-passed bill would have prevented HUD from using any funds appropriated in the bill to enforce the proposed Affirmatively Furthering Fair Housing rule published by HUD in July 2013. Under the Fair Housing Act, HUD is required to administer its programs in a way that actively, or affirmatively, promotes fair housing practices. The proposed rule makes changes to the way in which entities that receive HUD funds must show that they are meeting this requirement. The House-passed bill would have prevented HUD from using any funds appropriated in the bill for the Housing Trust Fund. The Housing Trust Fund was established by the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) and is administered by HUD, but is intended to be funded by contributions from Fannie Mae and Freddie Mac rather than through appropriations. However, those contributions were suspended before they had begun when Fannie Mae and Freddie Mac were placed in conservatorship, and the Housing Trust Fund has not been funded to date. The Senate Committee-passed bill would have allowed Public Housing Authorities (PHAs) to establish replacement reserve accounts to be used for capital needs as outlined in a PHA's Capital Fund five-year plan. PHAs could transfer capital funds to the replacement reserve account, or other funds as permitted by the HUD Secretary. Funds in the account would not be subject to the statutory requirement that capital funds be obligated within 24 months. Appendix. The Budget Control Act and Discretionary Appropriations The Budget Control Act In 2011, Congress passed the Budget Control Act (BCA, P.L. 112-25 ) which both increased the debt limit and contained provisions intended to reduce the budget deficit through spending limits and reductions. In part, the BCA accomplishes deficit reduction by imposing spending caps for discretionary programs, in effect from FY2012 through FY2021; caps differ for defense and nondefense funding. HUD discretionary programs are subject to the nondefense discretionary caps. In addition to the caps set in the BCA, the law tasked a Joint Select Committee on Deficit Reduction to develop a federal deficit reduction plan for Congress and the President to enact by January 15, 2012. When a plan was not enacted, the BCA required that sequestration of nonexempt discretionary funding occur in FY2013. (Sequestration is a process of automatic, largely across-the-board spending reductions.) In addition, the BCA required that the discretionary spending caps be lowered further through 2021. In each year, if Congress appropriates discretionary funding that exceeds the caps, then sequestration will be imposed to reduce spending. (In terms of mandatory funding, the BCA provided for sequestration of nonexempt programs to occur in each year through FY2021, subsequently amended to occur through FY2023. ) For more information about the BCA and its implementation, see CRS Report R43411, The Budget Control Act of 2011: Legislative Changes to the Law and Their Budgetary Effects , by [author name scrubbed]. FY2013 Sequestration In FY2013, amounts appropriated for nonexempt, nondefense discretionary accounts, including HUD accounts, were reduced by 5.0% due to sequestration required by Congress's failure to enter into a deficit reduction agreement. In addition, the FY2013 Consolidated and Further Continuing Appropriations Act ( P.L. 113-6 ) included an across-the-board rescission that insured programs would stay within the discretionary caps; the rescission amount was 0.2%. For HUD, sequestration and the rescission reduced the gross budget authority from nearly $45 billion to approximately $42 billion (not including funds for disaster assistance). Discretionary Budget Caps for FY2014 and FY2015 Moving forward, sequestration for nonexempt discretionary programs will occur only if appropriations exceed budget caps. FY2014 and FY2015 budget caps were adjusted as a result of the Bipartisan Budget Act, part of the FY2014 Continuing Appropriations Resolution ( P.L. 113-67 ). The law raised discretionary budget caps for FY2014 and FY2015 relative to where they had been set pursuant to the BCA after adjustment for automatic spending reductions. The nondefense discretionary spending cap for both FY2014 and FY2015 is $492 billion.

In FY2015, the Department of Housing and Urban Development was funded as part of the FY2015 Consolidated and Further Continuing Appropriations Act (P.L. 113-235), enacted on December 16, 2014, following funding through three short-term continuing resolutions. The bill provides $45.4 billion in gross discretionary appropriations, not accounting for savings from offsets and other sources, about $90 million less than in FY2014 ($45.5 billion). However, net budget authority is higher than in FY2014, approximately $35.6 billion in FY2015 compared to $32.8 billion in FY2014. Net budget authority takes into account rescissions and offsets from receipts and collections. The primary difference between FY2015 and FY2014 is that estimated receipts from the Federal Housing Administration (FHA) loan insurance program dropped by about $3 billion. For the most part, P.L. 113-235 funds HUD programs at approximately the same levels as FY2014. Exceptions include increased funding for Research and Technology (by nearly 57%), Housing for the Elderly and Housing for Persons with Disabilities (by 9% and 7%, respectively), Housing Counseling (by 4%), and the Homeless Assistance Grants (by not quite 1%). However, in most cases any increases would largely support renewals of existing assistance. Decreased funding includes Choice Neighborhoods (by 11%), HOME Investment Partnerships (by 10%), Project-Based Section 8 Rental Assistance (by 2%), and the Community Development Fund and Fair Housing activities (by 1% each). Prior to enactment of P.L. 113-235, the President requested $46.7 billion in gross discretionary appropriations for HUD, about $1.2 billion more than the amount provided in FY2014. Net budget authority requested was $36.9 billion. While the President requested increased funding for some programs (for example, the Homeless Assistance Grants, Housing for the Elderly, and Housing for Persons with Disabilities), in most cases, funding for these programs would largely have supported renewals of existing rental assistance contracts. Programs proposed for decreased funding included the Community Development Block Grant program (more than 7%), and the HOME Investment Partnerships Program (5%). The House Appropriations Committee approved H.R. 4745, its version of the Departments of Transportation, Housing and Urban Development, and Related Agencies (THUD) appropriations bill, on May 27, 2014. Two weeks later, on June 10, 2014, the full House approved the bill, with amendments, though none changed the total amount of funding the bill would have provided for HUD. The bill would have provided approximately $44.7 billion in gross appropriations, a decrease of about $800 million compared to FY2014 and about $2 billion compared to the President's budget request. After accounting for offsetting collections and receipts, H.R. 4745 would have provided $35.0 billion in net budget authority. The Senate Appropriations Committee reported its version of the THUD appropriations bill, S. 2438, on June 5, 2014. The bill would have provided about $1 billion more than the House-passed bill for both gross and net budget authority—$45.8 billion and $36.0 billion, respectively. For FY2014 and FY2015 funding levels, see Table 2.

Introduction In the past several years, and in the past year in particular, the number of unaccompanied alien children (UAC) seeking to enter the United States along the U.S.-Mexico border has surged to unusually high levels. This surge is driven overwhelmingly by migration from El Salvador, Guatemala, and Honduras. Congress has expressed increasing concerns over this situation because of its implications for border security and U.S. immigration policy. Because the surge has occurred recently, and because few sources of data exist to accurately measure the characteristics and motives of these unaccompanied children, immigration observers have advanced a range of explanations for the surge. The report is not intended to be an exhaustive review of all factors that potentially underlie the recent surge in unaccompanied children. Rather, it discusses major possible contributing factors that have been widely cited in published reports. It also emphasizes factors that may account for the recent surge in unaccompanied children, but not long-standing causes, such as wage and earnings differentials between other countries and the United States. The report distinguishes what are often referred to as "push" and "pull" factors associated with the recent surge. Push factors in this case refer to forces that originate in migrant origin countries which encourage children to emigrate to other countries. Pull factors refer to elements that originate in the United States and encourage children to migrate specifically to this country. The analytic dichotomy between push and pull factors often blurs in actual circumstances. For example, family reunification may occur after a parent from an origin country secures employment in the United States. Yet, having an employed parent in the United States may easily make a child in an origin country more susceptible to extortion or kidnapping by criminal gangs, which in turn, may motivate the child to migrate to the United States. Hence, having an employed parent in the United States ostensibly acts as a "pull" factor while the threat of violence acts as a "push" factor, but in this example, the latter would not occur without the former. Migration to another country stems not only from macro-level circumstances such as violence and economic hardship but also personal circumstances and characteristics, such as marital status and risk tolerance. Most children have multiple motives, and how those motives influence their decisions to migrate depend on a range of factors that cannot be measured easily. This report begins by describing the recent surge in unaccompanied child apprehensions. It discusses several factors widely associated with out-migration from El Salvador, Guatemala, and Honduras, three countries accounting for much of the recent surge of unaccompanied child migrants. These factors include economic conditions and poverty, crime and violence, and conditions related to the migration transit zone between Central America and the United States. The report then discusses three broad factors that may be attracting migrants to the United States: economic and educational opportunity, family reunification, and U.S. immigration policies. It concludes with caveats on the attribution of causes to this situation. Background3 Unaccompanied alien children (UAC) are defined in statute as aliens under age 18, who lack lawful immigration status in the United States, and who are without a parent or legal guardian in the United States or lack a parent or legal guardian in the United States who is available to provide care and physical custody. They typically arrive at U.S. ports of entry or are apprehended along the southwestern border with Mexico. Less frequently they are apprehended in the interior and determined to be a juvenile and unaccompanied. Most of these children are aged 14 or older. The number of unaccompanied children has increased in the past six years and has surged in this current year. In FY2008, the number apprehended by U.S. Customs and Border Protection (CBP) totaled 8,041. In the first 8½ months of FY2014, apprehensions climbed to 52,000 ( Figure 1 ). Nationals of Guatemala, Honduras, El Salvador, and Mexico, have accounted for almost all unaccompanied alien children apprehended at the Mexico-U.S. border during this period. In the past three years, apprehensions of Mexican unaccompanied children, which rose substantially in FY2009, have since varied between 12,000 and 17,000. In contrast, apprehensions of unaccompanied children from Guatemala, Honduras, and El Salvador have increased considerably during this period. In FY2009, Mexicans accounted for 82% of the 19,668 unaccompanied child apprehensions, while the Central American countries accounted for 17%. By the first eight months of FY2014, the proportions had almost reversed, with Mexican apprehensions comprising only 23% of the 52,000 UAC apprehensions, and UAC from the three Central American countries comprising 75% of the total. The total increase in apprehensions in the past three years stems mainly from large increases in the number of unaccompanied children from the three Central American countries. The similarity of the trends characterizing apprehensions of unaccompanied alien children from El Salvador, Guatemala, and Honduras, and their stark divergence from those characterizing unaccompanied Mexican children suggests that factors specific to Central America's "northern triangle" underlies the sudden surge in total unaccompanied child apprehensions. What follows is a discussion of possible causes originating in the countries themselves ("push factors") and other possible causes originating in the United States ("pull factors"). Conditions in Central America as Possible "Drivers" for Unaccompanied Child Migration Central America is a region encompassing seven countries of the isthmus between Mexico and South America: Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama ( Figure 2 ). The overwhelming majority of the unaccompanied child migrants apprehended in Mexico or at the U.S.-Mexico border have come from Guatemala, Honduras, and El Salvador, which are often referred to as the "northern triangle" countries of Central America. High violent crime rates, poor economic conditions fueled by relatively low economic growth rates, relatively high poverty rates, and the presence of transnational gangs appear to be some of the main distinguishing factors between these three northern triangle countries and other countries in the region. Unaccompanied child migrants' motives for emigrating appear to be multifaceted. In 2013, the U.N. High Commissioner for Refugees (UNHCR) conducted interviews with a representative group of about 400 unaccompanied minors from El Salvador, Guatemala, Honduras, and Mexico, all of whom had arrived in the United States since FY2012. Most of the unaccompanied minors provided multiple reasons for leaving their countries. Many left to reunite with family or pursue opportunities in the United States. Of those interviewed, 21% mentioned joining a family member, 51% mentioned economic opportunity, and 19% mentioned education. Violence also played a large role in their decisions to emigrate. Nearly half of the children (48%) said they had experienced serious harm or had been threatened by organized criminal groups or state actors, and more than 20% had been subject to domestic abuse. As recently as 2006, only 13% of unaccompanied child migrants from Central America interviewed by UNHCR presented any indication they were fleeing societal violence or domestic abuse. Endemic poverty also appears to play a role in the emigration of unaccompanied minors, as 16% of those interviewed mentioned economic deprivation as a motive. There is some variation depending on country of origin, with Salvadorans being more likely to cite societal violence and Guatemalans being more likely to cite economic deprivation as motives for emigration (see Table 1 ). Other studies involving interviews with unaccompanied children yield similar results. Economic Stagnation and Poverty El Salvador, Guatemala, and Honduras are each considered lower middle income economies by the World Bank. Per capita gross domestic product (GDP) in 2014 is estimated to be $4,014 in El Salvador, $3,684 in Guatemala, and $2,368 in Honduras. The countries have maintained what are viewed by most economists as generally sound macroeconomic policies in recent years, and enjoyed stable economic growth until the onset of the global financial crisis and U.S. recession in 2009. At that time, the Salvadoran and Honduran economies contracted and the Guatemalan economy slowed significantly, demonstrating how all three countries are vulnerable to external shocks as a result of their open economies and close ties to the United States. Although all three economies have rebounded since 2010, growth rates have yet to fully recover (see Figure 3 ). El Salvador posted an economic growth rate of just 1.6% in 2013, the lowest of any country in Central America. Economic growth in the region has been inhibited by slow economic growth in major markets (Europe, China, the United States) as well as domestic factors, such as a coffee rust (roya fungus) outbreak, hurricanes and other natural disasters, and weak productivity. The coffee rust epidemic, which in 2013 affected 74% of the coffee crop in El Salvador, 70% of the coffee crop in Guatemala, and 25% of the coffee crop in Honduras, led to nearly 200,000 jobs being lost across the three countries. Employment and wages in the coffee sector have continued to fall over the past year, depriving many poor households of a significant source of income. Central American countries are also vulnerable to other types of natural disasters. For example, a tropical storm that hit El Salvador in 2011 caused more than $800 million in damage to roads, infrastructure, and agriculture. The northern triangle countries also struggle with low productivity rates, particularly when compared to competitors in East Asia. Tariff preferences provided through the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) appear to be important in keeping apparel producers in those countries competitive in the U.S. market. Economic growth and slightly higher levels of social investment have led to improved social conditions in the region over the past decade. Nevertheless, poverty remains widespread. According to the U.N. Economic Commission for Latin America and the Caribbean (ECLAC), about 45% of Salvadorans, 55% of Guatemalans, and 67% of Hondurans live in poverty. Guatemala and Honduras have the highest income disparities in Central America, exacerbated by the social exclusion of indigenous people and ethnic minorities. The top 10% of earners account for 47% of national income in Guatemala and 43% of national income in Honduras. Crime and Violence El Salvador, Guatemala, and Honduras have long struggled to address high levels of crime and violence, but the deterioration in security conditions has accelerated over the past decade. Counternarcotics efforts in Colombia and Mexico have put pressure on drug traffickers in those countries, leading some to battle over territory in Central America—a region with fewer resources and weaker institutions dedicated to addressing criminal activity. Increasing flows of illicit narcotics have coincided with rising levels of violence and have contributed to the corruption of government officials. Gangs such as Mara Salvatrucha (MS-13) and the "18 th Street" gang (M-18) also play a major role in crime and violence in the northern triangle region, but are not significantly present in other Central American countries. The 18 th Street gang was formed by Mexican youth in the Rampart section of Los Angeles in the 1960s who were not accepted into existing Hispanic gangs. MS-13 was created during the 1980s by Salvadorans in Los Angeles who had fled the country's civil conflict. Both gangs later expanded their operations to Central America. This process accelerated after the United States began deporting illegal immigrants, many with criminal convictions, back to the northern triangle region after the passage of the Illegal Immigrant Reform and Immigrant Responsibility Act (IIRIRA) of 1996. In general, Central American countries whose migrants did not emigrate to the Los Angeles area, such as Nicaragua or Panama, did not receive large numbers of gang-deportees in the 1990s. The MS-13 and 18 th Street gangs engage in a variety of activities, such as kidnapping, extortion, and forced recruitment, which often have more of an impact on the day-to-day lives of Salvadorans, Guatemalans, and Hondurans than drug-trafficking. On October 11, 2012, the Treasury Department designated the MS-13 as a significant transnational criminal organization whose assets would be targeted for economic sanctions pursuant to Executive Order (E.O.) 13581. State Department officials have estimated that roughly 85,000 members of MS-13 and M-18 reside in the northern triangle countries, with the highest per capita concentration in El Salvador. Over the past decade, homicide rates have increased significantly in Honduras and remained at elevated levels in El Salvador and Guatemala. According to the U.N. Office on Drugs and Crime, in 2012 (the most recent year for which comparable data are available), the homicide rate per 100,000 inhabitants stood at 90.4 in Honduras, 41.2 in El Salvador, and 39.9 in Guatemala (see Table 2 ). Although local statistics suggest that homicide rates declined slightly in each of the three countries in 2013, they remain among the highest in the world. Moreover, there are indications that the homicide rate has begun to climb once again in El Salvador as the gang truce that has been in effect since 2012 has unraveled. Other crimes, such as theft and extortion, also remain at elevated levels. In 2012, 29% of Salvadorans, 34% of Guatemalans, and 32% of Hondurans reported that someone in their household had been the victim of some form of crime within the previous 12 months. Many children also must contend with violence at home. Although domestic abuse—including physical, emotional, and sexual abuse—often goes unreported and undocumented, it is believed to be widespread in the region. According to scholars, Central American cultural norms legitimize the use of violence in interpersonal relationships, including physical discipline of children and violence against women. Studies have found that children who are left behind as a result of one or both parents migrating abroad are more vulnerable to abuse. This is especially true of children whose mothers have migrated. Migration Transit Zone Conditions and Mexico's Migration Policies Conditions of migration facing unaccompanied children likely play a considerable role in determining whether they emigrate to the United States. While the persistence of economic stagnation, poverty, and criminal violence may explain why flows of unaccompanied minors have increased, the journey through Central America and Mexico to the United States has become more costly and dangerous. Unauthorized migrants from Central America, often lacking legal protection in Mexico because of their immigration status, have reportedly become increasingly vulnerable to human trafficking, kidnapping, and other abuses. Corrupt Mexican officials have been found to be complicit in activities such as robbery and abuse of authority. While Mexico has stepped up immigration enforcement in some areas (see below), enforcement along train routes frequently used by Central American child migrants continues to be lacking. As U.S. border security has tightened, more unauthorized Central American migrants have reportedly turned to smugglers ( coyotes ), who in turn must pay money to transnational criminal organizations (TCOs) such as Los Zetas, to lead them through Mexico and across the U.S.-Mexico border. The Administration has estimated that 75-80% of unaccompanied child migrants are now traveling with smugglers. Some smugglers have reportedly sold migrants into situations of forced labor or prostitution (forms of human trafficking) in order to recover their costs; other smugglers' failure to pay Los Zetas has reportedly resulted in massacres of groups of migrants. Mass grave sites where migrants have been executed by TCOs have been recovered in recent years. The Mexican government appears to be attempting to balance enforcement and humanitarian concerns in its migration policies. Implementation of its new laws and policies has been criticized both by those who favor more enforcement and those who favor more migrants' rights. In addition to stepping up efforts against human trafficking and passing new laws to stiffen penalties for alien smuggling (2010) and human trafficking (2012), Mexico enacted a comprehensive migration reform law in 2011 and secondary legislation to implement that law in 2012. Previously, Mexico's immigration law, the General Population Act (GPA) of 1974, limited legal immigration and restricted the rights of foreigners in Mexico, with unauthorized migrants subject to criminal penalties. In 2008, the Mexican Congress reformed the GPA to decriminalize simple migration offenses, making unauthorized migrants subject to fines and deportation, but no longer subject to imprisonment. In May 2011, it passed a broader reform of the GPA. Contrary to some media reports, Mexico's 2011 law did not create a transit visa for migrants crossing through Mexico, as civil society groups had been advocating. Mexico still requires visas for Central Americans entering its territory (aside from those from Guatemala on temporary work permits or those possessing a valid U.S. visa). According to many migration experts, implementation of Mexico's 2011 migration law has been uneven. While some purges of corrupt staff within the National Migration Institute (INM) in the Interior Ministry have occurred in the past year, implementation of the migration law has been hindered by the government's failure to more fully overhaul INM. Some experts maintain that Mexico lacks the funding and institutions to address traditional migration flows, much less the increasing numbers of U.S.-bound unaccompanied children that its agents are detaining. Mexico has only two shelters for migrant children and no foster care system in which to place those who might be granted asylum. Despite provisions to improve migrants' rights included in the 2011 migration law, the Mexican government also continues to remove large numbers of Central American adult migrants, arrest smugglers of those migrants, and return unaccompanied child migrants to Central America. According to INM, Mexico detained 86,929 foreigners in 2013, 80,079 of whom were removed (79,416 people were removed in 2012). Of those who were removed, some 97.4% originated in the northern triangle countries of Central America. In the first four months of 2014, Mexico removed some 24,000 people from the northern triangle countries, 9% more than during that period in 2013. Child protection officers from INM accompanied 8,577 children to their countries of origin in 2013 and 6,330 from January through May 2014; 99% of those children originated in northern triangle countries. With U.S. support, the Mexican government in 2013 started implementing a southern border security plan that has involved the establishment of 12 naval bases on the country's rivers and three security cordons that stretch more than 100 miles north of the Mexico-Guatemala and Mexico-Belize borders. Factors in the United States Associated with In-migration of Unaccompanied Children Forces that potentially attract unaccompanied children to the United States may be more subjective than forces that cause them to leave their home countries. Unlike the prevalence of actual violence or deprivation associated with daily economic hardship, for instance, the perception of economic opportunity or the chance to obtain legal authorization to live in the United States may often conflict with what is legally and actually possible. Several reports suggest that migrant smugglers prey on potential migrants' desperation by misleading them with false information about such possibilities. Immigration observers have made numerous, sometimes conflicting assertions of the importance of one or another pull factor, relying on a range of empirical evidence. Despite considerable public attention, the precise combination of motives driving unaccompanied children to migrate to the United States remains unclear. The discussion below considers three widely cited motivations: economic and educational opportunity, family reunification, and recent U.S. immigration policies. Economic and Educational Opportunity60 Unaccompanied children regularly cite economic opportunity in the United States as a reason for their emigration north. Since almost all are school-aged children, it remains unclear how this stated aspiration should be interpreted. Given endemic poverty in northern triangle countries, slow economic growth, and the large and long-standing income disparity between the triangle countries and the United States, it remains unclear the extent to which fluctuations in economic conditions in the United States actually affect children's migration decisions. In the United States, current employment levels for minority youth are low relative to all other labor market groups. In the immediate term, the potential for unaccompanied children to participate in the U.S. labor market is constrained in most cases by lack of English language skills, limited educational attainment, and, given their age, the extent to which U.S. laws permit their labor force participation. Assuming they found employment, such constraints would likely relegate them to low-skilled, low-wage sectors of the U.S. economy. Apart from what unaccompanied children cite as pull factors, U.S. labor market conditions likely affect their parents and relatives residing in the United States, which in turn, may play a critical role in the recent surge. Improving employment prospects, for instance, could more readily provide parents with the means to afford the expense of their children's migration to this country and lead to greater desire for family reunification as discussed below. At a national level, macroeconomic data on the U.S. economy indicate that despite overall improvement, considerable slack remains in labor markets, with labor force participation remaining weak and the unemployment rate and other measures of labor force utilization remaining well above most estimates of the long-run sustainable rate. Labor market conditions for low-skilled workers are especially challenging. Bureau of Labor Statistics (BLS) employment data by educational attainment show that employment for workers with less than a high school diploma fell by about 5 million jobs between 2007 and 2014. Thus, despite some indications of economy-wide recovery and U.S. labor market improvement, the demand for low-skill workers has not recovered over the same period that has witnessed the surge of unaccompanied children. Regarding unauthorized workers, while extensive academic scholarship has analyzed their role, impact, and prospects in the U.S. labor force, government reporting is hindered by data limitations. Government statistics, as a rule, do not capture legal status of the foreign-born workforce. Therefore, assessing how U.S. economic conditions serve as a magnet for typically low-skilled and often unauthorized workers cannot be measured directly and is usually estimated or inferred by assessing the employment outlook of industrial sectors most likely to employ low skilled and unauthorized workers. Research from the Pew Hispanic Center, which produces authoritative statistics on the unauthorized population, suggests that unauthorized workers concentrate in four low-skilled industrial sectors: farming; building, grounds-keeping and maintenance; construction; and food preparation and serving. With the exception of farming, the BLS projects that these occupations are expected to grow close to or above the average rate of all occupations in the coming decade. Hence, the economic prospects for low-skilled, low-wage, and typically unauthorized workers appears mixed. While employment in low-skilled sectors of the economy has suffered more and recovered less than that of other sectors in the past seven years since the economic downturn, the employment prospects for the economic sectors most likely to employ such workers appears on par with or above the national average. Nonetheless, perceptions of opportunities may have greater impact than fluctuations in U.S. economic and labor market conditions. Unaccompanied children also cite educational opportunity in the United States as a reason for their emigration north. Unauthorized aliens in the United States are able to receive free public education through high school. In 1982, the Supreme Court's decision in Plyler v. Doe prohibited states from restricting access of children to public elementary and secondary education on the basis of immigration status. The Court's ruling did not concern access to higher education, however, and both the federal government and some states have adopted measures that limit unlawfully present aliens' eligibility for admission to public institutions of higher education, in-state tuition, or financial aid. Family Reunification Family reunification is often cited as a primary reason for the recent large-scale migration of unaccompanied children to the United States. Surveyed unaccompanied children cite family reunification as one of the main reasons for migrating to the United States. The desire to reunite with family stems from family separation that occurs when one or both parents migrate to a destination country for more remunerative employment. Prior to the mid-1990s, migrants from Mexico and Central America who worked in the United States often returned regularly to be with their families in their origin countries. Increased border enforcement in the mid-1990s gradually made unauthorized entry into the United States more difficult and expensive, which had the unintended consequence of creating a "caging effect" by encouraging unauthorized aliens to settle permanently in the United States rather than working temporarily and regularly returning home. Demographic and survey data provide evidence of sizable linkages between the three countries dominating the recent spike in unaccompanied child apprehensions and their foreign-born populations living in the United States. In 2012, the foreign-born populations from El Salvador (1,254,501), Guatemala (880,869), and Honduras (535,725) ranked as the 6 th , 10 th , and 16 th largest groups, respectively, of all foreign born groups. From the perspective of the source country, U.N. survey data indicate that sizable percentages of children residing in these three countries have at least one parent living in the United States. Were data available on other relatives living in the United States, such as siblings or extended relatives, these percentages would be higher. The desire for family reunification is also driven by the perception that children who are not immediately returned to their home countries can reside with their family members for periods extending several years, as discussed below under " U.S. Immigration Policies ." Upon apprehension, unaccompanied children are immediately given a Notice to Appear (NTA) before an immigration judge who will adjudicate their case to remain in the United States. Receipt of an NTA indicates the start of immigration proceedings. Yet, by law, persons apprehended by Customs and Border Patrol (CBP) and whom CBP determines to be unaccompanied children from countries other than Mexico and Canada, must be turned over to the care and custody of Health and Human Services (HHS), Office of Refugee Resettlement (ORR) while they await their removal hearing. Unaccompanied children are moved from the custody of the law enforcement agency that apprehended them to a human services agency experienced with child welfare and family reunification. ORR is required to place these children in the least restrictive setting possible that accounts for the child's best interests. In an estimated 90% of these cases, children are placed with parents, siblings, and extended relatives who currently reside in the United States. The Immigration and Nationality Act (INA) contains provisions allowing foreign nationals to reside lawfully in the United States if they are sponsored by parents and siblings who are U.S. citizens or Lawful Permanent Residents. However, sizable proportions of these family members are estimated to be unauthorized aliens. According to DHS, the estimated unauthorized populations in 2012 of Salvadorans, Guatemalans, and Hondurans living in the United States was 690,000, 560,000, and 360,000, respectively, representing 55%, 64%, and 67% of all foreign-born residents from those three countries living in the United States. The length of time unaccompanied children can expect to wait until their removal hearing may play a role for incentivizing their migration to the United States. As of March 2014, the average wait time nationwide for all immigration proceedings was 19 months. However, the length of time until a final judgment occurs varies widely depending on appeals and individual circumstances. Surges in caseloads, such as that caused by the current influx of unaccompanied children, can also tax the limited resources of the immigration court system, further extending wait times for removal hearings, and possibly fostering a perception among foreign nationals that a unique opportunity exists to exploit this administrative backlog. Rumors of these backlogs and the potential for being reunited with family—even if temporarily—reportedly have reached emigrant-sending communities in Central America. U.S. Immigration Policies The possible relationship between U.S. immigration policies (actual policies as well as perceptions of policies) and the surge in arrivals of unaccompanied children has been the subject of heated discussion among immigration observers and policy makers. It is not known if, and how, specific immigration policies may have influenced decisions to try to enter the United States unlawfully. News reports, however, suggest that perceptions of unspecified U.S. policies toward alien minors may have played a role. According to a June 2014 New York Times article: [C]hildren, parents, immigration officials, lawyers and activists interviewed say that there has been a subtle shift in the way the United States treats minors. That perception has inspired parents who have not seen their children for years to hire so-called coyotes, guides often associated with organized crime, to bring them north. It has prompted other parents to make the trip with toddlers in tow, something rarely seen before in the region. Similarly, a June 2014 article by the Migration Policy Institute makes reference to "some evidence of a growing perception among Central Americans that the U.S. government's treatment of minors, as well as minors traveling in family units, has softened in recent years." As discussed below, there have been recent changes in the treatment of unaccompanied children who arrive in the United States, in accordance with the Trafficking Victims Protection Reauthorization Act of 2008. Much of the debate about the possible role of U.S. immigration policy in the surge has focused on specific policies and proposals that some may believe can offer unaccompanied children the prospect of a period of stay in the United States or U.S. lawful permanent resident status. A March 2014 Miami Herald article, after noting that many arriving children are fleeing gang violence, stated: But children are also being sent by families who believe they could qualify for immigration reform—if Congress ever acts on it—or for President Barack Obama's 2012 Deferred Action for Childhood Arrivals program known as DACA. For its part, the Obama Administration maintains that the driving force behind the surge "is what's happening in [the unaccompanied children's] home countries." The Administration has stated, however, that misinformation about U.S. policies has been a contributing factor. White House Domestic Policy Council Director Cecilia Muñoz, as reported by Bloomberg News in June 2014, blamed the increase in unaccompanied children attempting to cross the border in part on 'misinformation' about immigration law and administration actions regarding minors that "is being deliberately promulgated by criminal networks' involved in smuggling aliens into the U.S." Other observers who reject the argument that Administration policies are responsible for the surge in unaccompanied child arrivals point to "Obama's aggressive deportation policy since ... 2009." U.S. immigration policies and proposals – both legislative and administrative – that have been widely cited as possible factors in the surge or that are relevant to the treatment of unaccompanied children who arrive in the United States are discussed here. Humanitarian Forms of Immigration Relief As discussed above, child migrants report that they are fleeing violence, deprivation, abuse, or other hardships in their home countries as well as reuniting with family already in the United States. At issue is whether U.S. immigration policies that provide humanitarian relief to those who are fleeing such situations may serve as a magnet to foreign nationals. These humanitarian policies include asylum, relief for trafficking victims, and special immigrant status for juveniles. As these policies on humanitarian relief have been in place for many years, it is difficult to make a causal link between them and the recent surge in unaccompanied children from Central America. The only notable and recent revisions to the policies on humanitarian relief for unaccompanied children were included in the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2008, as discussed below. Asylum Many observers characterize the unaccompanied children from Central America as asylum seekers. 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 principle is embodied in several provisions of the INA, most notably in provisions defining refugees and asylees that the Refugee Act of 1980 added to the INA. In 2008, the TVPRA revised the procedures and policies for those unaccompanied children who file for asylum, most notably requiring that unaccompanied children from contiguous countries (i.e., Canada and Mexico) be screened for possible asylum claims. Subsequently, DHS opted to screen all unaccompanied children for possible asylum claims. In addition, the TVPRA gives U.S. Citizenship and Immigration Services (USCIS) asylum officers "initial jurisdiction over any asylum application filed by" an unaccompanied child. To receive asylum, foreign nationals must demonstrate a well-founded fear that if returned home, they will be persecuted based upon one of five characteristics: race, religion, nationality, membership in a particular social group, or political opinion. Because "fear" is a subjective state of mind, assessing the merits of an asylum case rests in large part on the credibility of the claim and the likelihood that persecution would occur if the alien is returned home. Asylum claims for the current surge of unaccompanied children may be complicated by uncertainty as to whether their circumstances meet the criteria established by the INA for asylum seekers. It remains to be seen the extent to which this legal option would offer immigration relief to unaccompanied children who may claim asylum on the basis of feared persecution due to gang-related violence. Trafficking Victims Unaccompanied children who arrive at the U.S. border may have valid claims for immigration relief on the basis of being trafficking victims. Foreign nationals who are victims of severe forms of trafficking are eligible for T nonimmigrant status and ultimately lawful permanent residence if they meet certain conditions. U.S. statute defines severe forms of trafficking to mean: (A) sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or (B) the recruitment, harboring, transportation, provision or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery. In addition to requiring that unaccompanied children from contiguous countries be screened for possible asylum claims, the TVPRA of 2008 requires that they be screened to determine that the unaccompanied child has not been a victim of a severe form of trafficking in persons. In March 2009, DHS issued a policy that essentially made the trafficking screening provisions applicable to all unaccompanied children. Special Immigrant Juveniles More than two decades ago, Congress created an avenue for unauthorized children who become dependents of the court to become lawful permanent residents (LPRs). Any child or youth who was born in a foreign country; who lives without legal authorization in the United States; who has experienced abuse, neglect, or abandonment; and who meets other specified eligibility criteria may be eligible for the LPR classification of special immigrant juvenile (SIJ). Among other things, TVPRA of 2008 amended the SIJ eligibility provisions to 1) remove the requirement that a juvenile court deem a juvenile eligible for long-term foster care and 2) replace it with a requirement that the juvenile court find reunification with one or both parents not viable. According to USCIS legal guidance, an eligible SIJ would include the following: [An unauthorized child] who has been declared dependent on a juvenile court; whom a juvenile court has legally committed to, or placed under the custody of, an agency or department of a State; or who has been placed under the custody of an individual or entity appointed by a State or juvenile court. Accordingly, petitions that include juvenile court orders legally committing a juvenile to or placing a juvenile under the custody of an individual or entity appointed by a juvenile court are now eligible. SIJ status is one of the few forms of immigration relief in the INA that specifically takes into account the best interests of the child. By statute, ORR must consent to any court having jurisdiction to determine the custody status or placement of a juvenile alien in ORR custody for SIJ status. It is not known how many unaccompanied children have ultimately obtained SIJ status. Deferred Action for Childhood Arrivals (DACA) and Legalization Proposals Some observers have singled out the Obama Administration's Deferred Action for Childhood Arrivals (DACA) initiative and legalization provisions in proposed comprehensive immigration reform (CIR) legislation as possible factors in the surge of unaccompanied child arrivals. The DACA initiative provides temporary protection from removal to certain individuals who were brought to the United States before age 16 and meet other criteria. Among the criteria is continuous residence in the United States since June 15, 2007. Although new arrivals would not be eligible for DACA, some argue that unaccompanied children and their families falsely believe that they would be covered. CIR legislation introduced in Congress in recent years typically has included provisions to enable certain unauthorized aliens to become lawful permanent residents of the United States. In 2013, the Senate passed a CIR bill (the Border Security, Economic Opportunity, and Immigration Modernization Act; S. 744 ) that would establish a general legalization program for unauthorized aliens who have been continuously physical present in the United States since December 31, 2011, and meet other criteria; dependent spouses and children of principal applicants would have to have maintained continuous physical presence in the United States since December 31, 2012, and meet other requirements. S. 744 would provide a special pathway to LPR status for successful applicants under the general legalization program who entered the United States before age 16 and satisfy other requirements. Newly arriving unaccompanied children would not be eligible for the S. 744 legalization programs. Conclusion This report has conceptualized possible factors contributing to the recent and sizable increase in unaccompanied children into "push" and "pull" forces. The former comprise conventional and long-standing forces such as endemic poverty and lack of economic opportunity, as well as recent causes, such as the rise of gangs and drug trafficking organizations that have destabilized El Salvador, Guatemala, and Honduras and severely limited these countries' ability to protect their youth. The latter include more subjective factors, such as aspirations for employment and education, the desire to reunite with family members, and perceptions related to U.S. immigration policies. With information relatively scarce, and circumstances changing rapidly, it becomes challenging to accurately measure or gauge which factors are the most important drivers of the current surge. For example, surveys by organizations with distinct goals may sometimes yield findings that place substantially more emphasis on one factor over another. Absent full scale representative information, it may be difficult to draw conclusions about the magnitude of any single factor or its relative strength over another. As noted above, the division between push and pull factors blurs as multiple factors affect individuals making personal decisions to migrate.

Since FY2008, the growth in the number of unaccompanied alien children (UAC) from Mexico, El Salvador, Guatemala, and Honduras seeking to enter the United States has increased substantially. Total unaccompanied child apprehensions increased from about 8,000 in FY2008 to 52,000 in the first 8 ½ months of FY2014. Since 2012, children from El Salvador, Guatemala, and Honduras (Central America's "northern triangle") account for almost all of this increase. Apprehension trends for these three countries are similar and diverge sharply from those for Mexican children. Unaccompanied child migrants' motives for migrating to the United States are often multifaceted and difficult to measure analytically. Four recent out-migration-related factors distinguishing northern triangle Central American countries are high violent crime rates, poor economic conditions fueled by relatively low economic growth rates, high rates of poverty, and the presence of transnational gangs. In 2012, the homicide rate per 100,000 inhabitants stood at 90.4 in Honduras (the highest in the world), 41.2 in El Salvador, and 39.9 in Guatemala. International Monetary Fund reports show economic growth rates in the northern triangle countries in 2013 ranging from 1.6% to 3.5%, relatively low compared with other Central American countries. About 45% of Salvadorans, 55% of Guatemalans, and 67% of Hondurans live in poverty. Surveys in 2013 indicate that almost half of all unaccompanied children experienced serious harm or threats by organized criminal groups or state actors, and one-fifth experienced domestic abuse. In 2011, Mexico passed legislation to improve migration management and ensure the rights of migrants transiting the country. According to many migration experts, implementation of the laws has been uneven. Some have questioned whether passage of such legislation has affected in some way the recent flows of unaccompanied children. However, the impact of such laws remains unclear. Although economic opportunity may motivate some unaccompanied children to migrate to the United States, labor market conditions for low-skilled minority youth have worsened in recent years, even as industrial sectors employing low-skilled workers enjoy improved economic prospects. Educational opportunities may also provide a motivating factor to migration as perceptions of free and safe education may be widespread among the young. Family reunification is reported to be one of the key motives of unaccompanied children. Many have family members among the sizable Salvadoran, Guatemalan, and Honduran foreign-born populations residing in the United States. While the impacts of actual and perceived U.S. immigration policies have been widely debated, it remains unclear if, and how, specific immigration policies have motivated children to migrate to the United States. Misperceptions about U.S. policies may be a contributing factor. The existence of long-standing humanitarian relief policies confounds causal links between them and the recent surge in unaccompanied children. A notable and recent exception is revised humanitarian relief provisions for unaccompanied children included in the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2008, which affects asylum claims, trafficking victim protections, and eligibility for Special Immigrant Juvenile Status. Some argue that unaccompanied children and their families falsely believe they would be covered under the Deferred Action for Childhood Arrivals (DACA) initiative and legalization provisions in proposed comprehensive immigration reform (CIR) legislation. A separate report, CRS Report R43599, Unaccompanied Alien Children: An Overview, by [author name scrubbed], [author name scrubbed], and [author name scrubbed], discusses the recent surge in the number of UACs encountered at the U.S. border with Mexico, as well as the processing and treatment of UACs who are apprehended by immigration officials. Another report provides answers to frequently asked questions, CRS Report R43623, Unaccompanied Alien Children—Legal Issues: Answers to Frequently Asked Questions, by [author name scrubbed] and [author name scrubbed]. For information on country conditions, security conditions, U.S. policy in Central America, and circumstances that may be contributing to the increase in unaccompanied alien children migrating to the United States, see CRS Report RL34112, Gangs in Central America, by [author name scrubbed]; CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress, by [author name scrubbed] and [author name scrubbed]; CRS Report R43616, El Salvador: Background and U.S. Relations, by [author name scrubbed]; CRS Report R42580, Guatemala: Political, Security, and Socio-Economic Conditions and U.S. Relations, by [author name scrubbed]; and CRS Report RL34027, Honduras: Background and U.S. Relations, by [author name scrubbed].

Introduction The Constitution grants Congress the power to "coin money, and regulate the value thereof...." Congress has delegated responsibility for making U.S. monetary policy to the Federal Reserve System (Fed). This latter arrangement is one that many observers have criticized. Quasi-public in structure, overseen by a Board of Governors whose members are appointed to long terms, and reliant on its own source of funding, the Fed possesses a degree of independence that some argue is inimical to the spirit of democracy. Although this argument (and refutations of it) may be political or constitutional in nature, it is also rooted in certain notions about macroeconomic policy. Debates concerning the ability of the Fed to control interest rates, the need for coordination of monetary policy and fiscal policy, or even the importance of monetary policy, underlie the arguments for and against independence, and are matters of economic analysis. Thus, in undertaking a discussion of whether the Fed should have more or less independence or accountability, it is essential to understand how monetary policy works, and its role relative to fiscal policy. Without this knowledge, it is possible that a decision to change the structure of the Fed would fail to bring about the economic effects desired, or would bring about other, adverse, effects not expected by advocates of the change. This report gives a brief description of the structure of the Fed. It then discusses the economics of how Fed independence affects monetary policy. The report does not consider how Fed independence may affect the Fed's other duties, such as its oversight of the financial system. It then examines the probable economic ramifications of proposals to curb the independence of the Fed. Structure of the Federal Reserve System Background While there are many economic arguments supporting Fed independence, it is interesting to note that none of these arguments—nor the primary duties of today's Fed that underlie these arguments—existed when the Fed was founded. Yet its structure today was largely determined in its earliest years. The Federal Reserve System was created largely in response to the panic of 1907 and the many banking panics of the late 19 th century. This is ironic, since the Fed later presided over the country's worst series of banking panics in 1930-1933; federal deposit insurance would have to be created to prevent a reoccurrence of banking panics. Moreover, part of the Fed's original mandate, to create an "elastic currency," is believed to be an expression of the "real bills doctrine," a notion held in low regard within the economics profession today. As one author states, it is "high on the list of longest lived economic fallacies of all time." Its job now, to conduct monetary policy, was not believed by most experts at the time of its creation to be a proper or even possible function of government. Before the 1930s, macroeconomic stabilization policy was not widely developed, and when it emerged from the Great Depression, monetary policy was seen as having little independent power to influence the economy and was just the helpmate of the more powerful fiscal policy. The Fed's principal method of undertaking monetary policy, open market operations, was not even envisioned at its creation; the technique of influencing the money supply through the sale and purchase of securities on the open market was inadvertently discovered during the early years of its existence as the Fed attempted to manage its portfolio of assets. For these reasons, it is not all that surprising that some observers believe that the Fed's structure is not well suited to its job. Current Structure The Fed's structure has been changed several times since it was established. Its current structure, however, is largely the same as that which emerged in the late 1930s. U.S. monetary policy is determined within the Federal Reserve System. At the top of the system is the seven-member Board of Governors appointed to staggered 14-year terms by the President with Senate advice and consent. No member may be reappointed to a new term after having served a full term. By the same appointment and approval process, a Chairman and Vice Chairman are selected from the seven to serve four-year terms. These terms do not coincide with that of the President. The President can remove Fed governors "for cause" before their term has ended, but not on the basis of policy differences or incompatibility. In practice, the President has never done so. The Chairman of the Fed, though considered quite powerful, has only one vote on the Board. His power derives principally from setting the Board's agenda, from his role as the Fed's representative in meetings with other government officials, and from his control of the Board's staff. There are 12 regional Federal Reserve Banks, which were established in the belief that the system should safeguard against a concentration of power in New York or Washington. Each is set up as a private operation owned by member banks, with a nine-member Board of Directors. Six of the Board members are selected by member banks and three by the Board of Governors, including a chairman and deputy chairman. The Board of Directors then appoints the president and first vice president of its regional bank, subject to Board of Governors approval. The seven members of the Board of Governors sit with the president of the New York Federal Reserve Bank and four other regional bank presidents, who are selected on a rotating basis among the other 11 regional banks, on the Federal Open Market Committee (FOMC). The FOMC is responsible for determining the target for the federal funds rate, which is the inter-bank overnight lending rate. The target is maintained through open market operations, which is the principal tool of monetary policy. The discount rate, which is the rate at which the Fed lends to liquidity-constrained banks, is set by the Board alone upon application by a regional bank for a change. Money is placed into circulation through the purchase of U.S. Treasury securities. Because the system holds a large portfolio of securities, it earns income. Essentially, this is income from money creation and it is technically referred to as seigniorage. Member banks are the shareholders of the Federal Reserve Banks, and a dividend is paid to member banks corresponding to their stake in the system. After operating costs are deducted, and additions are made to its capital account (to maintain solvency), the rest is remitted to the Treasury, where it is recorded as "miscellaneous receipts." In 2005, it was estimated that 92% of the Fed's profits, or $21.5 billion, was remitted to the U.S. Treasury. About 3% of its profits were paid in dividends to shareholder banks and 5% were added to its capital. The way in which the Fed earns and passes on income means, first, that the government receives the revenue from money creation just as it would if, say, the Treasury administered monetary policy instead of the Fed. It means, second, that the Fed does not need a congressional appropriation of funds to operate. It has its own source of revenue and can conduct policy free of concern that budgetary pressure might be applied by those wanting to influence its decisions. Although the Fed has great latitude in implementing monetary policy, the goals that it is mandated to achieve through monetary policy are determined by Congress. In this sense, monetary policy is neither independent nor undemocratic. Having said that, both opponents of the Fed's independence and many economists would agree that the Fed's current mandate is broad and vague, and, therefore, greatly enhances its independence for better or for worse. Its charge derives from the legislation that created it (Federal Reserve Act, P.L. 63-43), from which comes its responsibility to provide an "elastic currency"; the Federal Reserve Reform Act of 1977 ( P.L. 95-188 ), which directs it to maintain stable prices, maximum employment, moderate interest rates, and sustainable growth; and the Full Employment and Balanced Growth Act of 1978 ( P.L. 95-523 ), which requires it to relate its policy to the employment goals of the entire federal government set pursuant to the aims of the Employment Act of 1946 (P.L. 79-304). As will be shown below, these goals frequently conflict. Collectively, they amount to telling the Fed that it is to make good economic policy. Given that these goals often cannot all be pursued simultaneously, and that some—even by themselves—can only be sustained temporarily, the Fed can usually find legislative authority for any monetary stance it assumes. The Goals of Monetary Policy Many recessions occur because aggregate supply exceeds aggregate demand. In other words, total spending is lower than what the economy is capable of producing. Economists attribute this phenomenon to the presence of price stickiness. When the demand for goods and labor falls, prices should fall to a point where adequate demand is restored. But because price adjustment does not happen quickly—due to the presence of contracts, menus, and uncertainty—output declines. This can lead to a vicious cycle where unemployment rises and resources fall idle—lowering aggregate demand further. In the long run, prices will adjust and the economy will return to its full potential. However, the examples of the Great Depression and the Japanese economy in the 1990s suggest that the long run can be very long indeed. If the government does not wish to wait for this long run self-adjustment to occur, it has two primary tools at its disposal to boost aggregate demand. The favored tool at present is monetary policy. The Fed can inject newly printed money into the economy by purchasing U.S. Treasuries, a process referred to as expansionary monetary policy. Since prices do not adjust instantly, this money will increase aggregate output if there are unused resources in the economy. The channel through which this spending increase occurs is lower interest rates. The cost of borrowing is lowered as the reserves available to the banking system expand. Thus, aggregate spending is boosted through higher investment spending on capital goods, equipment, and buildings and through higher consumption on interest-sensitive goods like automobiles, homes, and appliances. Aggregate spending is also boosted through the foreign trade sector. Lower interest rates attract less investment to the United States, and, other things being equal, this reduces demand for the dollar. As the exchange rate depreciates, foreign spending on U.S. exports and the U.S. production of import-competing goods will rise. In the long run, the printing of money can have no real effect on the economy—sustained inflation is a purely monetary phenomenon. Reductions in unemployment resulting from expansionary monetary policy are either temporary (if the economy was already at full employment when policy was changed) or would have eventually occurred anyway (if the economy was not at full employment). Prices will adjust to the increase in the money supply, causing inflation to rise. The closer the economy is to its full potential when monetary policy becomes expansionary, the more the increase in aggregate demand will be transmitted into higher inflation rather than greater output. Differences Between Fiscal and Monetary Policy Another stabilization tool at the government's disposal is fiscal policy. The government can boost its spending and finance it through an increase in its budget deficit (or a reduction in its surplus). This increases aggregate demand directly by increasing the government's purchase of goods and services. Similarly, the government can cut taxes through a smaller surplus or larger deficit, which boosts household spending by increasing disposable income (assuming that households spend the tax cut rather than save it). But unlike expansionary monetary policy, expansionary fiscal policy results in rising, rather than falling, interest rates, other things being equal. Interest rates rise because deficits are financed out of private saving. That results in the availability of less private saving for private capital investment. The demand for investment on a smaller pool of saving bids up the price of that saving, the interest rate. When the economy is deep in recession, the demand for investment may be very weak, and deficit spending will cause little upward pressure on interest rates. By contrast, if the economy is operating near full potential when expansionary fiscal policy is undertaken, then interest rates will rise substantially, crowding out most of the increase in aggregate demand caused by expansionary fiscal policy. When interest rates rise, foreign investment is attracted to the country, offsetting some of the decline in saving available for investment. However, this causes the dollar exchange rate to appreciate, which reduces foreign demand for U.S. exports and U.S. demand for import-competing goods. This also crowds out the boost in demand caused by expansionary fiscal policy to the extent that it causes interest rates to rise. Thus, as the U.S. has become more open to international capital flows and trade, monetary policy has become more powerful and fiscal policy less powerful. That is because exchange rate effects work to reinforce the effects of monetary policy on aggregate demand but offset the effects of fiscal policy. Unlike monetary policy, expansionary fiscal policy cannot lead to a sustained increase in the inflation rate—there is some limit beyond which the deficit will stop rising, even if it remains high. First of all, the deficit cannot exceed 100% of aggregate spending. Even before that point, the deficit must stop growing if the public can no longer reasonably believe that government bonds they purchase will be honored. But the money supply can keep growing as long as it is allowed to do so. As long as some people are willing to hold money, the money supply can grow; many historical examples of hyperinflation suggest that some people will hold money even at extremely high monetary growth rates. While the ability of fiscal policy to raise or lower inflation is only temporary, monetary policy can only raise or lower (inflation-adjusted) interest rates temporarily. Using monetary expansion to push rates down in an economy that is fully employed will just stimulate higher prices. These higher prices will offset the initial depressing effect that expansionary monetary policy had on interest rates since the Fed has not changed the resources available in the economy for investment. On the other hand, fiscal policy can have a permanent effect on interest rates. A high level of government borrowing, even if the level is constant, can hold interest rates up indefinitely because of its effects on the saving available for investment. Thus, in the short run both fiscal and monetary policy increase economic growth and inflation. But expansionary fiscal policy results in higher interest rates, whereas expansionary monetary policy results in lower interest rates. Likewise, contractionary fiscal policy lowers growth and inflation with lower interest rates as a result, whereas contractionary monetary policy leads to higher interest rates. In the long run, monetary and fiscal policy have very different influences, however. Fiscal policy helps determine the interest rate, monetary policy does not. Monetary policy determines the inflation rate, fiscal policy does not. Neither can permanently boost the long-run economic growth rate; this is determined by the growth rate of labor, capital, and productivity. Policy Calibration, Lags, and the Role of Credibility Obviously, not all the adjustments referred to above occur immediately. Otherwise there would be no short run imbalances and the economy would always be at full employment. Experience teaches that this is not the case. Historical evidence indicates that the full price effects from fiscal and monetary policy come roughly two years after the policy is implemented. Employment effects come much faster, within two or three quarters. The reason for this asymmetry in lags is price stickiness. Although hard to quantify, expectations play an important role here as well. If individuals expect inflation to accelerate or decelerate, it will do so more quickly, even if policymakers claim to desire otherwise. The closer the economy is to full employment when demand management is undertaken, the faster the price effects will occur. But even in a fully employed economy, prices will not adjust quickly enough that output effects are zero and the full rise in inflation is immediate. Growth will be boosted, but the boom will be unsustainable and short lived. The legacy of expansionary policy will be higher inflation. Similarly, if faced with undesirably high inflation, contractionary policy will reduce output and increase unemployment in the short run. Only later will prices adjust to slow inflation. Moreover, how long it takes inflation to slow down in response to contractionary policy, and how long higher unemployment must be endured, depend on the credibility of the central bank's anti-inflation plan. If the public thinks that a contractionary policy will soon be abandoned, then prices will not be adjusted, and inflation and heightened unemployment will be slow to abate. The role of credibility, expectations, and the state of the economy all result in variability in the length of the policy lag and the magnitude of the output response. Thus, it is difficult to design a policy with any precision that can systematically counteract the various pressures, which themselves are often poorly understood, that tend to generate swings in economic activity. This means not only is it impossible to calibrate policy well enough to avoid business cycles, but that attempts to do so may even make the cycles worse. In hindsight, some economists have blamed many recessions on monetary policy errors. Criticisms of Independence Criticisms of the Fed's structure break down to three notions. First, some believe the Fed is too independent in the sense that its decisions are too far removed from the will of the public. Second, critics say that monetary and fiscal policy are made in isolation from each other, so that there is no mechanism to guarantee their coordination. Third, others argue that as an institution, the Fed is insufficiently open or accountable, with its activities shrouded in secrecy and with little external supervision or examination of its outlays, management practice, and policy decisions. In general, both those who argue for continued broad discretion and those who argue for change emphasize the importance of monetary policy for the economy and make it the center of their arguments. Basically, one side maintains that monetary policy is too important to be put into the hands of a few appointed officials. The other believes that it is too important not to do so. While monetary policy is important, one must keep in mind how it is important. The short-run effects of monetary policy differ substantially from its long-run effects. Whatever argument is advanced to support or attack independence, it should not be predicated on the belief that the Fed's job is to control interest rates. The Fed's influence over the economy is short-term only. In the long run the Fed does not control real interest rates, and efforts aimed at controlling interest rates based on its short-run influence generally result in accelerating inflation or deflation. Independence Whereas fiscal policy is made jointly by the legislative and executive branches, monetary policy is influenced only indirectly by either. The long terms of Fed governors, the fact that they are appointed rather than elected, and the fact that the institution has its own source of funding means that Fed governors and other FOMC members are likely to be less responsive to swings in public opinion than are the makers of fiscal policy. This does not automatically mean that the structure of the Fed is inconsistent with the traditional character of American government. For example, members of the federal judicial branch are appointed, in their case for life, and there is a constitutional prohibition on diminishing their salary while in office. It should again be stressed that the overarching goals of monetary policy are determined by Congress; it is merely the day-to-day implementation of those goals that has been delegated to an independent Fed. What makes monetary policy unusual is the fact that it is not implemented by the executive branch, whose chief is directly elected but is otherwise staffed by civil servants and appointees serving at the discretion of the chief. Thus, at issue is not whether the Fed's independence is unique in our government—it is not—but whether its independence is appropriate or advantageous for the conduct of monetary policy. Several elements of the earlier analysis bear on this issue. First, there is the difference in the short-run and long-run effects of monetary policy. The positive employment effects from an over-expansion of the money supply are temporary and experienced in the short run. The higher rate of inflation comes later—it would not even begin to be felt for a year or two, the length of a congressional term. The economic costs of high and variable inflation are well chronicled. Similarly, anti-inflation policy takes a long time to achieve its results; in the interim it causes an increase in unemployment. If elected officials seek short-term "gain" at the cost of long-term "pain," this lag structure would impart an inherent bias toward inflation. It would also tend to produce more business cycles if policy directed at reducing inflation is aborted before it is complete, only to be reintroduced again later when the renewed expansion makes inflation worse. By insulating decision-makers from the immediate effects of public pressure, proponents point out that independence may help offset that bias. The Fed may be better able than other institutions to resist the temptation to "gun" the economy in preparation for an election. Similarly, when attempting to reduce entrenched inflation, the Fed may more easily "tough out" criticism of a contractionary policy until inflation abates, thereby avoiding a premature policy reversal that renders the already-incurred unemployment costs pointless. This argument in favor of independence is necessarily not one for total insulation of decision making. In fact, total insulation probably does not exist: many Fed critics believe there are many historical examples that suggest that political pressure led to incorrect decisions by the Fed. What it might suggest is putting monetary policy on a "slow fuse," where outside judgement operates over a longer time horizon. Even then, the economic advantage of independence would have to be weighed against a number of non-economic factors favoring less independence. Some proposals for change stop short of eliminating Fed independence. Whether it is worthwhile to decrease the Fed's independence by placing officials from the executive branch on the Board of Governors, or by subjecting the Fed's budget to congressional approval, is a matter of judgement of both a democratic and economic nature. But the economics of monetary policy is such that the cost of making the Fed more responsive to short-term public opinion would likely be an increased tendency to inflate the economy and to reverse anti-inflation policies before they have time to achieve their intended purpose. International evidence backs up this theory, at least when independence is broadly defined, since many central banks that do not enjoy a level of independence similar to the Fed have allowed higher inflation on average. The second element of independence, credibility, reinforces the first economic argument. In the short run, the responsiveness of inflation to changes in monetary policy depends in part on people's expectations of the Fed's behavior. Imagine that the Fed were to tighten monetary policy to reduce an uncomfortably high inflation rate. If people believed that the Fed would be unwilling to follow through with an anti-inflationary stance once unemployment rose, then people would reduce their inflationary expectations very slowly and cautiously. This would feed through into wage contracts and pricing decisions by firms that would cause inflation to be temporarily higher than expected given the change in monetary policy. Since it is sluggish price adjustment that causes unemployment to rise and output to contract in the short run, this suggests that the rise in unemployment caused by the contractionary policy would be greater and more persistent than if the central bank had greater credibility. Thus, even when a less independent central bank is resolved to pursue an anti-inflationary policy to its end, its lack of independence may lower its credibility, making the policy more painful and persistent in the short run than it otherwise would be. Third, the alternative to an independent central bank has implications for the checks and balances of our government. Legislative bodies are not designed to administer policy; Congress could not fulfill the Fed's current task of setting discretionary policy on a day-to-day basis. Thus, Congress would have two choices: eliminate discretion through the adoption of a rule, an option considered below, or delegate the day-to-day administration of discretionary monetary policy to the administrative branch. The latter would tilt economic power significantly toward the executive. The checks and balances applicable to fiscal policy would not apply to monetary policy. Thus, eliminating the Fed's independence would not simply make the federal government more democratic; it would also have implications for the checks and balances of power that some might see as making the government less democratic. To judge how important the economic benefits of Fed independence may be, it is useful to consider the example of fiscal policy. Like monetary policy, expansionary fiscal policy has short-run benefits, in terms of higher output and employment, and long-term costs, in terms of higher inflation and debt burdens. Perhaps the overwhelming reason why fiscal policy has fallen into disrepute with many economists as a stabilization tool is precisely because of the unwillingness of elected lawmakers to tighten fiscal policy (reduce a budget deficit) when aggregate demand is "overheating." A rule of thumb for effective fiscal policy is that the budget should be balanced over the business cycle—budget deficits in recession years should be offset by surpluses in boom years. In practice, the federal budget was in deficit in 36 of 37 years between 1961and 1997, and returned to deficit in 2002 after four years of surplus. Coordination Some observers consider coordination an important element of Fed reform because under the current system monetary and fiscal policy are made separately. While coordination may take place, the Fed is free to follow a policy totally at odds with the fiscal stance taken by Congress and the President. It is entirely possible for monetary policy to be undoing what fiscal policy is doing with output and employment, or for monetary policy to be reinforcing the effect that fiscal policy is having on interest rates. Directed in concert, the two policies should be able to produce much more effective policy than if they are determined in isolation of each other. In particular, using fiscal and monetary policy in concert allows aggregate demand to be influenced with minimal disruption to interest rates and the exchange rate, since fiscal policy pushes interest rates and the exchange rate in the opposite direction of monetary policy. This has several advantages. For example, if resources cannot be reallocated completely fluidly and costlessly, it may minimize the difference in output effects on particular sectors or regions of the economy in the short run. It may also prevent economic imbalances from forming or mitigate existing imbalances in the short run. Furthermore, it may make long-term business planning more predictable, since such planning is highly dependent on interest rates and exchange rates. However, if fiscal and monetary policy were coordinated, they could also produce much worse policy. Just as a well-conceived fiscal policy can be enhanced by monetary policy designed to support it, an ill-conceived fiscal policy can become all that more damaging to the economy if reinforced by a monetary policy made to go with it. Hence, good policy can be much better if monetary and fiscal policy are coordinated, but bad policy can be made much worse. The potential for ill-conceived coordination is particularly great due to the relative roles of the two policies in affecting interest rates and inflation. Large fiscal deficits frequently arise from a deadlock concerning whether to raise taxes or reduce spending. These deficits tend to hold interest rates higher than they would be otherwise. In systems amenable to coordination, the temptation thereby arises to use expansionary monetary policy to lower interest rates that have been forced up by fiscal policy. Since interest rates are not something that monetary policy can influence in the long run, the result is accelerating inflation, an outcome that large deficits could not achieve on their own. In this regard, it is worth noting that studies of hyperinflations have consistently identified two essential components of the policies that ultimately brought such episodes to an end; one of them is an independent central bank capable of refusing a government's requests for money. Clearly, coordination has not always proven a recipe for sound demand management policy. The fiscal situation of the government in the 1980s and early 1990s illustrates the dilemma well. Large budget deficits tended to keep interest rates high, and relatively little progress was made in bringing deficits down until the late 1990s. Had the Fed been under the control or influence of the Administration or Congress, they would have had the option of "coordinating" this fiscal policy with more expansionary monetary policy as a solution to the problem of high interest rate effects. Since such policy is short-run in its effect, the effort to coordinate policy in this way would be inflationary. This observation does not imply that coordination is undesirable. Rather, it highlights the cost of coordination: the risk of putting all policy eggs in one basket. The current division of economic policy responsibilities, therefore, produces yet another check-and-balance arrangement. Because of this split in responsibilities, no stabilization policy is likely to be carried very far in one direction unless consensus is achieved among different policymaking bodies. Proposals to better coordinate monetary and fiscal policy, including placing monetary policy under the control of the Treasury, putting a Treasury official on the Board of Governors, and matching the term of the Fed chairman with that of the President, raise this balance-of-power dilemma. Opting for more or less coordination therefore boils down to a trade-off between maximizing the benefits that come from policy when it is well-chosen and minimizing the costs that occur when policy is ill-advised. Accountability and Disclosure The third area of concern to critics of the Fed's independence is the secrecy with which operations at the Fed are conducted. Transcripts of the FOMC's deliberations are not released for five years, and minutes of FOMC meetings are released only after the following FOMC meeting. The Board is audited by outside auditors. (Board staff audit the regional Fed banks.) The Government Accountability Office (GAO), already the auditor of a variety of sensitive government agencies and regulatory bodies, is limited in what kinds of audits it can conduct of the Fed. It is specifically prohibited from auditing the Fed's monetary policy activities. The issue of accountability should be viewed as distinct from the issue of democracy. Democracy—in this case, the potential shifting of the powers of the Fed to elected officials—is one approach to increasing accountability, but it is not the only one. The next section considers an alternative method of increasing accountability, the use of rules. Hence, some may advocate greater Fed accountability without favoring diminished Fed independence. There is little that economic analysis can contribute to this area of debate. Policy may be better or worse under greater public scrutiny, and whether it is or not must be judged in terms of what best makes for "good government." Accountability could have two economic effects worth exploring. First, what costs does secrecy impose on markets? Second, how would greater disclosure affect the Fed's behavior and Congress's oversight abilities? Fed-watching engages real resources, albeit small in comparison to the overall economy, in the task of second-guessing monetary policy. In addition, costs may be imposed by market fluctuations caused by unfounded speculation over Fed policy. The rational expectations literature stresses the importance of information about both the present and the future in making efficient decisions. If the Fed's secrecy creates needless uncertainty, economic efficiency and welfare could be reduced. Presumably, if more information on Fed deliberations were available to the public these costs could be reduced. The need to out-guess the Fed, however, does not so much result from Fed secrecy as much as from the use of discretion in monetary policymaking. The advantage in any market is in predicting events before someone else does; this is true whether market agents are trying to figure out what Fed policy is or what it will be. And as long as discretion is employed, there are limits on just how much policy can be spelled out in advance. Thus, proposals to increase disclosure (e.g., through immediate release of FOMC minutes or official statements concerning the Fed's intermediate targets) might not do much to diminish Fed-watching. Nor would a reduction in independence diminish Fed-watching if the new policy regime were based on discretion. However, more complete disclosure might have a different benefit. It might produce better policy. The fact that the Fed can make pronouncements about policy in vague, qualitative terms allows the potential for policy to be made in an ad hoc or idiosyncratic way. Whether it does so in fact is not clear—indeed, it is impossible to judge objectively given that its pronouncements are vague. The members of the FOMC may have very definite models of economic behavior in mind when deciding whether to tighten or loosen policy. Whatever those models are, however, they are not always clear to outside observers. Proponents of more complete disclosure believe it could promote more closely reasoned decisions about policy that reflect just what economic events are considered by the FOMC to be indicative of a certain policy, why that policy follows logically from those events, and what future events would be accepted as evidence that the policy is no longer appropriate. This view holds that fuller disclosure would force the Fed to specify its picture of the economy and thereby help ensure that one actually exists. Better accounting of the Fed's actions could also help Congress in its oversight of Fed performance. Congress has the Congressional Budget Office (CBO) and the Joint Committee on Taxation to help provide independent evaluation of fiscal and tax policy. But it must depend on the Fed itself in assessing monetary policy much more than it does on the Treasury or Office of Management and Budget (OMB) in tax and budgetary matters. Independent evaluation of the Fed's actions on a periodic basis could put Congress in a position more analogous to that it is in when studying fiscal and tax policy. Other economists would argue that there is a limit to achieving adequate disclosure and oversight as long as the Fed explains its decisions qualitatively rather than quantitatively. For example, when reading the Fed's policy statements, some Fed watchers claim that the Fed's view of the potency of monetary policy—and hence personal culpability—sharply declines whenever there is an economic downturn. Ultimately, they argue, only rules that link hard data to policy decisions can be judged objectively. What If Rules Replaced Discretion? Critics of Fed independence cannot complain that the goals of monetary policy have been determined in an undemocratic fashion: the goals of the Federal Reserve are mandated by Congress. To a great extent, if the Fed's policymaking is vague and unaccountable, it is because Congress has given it a vague and oftentimes internally inconsistent mandate. Rather, opposition to Fed independence lies with the fact that unelected officials have considerable discretion in pursuing that mandate, and the fact that voters and elected representatives have limited institutional oversight to ensure that the Fed fulfills its mandate. Since the economics of independence suggest considerable economic disadvantages would arise from shifting discretion to elected officials, most economists concerned with the status quo have focused instead on devising ways to remove discretion from monetary policy. Their efforts have focused on strengthening the Fed's mandate such that it ceases to be a fuzzy guideline and instead becomes a strict rule. With a precise enough rule, decision-making by the Fed would be largely unnecessary, and accountability would be straightforward. "Fed watching" would be unnecessary as markets would never need to second-guess what motivated policy decisions and what decisions would follow a change in economic conditions. Policy would change predictably and automatically as economic data became available. The drawback to a rule-based policy regime lies in the fact that the Fed does not precisely or directly control the variables with which it is most concerned—notably, inflation or the growth rate of aggregate demand. Its interest rate decisions influence these variables, but imprecisely, variably, and with long lags in their effectiveness. Thus, rules based on the variables of ultimate concern cannot be applied in a straightforward and easily verifiable fashion. Alternatively, the variables that the Fed can control are not variables that influence society's economic welfare in and of themselves. A rule could direct the Fed to cause the money supply to grow at a certain rate, to fix short term interest rates at a certain level, to fix the exchange rate value of the dollar, or to keep the price of gold constant. But none of these rules would be directly related to economic stability. Targeting the growth rate of the money supply or the price of gold would not deliver economic stability because neither are predictably or systematically related to economic growth or inflation. Fixing interest rates would not provide economic stability because the Fed only controls the supply of short-term credit. Variability in the demand for credit means that different interest rates are appropriate at different times. Fixing the exchange rate may increase external stability, but is unrelated to internal stability. The other drawback to a rule is that since the Fed has only one tool, it can potentially target only one variable with any precision. But it is concerned with at least two variables, inflation and the growth of aggregate demand. More goals dilute the effect that its policy tool has on each particular goal. This difference between policy goals and the policy tools available explains why discretion exists in the first place. If there were a simple relationship between the Fed's actions and their effect on inflation and unemployment, the Fed would not need to use its discretion in determining the proper policy. The minority of economists who see the Fed itself as the primary cause of economic instability in the 20 th century would argue that any strict rule, regardless of how directly related to inflation and demand growth, would lead to greater economic stability than discretionary policy. But most economists accept that economic stability rests upon the use of monetary policy to stabilize inflation and demand growth. Those who accept this but oppose discretion have endorsed the "Taylor rule," developed by economist John Taylor, now Undersecretary of the Treasury. Under a Taylor rule, the Fed would automatically alter interest rates based on a simple equation that responds to changes in inflation and output growth. Detractors of this and other rules stress that interest rate changes do not always influence the economy predictably, uniformly, or promptly; thus, the use of a rule could potentially be destabilizing, particularly in times of crisis. Between the polar alternatives of complete discretion and strict rules lies a spectrum of looser rules that would reduce but not eliminate the Fed's discretion. The most famous of these is an inflation target, which has been adopted by several foreign central banks, including the European Central Bank and the Bank of England. An inflation target would mandate that the sole goal of monetary policy is to keep the inflation rate equal to a predetermined rate (or within a predetermined band) in the long run. But unlike a strict rule, central bankers would remain free to use their discretion to reach their target. If this rule were strictly interpreted, it would be quite strict indeed—even small increases in inflation would lead to sharp increases in interest rates under any circumstances, and vice versa. But it could be destabilizing since demand growth would be neglected entirely. For instance, an oil shock could simultaneously cause a recession and an acceleration in the inflation rate. A strict inflation target would require the central bank to raise interest rates, worsening the recession. In practice, foreign central banks have proven quite responsive to changes in demand growth, even when inflation is above its target. And their mandate has typically included many caveats and exemptions to ensure flexibility. This raises the criticism that inflation targets have not meaningfully reduced discretion—central bankers are still free to do as they see fit. Viewed objectively, an inflation target strikes a balance between rules and discretion, and enjoys some of the benefits but suffers from some of the drawbacks of both. Under an inflation target, it seems unlikely that inflation would be allowed to get out of hand for long without ramifications. Central bankers could no longer justify any policy stance by pointing to conflicting parts of their mandate. In this way, accountability would be increased. On the other hand, an inflation target as practiced still lacks a quantifiable way to evaluate specific discretionary decisions. As economists Ben Bernanke and Frederic Mishkin (now Chairman and Governor of the Federal Reserve, respectively) argue, "constrained discretion" is probably a more apt description of the international experience with inflation targets. Would a rule-based monetary policy be a more democratic arrangement than discretionary control by unelected officials? The answer to that question is beyond the scope of this report. Economist Milton Friedman, for one, believed it would be more democratic. In Friedman's eyes, the contrast between rules and discretion in monetary policy was analogous to the contrast between the Bill of Rights and leaving decisions of individual liberty in the hands of the legislature. He reasoned satirically, Why not take up each (free speech) case separately and treat it on its own merits? Is this not the counterpart to the usual argument in monetary policy that it is undesirable to tie the hands of the monetary authority in advance; that it should be left free to treat each case on its merits as it comes up? Why is not the argument equally valid for speech? Conclusion An argument against independence cannot be predicated on the belief that interest rates can be fixed or that inflation and recession could always be avoided if interest rates were never raised. Instead, an economically valid argument against independence can be made as long as it recognizes that the positive effects interest rate reductions have on output and employment come sooner than the negative effects interest rate reductions have on inflation. Similarly, anti-inflation policies bring short-term pain and only long-term rewards. In such circumstances, independence, or partially insulating the Fed from short-term political pressures through institutional arrangements, is a way to make painful but necessary policies more likely to occur. There are also some possible economic drawbacks to independence that merit consideration. First, oversight is difficult in the current system, and this makes it difficult to prevent or reverse poor policy decisions by the Fed. Second, potential benefits of coordinating monetary and fiscal policy cannot be secured. While disallowing coordination means that the benefits of good policy cannot be maximized, it also means that the effects of bad policy can potentially be minimized. If reducing or eliminating Fed independence were deemed too economically costly, are there alternative reforms that could be considered to address the issues that critics have raised? Monetary policy rules are another way to make policy immune from detrimental short term pressures, and they do not suffer from some of the drawbacks of independence. Rules would also boost accountability and some might view them as more democratic in the sense that they reduce the discretionary power of unelected officials. The economic tradeoff between rules and discretion is of a different nature. It boils down to a question of how well a highly complex economy can be stabilized by a blunt and simple rule. Economists are highly divided on this point. Many of those who support rules do so because they have little faith in the ability of the FOMC to make better discretionary decisions than a simple rule. An inflation target, as it has been practiced abroad, is a modest middle path between strict policy rules and unlimited discretion, but only because it has not been implemented too literally. Congressional oversight suffers from having the Fed's goals as vaguely defined as they are at present. An inflation target would tighten those goals and increase accountability if persistently egregious policy errors were made. It would not, however, significantly reduce the Fed's independence as it attempted to devise discretionary monetary policy for a highly complex and changing economy. The economic arguments for and against Fed independence evaluated in this report apply only to the Fed's monetary policy responsibilities. Arguments for and against reassigning the Fed's other duties, such as bank regulation, to a less independent entity are beyond the scope of this report.

The Federal Reserve System (Fed) is charged with responsibility for making U.S. monetary policy. Quasi-public in structure, overseen by a Board of Governors whose members are appointed to serve long terms, and reliant on its own source of funding, the Fed possesses a degree of independence that some argue is inimical to the spirit of democracy. Although this argument (and refutations of it) may be political or constitutional in nature, it is also rooted in certain notions about macroeconomic policy. The power that the Fed wields is substantial. Along with fiscal policy, monetary policy is one of two kinds of policy that can be employed to influence aggregate demand. In the short run, both monetary and fiscal policy have the power to raise or lower employment. But they have opposite short-run effects on interest rates (expansionary monetary policy lowers interest rates and expansionary fiscal policy raises them), so that in concert they can achieve results that neither can in isolation. The long-run effects of the two policies are quite different from their short-run effects. Fiscal policy helps determine interest rates in the long run, but not the rate of inflation. Monetary policy largely determines the inflation rate, but cannot be used to fix interest rates in the long run. Policies based on the assumption that monetary policy can fix interest rates ultimately generate accelerating inflation or deflation. Monetary policy affects inflation only after it affects employment. A policy structure that responds quickly to the immediate concerns of the public is thus more likely to generate inflation than one that allows policymakers to more easily weather bad times. A very responsive policy structure not only increases the likelihood of high inflation. It also tends to produce more business cycles if policy directed at reducing inflation is aborted before it is complete, only to be reintroduced again later when the renewed expansion makes inflation worse. On-again, off-again policies erode the credibility of the monetary authorities and make anti-inflation policy all the more costly and lengthy when it is undertaken in earnest. Reducing the independence of the Fed either means reducing the ability to engage in discretionary policy or shifting economic power to the executive branch. This is an important consideration given the difficulty in calibrating policy. Because the legislative branch is not in a position to exercise day-to-day control of monetary policy, if it wishes to reduce the Fed's discretionary powers, it must choose between establishing policy rules to which the Fed must adhere or allowing the executive to administer policy. Economists who oppose rules fear that they would be too rigid to deliver economic stability in a highly complex economy. Better coordination of monetary and fiscal policy is a double-edged sword. If "good" policy is pursued, it will be all that much better if simultaneously pursued with both tools. But if "bad" policy is pursued, using both tools to pursue it will make the result that much worse. Thus, the choice boils down to whether the policy structure should be one that maximizes the benefits that come from policy when it is well chosen or minimizing the costs that occur when policy is ill-advised. This report does not track legislation and will be update as events warrant.

The U.S. Coal Industry Introduction The Trump Administration has taken several actions intended to help revive the U.S. coal industry. Within its first two months, the Administration rolled back or began reversing several coal-related regulations finalized under the Obama Administration. For example, the Trump Administration repealed the coal valuation rule on August 7, 2017, effective on September 6, 2017. This effort was undertaken as three of the largest coal producers continued recovery from Chapter 11 bankruptcy, and occurred in the context of higher coal prices (making coal production possibly more profitable), lower inventories, and higher natural gas prices—factors that could lead to coal being more competitive as a fuel source for electricity generation. Coal will likely remain an essential component of the U.S. energy supply, but how big of a role will it play? As the Trump Administration is focused on reversing some of the Obama Administration's coal-related rules, congressional action in the 115 th Congress has primarily centered on assistance to distressed coal communities (e.g., H.R. 405 / S. 76 , H.R. 663 , and H.R. 1731 / S. 728 ) and coal miner health benefits (e.g., H.R. 179 / S. 175 , H.R. 323 , and H.R. 1613 ). There is also legislation proposing coal leasing reform ( S. 737 ), preventing new coal and other fossil fuel leasing on federal lands ( H.R. 2242 / S. 750 ), and preventing new self-bonding for coal projects ( H.R. 1819 / S. 800 ). The United States sits on abundant coal reserves and resources, but it also has an abundance of natural gas resources. Additionally, because of technical innovation and regulatory incentives, costs for renewable energy are declining, leading to a likely long-term growth trend in renewable energy capacity. Even though U.S. coal production remained consistent at over 1 billion short tons annually over the past two decades (until recently), coal is losing its share of the overall U.S. energy market, primarily to natural gas. Just a few years ago, coal production, consumption, and exports were at or near record levels, but 2015 and 2016 saw significant declines. One of the challenges for the industry is how to penetrate the overseas coal market, particularly for steam coal, to compensate for declining domestic demand. Domestic and global concerns over the potential environmental impacts from burning coal, particularly around carbon dioxide (CO 2 ) emissions and climate change, are leading to clean coal alternatives and the greater use of natural gas and renewables. There is also the domestic concern over job losses and long-term impacts within coal communities. If coal jobs do not come back in large numbers, what new employment opportunities could be created? At the global scale, some emerging countries see coal as the primary path to electric generation in the short term, while at the same time more developed countries such as Canada and those in Europe are moving away from coal and toward renewable energy. China, which currently consumes over 50% of the world's coal and is expected to remain the largest coal consumer over the long term, is seeking to implement a more balanced energy strategy as a response to the environmental impacts of burning coal. Beginning in the 1970s, U.S. coal operators were required to comply with numerous federal and state regulations including stream buffer rules, effluent guidelines, underground injection control, and siting and reclamation rules. As U.S. energy policy and environmental regulations are debated, there is ongoing congressional interest in the role of coal in meeting U.S. and global energy needs. The question may not be whether the domestic production of coal is here to stay but, rather, how much U.S. coal will be burned, what type (e.g., from which region), and under what regulatory framework. Coal mining is capital intensive, and coal prices (like other commodity prices) are volatile. The coal industry will be challenged to be profitable in the current environment whether or not the industry incorporates social and environmental costs. A McKinsey and Company report that was critical of the financial health of the coal industry questioned whether the industry could overcome long-term indebtedness and abundant low-cost natural gas supplies in order to compete in the global export market. This report reviews the historical trends (over the past 30 years) and recent developments in the U.S. coal industry, including coal development on federal lands, but does not cover the health, safety, and labor union issues associated with coal mining. (For more details on the health benefits issue, see CRS In Focus IF10616, Health Benefits for United Mine Workers of America Retirees , by John J. Topoleski.) For more details on environmental issues, see CRS Report R44150, The Office of Surface Mining's Stream Protection Rule: An Overview and CRS Report R44341, EPA's Clean Power Plan for Existing Power Plants: Frequently Asked Questions . Appendix A provides a primer on coal (including Table A-1 , which reflects more current production and consumption data published by the EIA; for the purposes of showing more disaggregated data for production and consumption, Table 1 and Table 4 in the text use EIA Annual Coal Report data). Appendix B provides selected coal production company profiles, and Appendix C provides a list of selected coal-related CRS reports that are not otherwise referenced in this report. U.S. Coal Reserves and Resources5 The United States has the largest coal reserves and resources in the world. The Energy Information Administration (EIA) estimates there are about 255 billion short tons (Bst) of recoverable domestic coal reserves. The U.S. total demonstrated resource base (DRB) is estimated at about 477 Bst. Coal resource deposits are found in various regions in the United States (see Figure 1 ), with the dominant coal reserve owner being the U.S. government. EIA statistics show that more than half (55%) of U.S. coal reserves are located in the West, of which Montana and Wyoming together account for 43% of total U.S. reserves. About 70% of U.S. coal reserves are located in the top five producing states, which are Wyoming, West Virginia, Pennsylvania, Illinois, and Kentucky. The U.S. government owns about one-third, or 88 Bst, of U.S. domestic coal reserves, followed by Great Northern Properties Limited Partnership (20 Bst) and Peabody Energy Corporation (6.3 Bst). Altogether, the top three reserve owners account for about 44% of U.S. coal reserves. Trends and Recent Developments in the U.S. Coal Industry Coal Production U.S. coal production had been strong since the 1990s (above or near 1 Bst per year until 2014), and reached its highest level of production in 2008 (1.17 Bst) before it declined precipitously in 2015 (see Table 1 and Figure 2 ) and 2016. EIA current data and short-term projections show coal production remaining under 800 million tons in 2017 and 2018 (see Table A-1 ). The prospects are not promising for a reversal of fortunes for U.S. coal mining in the long run, particularly for underground eastern coal, as lower-cost Powder River Basin (PRB) coal (with its extensive reserves) maintains its dominance and as Interior Region coal gains ground. Western coal, in general, has gradually risen from about 53% of U.S. production in 2000 to 61% of production in 2015, and is expected to retain a majority position at 51% through 2050, according to EIA's long-term reference case. Production from the Interior Region would gain from 18% in 2015 to 28% of total U.S. coal production by 2050. Long-term EIA projections show that coal production would fall below 600 million short tons (mst) per year under the reference case that includes the implementation of the Obama Administration's Clean Power Plan (CPP). Without CPP, coal production would remain relatively flat, at between 800 million and 900 million short tons per year through 2050. Coal Mining Employment and the Number of Mines The trend in coal mining has been to improve labor productivity, or to make production more efficient, with the use of technology. There were sharp increases in labor productivity (more coal per man-hour) in the 1980s and 1990s, as labor productivity more than doubled from 2.74 average production per employee hour in 1985 to 7.02 in 2000, particularly at coal mines in the West (see Table 2 ). There is no indication that the coal industry will see a reversal of these production trends, even if there are some short-term gains in employment. Any employment gains would be starting from a historically low level. As shown in Table 2 and Figure 3 , coal mining employment declined from 169,300 in 1985 to 71,500 in 2000 (a 57% decline), then rose to a recent high of 86,100 in 2010 (as coal production was rising) before falling again to a historic low, 65,900, in 2015. A similar pattern was true for the number of coal mines, as the majority of the decline occurred between 1985 and 2000, when the number of coal mines fell by 55% (from 3,355 to 1,513) before declining further by 45% from 2000 to 2015 (from 1,513 to 834). As coal production was trending upward, reaching its peak in 2008, the number of coal mines declined dramatically (see Table 3 and Figure 4 ). Additionally, the number of coal mining firms has decreased in the United States, while the size of the average mine and output per mine have increased. If mines continue to close, particularly underground mines east of the Mississippi, and large-scale surface mines in the West stay more economical, then the impact on coal mine employment may continue to disproportionately affect eastern coal miners. Recently, however, overall employment losses among underground and surface mines have been similar. For example, from 2010 to 2015 employment losses in underground and surface mining operations were about 10,000 each (see Table 2 ). Coal Consumption Coal consumption in the United States was consistently over 1 billion tons per year from 2000 (peaking in 2007, at 1.128 billion tons per year) until 2012, when demand fell below 900 million short tons (mst) (see Table A-1 ; for pre-2000 levels, see Table 4 and Figure 5 ). The EIA projects coal consumption to remain below 800 mst in the short term (from 2017 to 2018) and to drop close to 500 mst in its long-term reference case that includes the implementation of CPP. Without CPP, U.S. coal consumption levels would rise slightly above 800 mst until 2030, before falling below 800 mst in 2040 and remaining there through 2050, the end of the projection period. In either case (declining or flat demand), coal consumption would continue to be a smaller share of the total U.S. energy pie. Societal concern for cleaner air is one reason for depressed coal consumption, along with many other factors, including low natural gas prices and large gas supplies as a result of advanced drilling techniques. Electric power generation is the primary market for coal, accounting for about 93% of total consumption. With the retirement of many coal-fired power plants and the building of new gas-fired plants, accompanied by relatively flat electricity demand, there has been a structural shift in demand for U.S. coal—one that will likely result in reduced capacity for coal-fired electricity generation over the long run. Historically, coal maintained a 50% share of the electricity generation market until 2008 and now accounts for about 32% of the market (for more details on the electricity market, see CRS Report R42950, Prospects for Coal in Electric Power and Industry , by Richard J. Campbell, Peter Folger, and Phillip Brown). In 2016, natural gas overtook coal as the primary fuel for power generation. Also, the EIA projects renewables' share of the electricity generation market will grow by 2.6% annually through 2050, with renewables capturing 28% of the market by the end of the forecast period. Simultaneously, coal's share of the market would fall to less than 20% in the reference case. In short, coal would likely account for a smaller portion of total U.S. energy consumption for years to come, replaced by natural gas and renewable energy, particularly for power generation. The economics of coal versus natural gas may change in the near term, with coal prices and natural gas prices rising in 2017 (making coal operations more profitable), which may allow for some coal plants to be more competitive in some markets or regions. But in the long run, as abundant U.S. shale gas resources are being produced economically—and if they can be produced in an environmentally sustainable manner—then natural gas would likely continue to increase its share of the electricity market for years to come. U.S. Coal Exports One of the coal industry's greatest challenges is to increase sales to overseas coal markets, particularly for steam coal, to compensate for declining domestic demand. In the recent past, coal exports rose as domestic and global demand (particularly in China) increased, and continued to rise as domestic demand fell. But now both domestic demand and exports are in decline. The EIA's reference case forecasts coal exports to continue declining in the short term (2016-2018) but increasing to 85 million tons annually by 2050. Exports to Asia are expected to increase, but potential bottlenecks such as infrastructure (e.g., port development and transportation) and significant global competition could slow export growth. The rise in U.S. coal exports through 2012 was aided by a drop in the value of the U.S. dollar against other currencies, including those of other major coal-exporting countries, such as Australia, Indonesia, and Russia. Coal exports from the United States more than doubled from 2000 to 2012 before declining in 2015 to an estimated 75 mst as global coal demand slowed. In 2011, U.S. coal exports broke 100 mst for the first time since 1992 and in 2012 peaked at 126 mst, surpassing their previous peak of almost 113 mst in 1981. (See Figure 6 .) Several key factors are likely to influence how much coal will be exported from the United States in the future, one of which is the building of export terminals, particularly for PRB (Western) coal. Another major factor is the level of global demand for metallurgical coal, which is used to make steel. Historically, metallurgical coal has been the primary coal exported by the United States, and primarily to the European market, which has been in decline. In 2016, metallurgical coal accounted for 68% of U.S. total coal exports. PRB coal is exported primarily from Canadian terminals at Roberts Bank near Vancouver, British Columbia, and Ridley Terminal at Prince Rupert, British Columbia. PRB coal is transported to both facilities for export via rail. However, the Canadian export terminals have reached capacity. Although the Canadian export facilities have plans for expansion that may better accommodate U.S. exports, PRB coal producers have been searching for a potential domestic export link to the growing Asian market through the Pacific Northwest, so far without success. Three port terminal projects for exporting coal in Washington and Oregon had permit applications before the U.S. Army Corps of Engineers (the Corps), although none advanced: The Gateway Pacific Terminal and Coyote Island Terminal projects were cancelled due to permit denials, and as Washington State's Department of Ecology was preparing the final environmental impact statement for the Millennium Bulk Terminal, the State of Washington denied the Millennium project a permit to build on state land. Structure of the U.S. Coal Industry Background on the Industry The coal industry is highly concentrated in the United States, with just a handful of major producers, operating primarily in four states (Wyoming, West Virginia, Kentucky, and Illinois). In 2015, the top five coal mining companies were responsible for about 57% of U.S. coal production, led by Peabody Energy Corp. with 19.6% and Arch Coal Inc. with 14.6% (see Table 5 and Figure 7 ). Other major producers include Cloud Peak Energy, Alpha Natural Resources (ANR), and Murray Energy Corp. In 2000, the top five producers accounted for about 46% of total U.S. coal production. That year, the two leading producers were Peabody Energy Corp., with 13.1% of production, followed by Arch Coal Inc., with 10.1% of production. The next three top producers were Kennecott Energy, CONSOL Energy Inc., and RAG-AG. The major coal producers made numerous acquisitions in 2011 in anticipation of stronger global demand, although it was during a period of slowing domestic coal demand, weak coal prices, and more competitive natural gas supplies. The huge debt load and coal overproduction during this period was not sustainable and led to the bankruptcy of many coal firms. Three of the top five coal producers have filed for Chapter 11 bankruptcy protection (see Table 5 ) since August 2015 (ANR in August 2015, Arch Coal in February 2016, and Peabody Energy in April 2016). Other major producers such as Patriot Coal, Walter Energy, and James River Coal have filed as well. All told, over 50 coal producers have filed for bankruptcy in the past two years, with a total of $19.3 billion in debt being reorganized. The three largest producers that filed for bankruptcy (Peabody, Arch, and ANR) alone accounted for 42% of U.S. coal production in 2015. Arch Coal, ANR, and Peabody Energy have emerged from Chapter 11 with a plan to move forward, selling off some holdings. Opponents of the coal industry and its restructuring are critical of the plans and of the long-term viability and reliability of the coal industry. A major challenge for the coal industry will be to attain access to financing needed for new or expanded projects, but following their reorganization and reduced debt levels, the larger coal firms are generally expected to be in a better position to be profitable. Research and Development In an effort to minimize price and supply risk, electric utilities value diversity in power generation options. However, the choices for new power plant technologies are subject to Environmental Protection Agency (EPA ) rules related to greenhouse gas (GHG) emissions, other air emissions, water discharges, and other environmental concerns. Carbon capture and sequestration (CCS) is one of the leading coal R&D efforts that might hold some promise for coal as a fuel for power generation if federal GHG emissions limits are implemented (see below). Federal Coal Resources Congress continues debate on several issues regarding coal production on federal lands, including how to balance coal production against other resource values. Federal coal leases accounted for 40-42% of total U.S. coal production in recent years. Other concerns include how to assess the value of the coal resource, what is the fair market value (e.g., minimum bids) for the coal, and what should be the government's royalty. In response to these congressional concerns, a 2013 Government Accountability Office (GAO) analysis found inconsistencies in how the Bureau of Land Management (BLM) evaluated and documented federal coal leases. In addition, a 2013 Department of the Interior (DOI) Inspector General report found BLM may have violated provisions in the Mineral Leasing Act (MLA) by accepting below-cost bids for federal coal leases. Subsequently, the Secretary of the Interior announced the initiation of a new rule for the valuation of coal. A proposed rule was published on January 6, 2015, and finalized in July 2016. The Leasing Process for Federal Coal The BLM administers coal leasing on all federal lands. All BLM coal leasing is done competitively except in cases where a party holds a "prospecting permit" issued prior to the Federal Coal Leasing Amendments Act of 1976 or where contiguous acres are added to existing leases. The process for coal leasing on federal lands is similar to the process for oil and gas leasing. It is governed by Section 2 of the Mineral Leasing Act, as amended. Federal coal leasing is based on the BLM's Resource Management Plan and the Forest Service Land Use Plans. There are two processes by which federal lands may be leased for coal production. The first is "regional coal leasing," in which BLM selects tracts for leasing as needed to meet regional requirements as outlined by "regional coal teams" composed of BLM officials and interested state and local parties. The second is leasing by application whereby mining companies submit an application to lease certain tracts. Nearly all new coal leasing is done by application. Restrictions on Federal Coal Resources: Administrative and Congressional Action Under Section 437 of the Energy Policy Act of 2005, Congress directed the George W. Bush Administration to conduct an inventory and assessment of federal coal resources and restrictions on their development. The study was to identify lands available for coal development and restrictions on the lands and to identify environmentally compliant and super-compliant resources (based on sulfur dioxide emissions per million British thermal units [btus]). The study evaluated the Powder River Basin (PRB) federal land and coal resources. According to the study, the PRB contained 550 Bst, or 58% of the federal resources assessed, and PRB represents 88% of coal produced on federal lands. The total federal land ownership surveyed was 5.4 million acres (including split estate lands whereby the surface owner and mineral rights owner are two separate parties). There are three major categories of land classification in the study: 1. leasing available under standard lease terms or with no surface occupancy; 2. leasing permitted with restrictions (possible leasing); and 3. leasing prohibited. Leasing is prohibited on 591,000 acres in the PRB, which is estimated to contain 5.9% of potential federal coal. Leasing is "possible" on 4.3 million acres (subject to BLM's determination) containing an estimated 84.3% of federal coal resources (see Figure 8 ). Leasing is available under standard lease terms on 82,000 acres and available with no surface occupancy on 431,000 acres, containing 5% and 4.3% of federal coal resources, respectively. Trends and Recent Developments in Federal Coal Leasing Federal Coal Leasing Moratorium On January 16, 2016, President Obama announced a moratorium on federal coal leasing. The purpose of the moratorium was to examine the federal coal leasing program and to determine whether it needs to be "modernized." The Secretary of the Interior directed BLM (under Secretarial Order 3338) to prepare a programmatic environmental impact statement (PEIS) of the coal leasing program to serve as the basis for a comprehensive review. There has been both support and opposition in Congress to the moratorium. On January 11, 2017, the Obama Administration published its scoping report as a prelude to the comprehensive draft and final PEIS. BLM presented three leasing modernization options centered on four main categories (in alignment with the Secretarial Order): fair return to the public, climate change and resource protection, the federal leasing system, and community assistance. In addition to the three possible options, the BLM discusses no action and no leasing alternatives. The Trump Administration, however, issued an Executive Order on March 28, 2017, that amends or withdraws Secretarial Order 3338 and lifts "any and all" moratoria on federal coal leasing. Critics of the previous Administration's moratorium on new coal leases stated that there will be major impacts on coal communities and coal markets. Several environmental groups and the Northern Cheyenne Indian Tribe filed a lawsuit in a Montana-based federal court to keep the coal leasing moratorium in place and allow for the completion of the environmental review. The New Coal Valuation Rule Concerns raised by various interest groups include the question of whether the public has been getting "fair market value" for the sale of coal leases. There has been little or no competition at most coal lease sales; thus, bonus bids were often at minimum levels. Some argued that the minimum bid levels of $100 per acre and the royalty rate levels (i.e., 8% on the value of production for underground mines and 12.5% for surface mines) are too low. There have been concerns over lease modifications that could allow coal mining operators to lease adjacent tracts for development without competition. According to the BLM, many of these tracts would otherwise go undeveloped. The DOI (under the Office of Natural Resources Revenue, or ONRR) published a final rule regarding federal coal valuation. The final coal valuation rule (published July 2016) reaffirmed the current rule that the value of coal for royalty purposes is near or at the lease (the source of production) and that the gross proceeds from an arms-length transaction best reflect fair market value. ONRR had proposed no changes to the valuation of arms-length sales. For non-arms-length coal transactions, ONRR had proposed to eliminate current benchmarks because current benchmarks for coal valuation from non-arms-length sales are difficult to apply. Current benchmarks include comparable arms-length sales, prices reported for that coal to a public utility commission, prices for that coal reported to EIA spot market prices, or a netback method. Instead, ONRR would value coal on the gross proceeds received from the first arms-length sale minus allowable deductions. In a separate Trump Administration coal-related announcement (unrelated to the March 28 executive order), the coal valuation rules implementation (scheduled for January 2017) was postponed by ONRR on February 22, 2017, as ONRR reconsidered several parts of the rule. Then, on April 3, 2017, the DOI announced a proposal to repeal the coal valuation rule and provided an Advanced Notice of Proposed Rulemaking on the preexisting rule and the new rule seeking comment regarding whether the rules should be revised, retained, or repromulgated "in whole or in part." The Department of the Interior repealed the valuation rule on August 7, 2017, effective on September 6, 2017. Appendix A. Background Primer on Coal Coal consists of the fossilized remains of ancient plant life that have been transformed through metamorphosis into carbon-rich mineral deposits. It occurs as seams in sedimentary rock strata as old as 300 million years, though the most abundant deposits in the United States were deposited during the geologic Carboniferous period between 210 and 250 million years ago. Coal mineral classification considers type, rank, and grade. The plant life that coal originated from determines its type, and the degree of metamorphosis determines its rank, grade, and the amount of inorganic mineral matter present. Qualities such as moisture, carbon, sulfur, and ash content contribute to a coal's heating value as a fuel (measured in Btus). The content of sulfur is significant because of the sulfur dioxide (SO 2 ) emissions that occur during coal combustion. Under the Clean Air Act, there are federal limits on the amount of SO 2 , among other pollutants, allowed from coal-fired power plants. Western coal (which has low sulfur and low energy content), primarily produced in the PRB of Wyoming, is used generally for power generation, while eastern coal has been used domestically for power generation and exported for coking and metallurgical purposes. Moisture adds weight to the coal, increasing shipping costs while decreasing its heating value. Minerals deposited with the plants that formed coal create ash when coal burns. Figure A-1 below illustrates the various coal classifications. Coal Mining Methods There are two primary mining techniques used in the United States: underground mining and surface mining. About 69% of U.S. coal comes from surface mines, while the remaining 31% comes from deep underground mines. Underground Mining There are two primary underground mining techniques: room and pillar (including conventional and continuous mining) and longwall. Room and pillar and continuous mining is practiced as follows: In flat-lying coal beds, conventional room and pillar techniques rely on cutting, drilling, blasting, loading, hauling, and roof bolting—a labor-intensive process. Long steel bolts properly spaced and driven into the roof are required. In continuous mining, the cutting, drilling, blasting, and loading are performed by a mechanical excavator known as a continuous miner. The continuous miner cuts and loads the coal. Together, room and pillar and continuous techniques account for 50% (conventional, room and pillar 2%; continuous 48%) of underground mining. The most efficient technique in underground mining is the longwall method, which employs a large machine with a rotating drum that moves back and forth across a wide coal seam. Once coal is removed by a longwall miner or other method, it is then moved out of the mine with conveyor belts or shuttle cars. About 50% of underground coal is produced using the longwall technique. Surface Mining Surface mining, also called "open-pit" or strip mining, entails blasting rock above the coal with explosives. This overburden (rock and soil) above the coal deposit is then removed with huge electric shovels and draglines to reveal the coal seam. The coal seam in a surface mine is worked in long cuts by uncovering and removing coal, then backfilling and reclaiming land in sequence. In other words, while coal extraction is taking place, as required by federal law, the reclamation work occurs in an adjacent area previously mined. Mountaintop removal mining is a form of strip mining. Mountaintop removal mining generally removes a coal seam from one side of a mountain to the other. This is typically done in "steep-terrain" surface mining. Some of the overburden or "excess spoil" from the top of the mountain can be placed in a valley fill. The placement of the excess spoil in valleys adjacent to mining areas remains controversial. Appendix B. Selected Company Profiles Peabody Energy Peabody Energy, based in St Louis, MO, and established in 1883, is the world's largest private-sector coal company. Peabody has dominated U.S. coal production over the past two decades. The company grew from 11.5% of industry production in 1994 to 19.6% of production in 2015. Peabody has a majority interest in 23 coal mining operations and 6,700 employees in the United States and Australia. Its most productive mines are in the PRB in Wyoming, which include the North Antelope Rochelle, Caballo, and Rawhide mines (which account for 65% of its production in the PRB). Peabody also operates mines in Arizona and New Mexico. In Australia, Peabody operates three mine sites in New South Wales and six mining operations in Queensland. Peabody claims 6.3 billion tons of coal reserves (most of which is thermal grade). Peabody had $4.7 billion in revenue in 2016. Peabody has experienced issues with its debt levels since its 2011 expansion into Australia (the acquisition of two mines). Peabody debt-financed its acquisition of Australian coal company Macarthur Coal for $5.1 billion in 2011. In 2015, Peabody had long-term debt of $6.3 billion and operational losses of $1.5 billion. Its stock price fell from $79.35 per share in April 2015 to $2.07 per share as of April 12, 2016. Peabody filed for Chapter 11 bankruptcy in April 2016, stating that overproduction of natural gas led to low gas prices, making coal less competitive. The reorganization plan would eliminate over $5 billion in debt (with $2 billion in debt remaining) and cover future mine cleanups using third-party surety bonds estimated at $1.26 billion. Arch Coal Inc. Arch Coal was formed in 1997, with headquarters in St. Louis, MO. The company came about from a merger of Ashland Coal Inc., and Arch Mineral Corp. Arch Mineral began in 1969. Ashland coal was formed as a subsidiary of Ashland Oil in 1975. In 1998, Arch Coal acquired the coal assets of Atlantic Richfield. Arch Coal operated 11 mines in the United States and had $2.6 billion in revenue in 2015. The company made several acquisitions in 2009-2011, spending several billion dollars. Arch Coal debt-financed the acquisition of metallurgical coal producer International Holding Group for $3.4 billion in 2011. About 76% of Arch's coal comes from the PRB, primarily its Black Thunder Mine in Wyoming. Arch's revenue fell from $3.9 billion in 2011 to $1.65 billion in 2016 and had major losses in the interim (2011-2016). In 2015, Arch Coal was the leading metallurgical coal producer in the United States and the second leading thermal coal producer, accounting for 14.6% of total coal production. Arch was the third-largest producer in 2005, producing in every U.S. coal basin, with mining complexes in Wyoming, Colorado, Illinois, West Virginia, Kentucky, and Virginia. Arch Coal filed for Chapter 11 bankruptcy in January 9, 2016, as its shares fell from a high of $260 per share in early January 2011 to less than $1 in 2015. Arch Coal emerged from Chapter 11 bankruptcy on October 5, 2016. The company restructured its debt and has a new entity trading on the New York Stock Exchange (NYSE) (ARCH). ARCH "streamlined" its portfolio of large-scale, modern, low-cost mines with a new debt level of $363 million. The company now has third-party bonds to cover its reclamation bonding requirement. Cloud Peak Energy Cloud Peak Energy Inc. is headquartered in Wyoming and operates three surface mines in the PRB—two in Wyoming (Antelope and Cordero Rojo mines) and one in Montana (Spring Creek mine). Cloud Peak Energy was incorporated in July 2008. Cloud Peak did not file for bankruptcy protection. Cloud Peak Energy was formed after the Rio Tinto Group (a large-scale mining corporation) based in England spun off its 48.3% ownership in 2010. In 2015, the company accounted for 8.4% of U.S. coal production and had 1,400 employees. The number of employees fell to 1,300 in 2016. Gross revenues fell from $1.5 billion in 2011 to $1.1 billion in 2015. Cloud Peak avoided layoffs because of transfers and attrition. At current coal prices, no new mines are being developed, as it will take time to work through stockpiles and overcapacity. Cloud Peak believes that the outlook for 2017 is better than 2016. The company has reduced its practice of self-bonding for reclamation to $10 million in 2016 from $200 million in 2015. Its surety bonds accounted for $418 million out of $428 million in reclamation bonds. Cloud Peak exports coal to the Asian market. Alpha Natural Resources Alpha Natural Resources (ANR), formed from a private equity group in 2002, acquired the majority of Pittston Coal Co. (which was a subsidiary of the Brink's Co.). ANR made a number of acquisitions from 2003 to 2011, including Massey Energy Co., which was debt-financed for $7.1 billion in 2011. The Massey acquisition gave ANR more than 150 mines and 40 coal preparation plants and a huge metallurgical-coal reserve base. Because of its heavy debt and low demand for coal, ANR filed for Chapter 11 bankruptcy on August 3, 2015. ANR emerged from Chapter 11 bankruptcy in July 2016 and reorganized as a smaller company with 18 mine operations and eight coal preparation plants in West Virginia and Kentucky. The reorganization discharged over $4 billion in debt, which included selling its PRB mines and multiple holdings in Kentucky. Up until its bankruptcy filings, ANR had been self-bonded. In 2016, ANR split into two companies—Contura Energy (with the higher-valued assets in the PRB) and ANR (with the lower-valued assets elsewhere). ANR spun off its PRB mine to ensure private bonding for reclamation projects in Wyoming under Contura Energy (with some of the same executives from ANR). Contura bought ANR Mines in Virginia, West Virginia, and Pennsylvania. Murray Energy Corporation Murray Energy was founded in 1988 by Robert Murray, who purchased the Ohio Valley Coal Company's Powhatan Mine. Murray Energy continued to purchase mines in the Illinois Basin, Northern Appalachia, and Utah. Murray invested in Foresight Energy, LP, in 2010, after paying $1.4 billion for a 50% stake. In 2013, Murray took over CONSOL Coal for $3.5 billion (including $1.8 billion in employment obligations, such as pension benefits, workers compensation, and disability payments). Murray currently operates 12 active coal mines (11 in the United States and 1 in Colombia with 6,000 miners). According to Murray, it is the largest privately held coal mining company in the United States. Murray Energy did not file for bankruptcy protection. Standard & Poor's downgraded Murray's credit rating to the lowest possible level before default. There was particular financial stress among coal producers in the northern Appalachia region because of the Marcellus shale natural gas play. Murray said that "as the coal industry is destroyed, so will reliable, low cost electricity in America." Appendix C. Selected Coal-Related CRS Reports CRS Report R43011, U.S. and World Coal Production, Federal Taxes, and Incentives , by Marc Humphries and Molly F. Sherlock CRS Insight IN10460, The Federal Coal Leasing Moratorium , by Marc Humphries CRS Report R43198, U.S. Coal Exports , coordinated by Marc Humphries  CRS Report R43690, Clean Coal Loan Guarantees and Tax Incentives: Issues in Brief , by Peter Folger and Molly F. Sherlock CRS Report R44090, Life-Cycle Greenhouse Gas Assessment of Coal and Natural Gas in the Power Sector , by Richard K. Lattanzio CRS Report R44341, EPA's Clean Power Plan for Existing Power Plants: Frequently Asked Questions , by James E. McCarthy et al. CRS Report R44150, The Office of Surface Mining's Stream Protection Rule: An Overview , by Claudia Copeland CRS Report RS21421, Mountaintop Removal Mining: Background on Recent Controversies , by Claudia Copeland CRS In Focus IF10617, Pension Benefits for United Mine Workers of America Retirees , by John J. Topoleski

The Trump Administration has taken several actions intended to help revive the U.S. coal industry. Within its first two months, the Administration rolled back or began reversing several coal-related regulations finalized under the Obama Administration. This effort was undertaken as three of the largest coal producers continued recovery from Chapter 11 bankruptcy, and occurred in the context of higher coal prices (making coal production possibly more profitable), lower inventories, and higher natural gas prices—factors that could lead to coal being more competitive as a fuel source for electricity generation. Coal will likely remain an essential component of the U.S. energy supply, but how big will its footprint be? U.S. coal production had been strong since the 1990s (above or near 1 billion short tons per year until 2014), and reached its highest level of production in 2008 (1.17 billion short tons). But it declined precipitously in 2015 and 2016. The Energy Information Administration's (EIA's) current data and short-term projections show coal production remaining under 800 million short tons in 2017 and 2018. Long-term EIA projections show that coal production is likely to fall below 600 million short tons per year, assuming implementation of the Obama Administration's Clean Power Plan (CPP). Without CPP, coal production is expected to remain relatively flat, at around 800-900 million short tons per year through 2050. As a result of societal concerns, among them the desire for cleaner air, coal consumption may have peaked. But in either case (declining or flat demand), coal is a smaller share of the total U.S. energy pie. Power generation is the primary market for coal, accounting for about 93% of total consumption. With the retirement of many coal-fired power plants and the building of new gas-fired plants, accompanied by lower electricity demand, there has been a structural shift in demand for U.S. coal—one that may lead to reduced capacity over the long term for coal-fired electricity generation. In 2016, natural gas overtook coal as the top energy source for power generation. Also, the strength of renewables for electricity generation should not be discounted, as EIA projects annual growth at a rate of 2.6% through 2050. Thus, coal would very likely remain a smaller portion of total U.S. energy consumption for years to come, particularly as energy used for power generation. The trend in coal mining has been to improve labor productivity, or to make production more efficient, with the use of technology. There were sharp increases in labor productivity (more coal per man-hour) in the 1980s and 1990s, as labor productivity more than doubled from 1985 to 2000, particularly at coal mines in the West. There is no indication that the coal industry will see a reversal of these production trends, even if there are some short-term gains in employment. The coal industry is highly concentrated in the United States, with just a handful of major producers, operating primarily in four states (Wyoming, West Virginia, Kentucky, and Illinois). In 2015, the top five coal mining companies were responsible for about 57% of U.S. coal production, led by Peabody Energy Corp. with 19.6% and Arch Coal Inc. with 14.6%. The coal majors made numerous acquisitions in 2011 during a period of increasing global demand but of slowing domestic demand, weak coal prices, and more competitive natural gas supplies. The debt load and coal overproduction during this period was not sustainable and led to the bankruptcy of many coal firms. Three of the top five coal producers filed for Chapter 11 bankruptcy protection beginning in August 2015 (Alpha in August 2015, Arch Coal in February 2016, and Peabody in April 2016). Other major producers such as Patriot Coal, Walter Energy, and James River Coal have filed for bankruptcy as well. All told, over 50 coal producers have filed for bankruptcy in the past two years, with a total of $19.3 billion in debt being reorganized.

Introduction Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term care. Medicaid is jointly funded by the federal government and the states. Participation in Medicaid is voluntary for states, though all states, the District of Columbia, and the territories choose to participate. Each state designs and administers its own version of Medicaid under broad federal rules. While states that choose to participate in Medicaid must comply with all federal mandated requirements, state variability is the rule rather than the exception in terms of eligibility levels, covered services, and how those services are reimbursed and delivered. Historically, eligibility was generally limited to low-income children, pregnant women, parents of dependent children, the elderly, and people with disabilities; however, recent changes will soon add coverage for individuals under the age of 65 with income up to 133% of the federal poverty level. The federal government pays a share of each state's Medicaid costs; states must contribute the remaining portion in order to qualify for federal funds. This report describes the federal medical assistance percentage (FMAP) calculation used to reimburse states for most Medicaid expenditures, and it lists the statutory exceptions to the regular FMAP rate. In addition, this report discusses other FMAP-related issues, including FMAP changes in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended), federal deficit reduction proposals that would amend the FMAP rate, and the disaster-recovery FMAP adjustment. The Federal Medical Assistance Percentage The federal government's share of most Medicaid service costs is determined by the FMAP rate, which varies by state and is determined by a formula set in statute. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. An enhanced FMAP (E-FMAP) rate is provided for both services and administration under the State Children's Health Insurance Program (CHIP), subject to the availability of funds from a state's federal allotment for CHIP. When a state expands its Medicaid program using CHIP funds (rather than Medicaid funds), the E-FMAP rate applies and is paid out of the state's federal allotment. The E-FMAP rate is calculated by reducing the state share under the regular FMAP rate by 30%. The FMAP rate is also used in determining the phased-down state contribution ("clawback") for Medicare Part D, the federal share of certain child support enforcement collections, Temporary Assistance for Needy Families (TANF) contingency funds, a portion of the Child Care and Development Fund (CCDF), and foster care and adoption assistance under Title IV-E of the Social Security Act. How FMAP Rates Are Calculated The FMAP formula compares each state's per capita income relative to U.S. per capita income. The formula provides higher reimbursement to states with lower incomes (with a statutory maximum of 83%) and lower reimbursement to states with higher incomes (with a statutory minimum of 50%). The formula for a given state is: FMAP state = 1 - ( (Per capita income state ) 2 /(Per capita income U.S. ) 2 * 0.45) The use of the 0.45 factor in the formula is designed to ensure that a state with per capita income equal to the U.S. average receives an FMAP rate of 55% (i.e., state share of 45%). In addition, the formula's squaring of income provides higher FMAP rates to states with below-average incomes (and vice versa, subject to the 50% minimum). The Department of Health & Human Services (HHS) usually publishes FMAP rates for an upcoming fiscal year in the Federal Register during the preceding November. This time lag between announcement and implementation provides an opportunity for states to adjust to FMAP rate changes, but it also means that the per capita income amounts used to calculate FMAP rates for a given fiscal year are several years old by the time the FMAP rates take effect. In the Appendix to this report, Table A-1 shows regular FMAP rates for each of the 50 states and the District of Columbia from FY2006-FY2014. Data Used to Calculate State FMAP Rates As specified in Section 1905(b) of the Social Security Act, the per capita income amounts used in the FMAP formula are equal to the average of the three most recent calendar years of data available from the Department of Commerce. In its FY2014 FMAP calculations, HHS used state per capita personal income data for 2009, 2010, and 2011 that became available from the Department of Commerce's Bureau of Economic Analysis (BEA) in September 2012. The use of a three-year average helps to moderate fluctuations in a state's FMAP rate over time. BEA revises its most recent estimates of state per capita personal income on an annual basis to incorporate revised and newly available source data on population and income. It also undertakes a comprehensive data revision—reflecting methodological and other changes—every few years that may result in upward and downward revisions to each of the component parts of personal income (as defined in BEA's national income and product accounts, or NIPA). These components include: earnings (wages and salaries, employer contributions for employee pension and insurance funds, and proprietors' income); dividends, interest, and rent; and personal current transfer receipts (e.g., government social benefits such as Social Security, Medicare, Medicaid, state unemployment insurance). As a result of these annual and comprehensive revisions, it is often the case that the value of a state's per capita personal income for a given year will change over time. For example, the 2009 state per capita personal income data published by BEA in September 2011 (used in the calculation of FY2013 FMAP rates) differed from the 2009 state per capita personal income data published in September 2012 (used in the calculation of FY2014 FMAP rates). It should be noted that the NIPA definition of personal income used by BEA is not the same as the definition used for personal income tax purposes. Among other differences, NIPA personal income excludes capital gains (or losses) and includes transfer receipts (e.g., government social benefits), while income for tax purposes includes capital gains (or losses) and excludes most of these transfers. Factors that Affect FMAP Rates Several factors affect states' FMAP rates. The first is the nature of the state economy and, to the extent possible, a state's ability to respond to economic changes (i.e., downturns or upturns). The impact on a particular state of a national economic downturn or upturn will be related to the structure of the state economy and its business sectors. For example, a national decline in automobile sales, while having an impact on all state economies, will have a larger impact in states that manufacture automobiles as production is reduced and workers are laid off. Second, the FMAP formula relies on per capita personal income in relation to the U.S. average per capita personal income . The national economy is basically the sum of all state economies. As a result, the national response to an economic change is the sum of the state responses to economic change. If more states (or larger states) experience an economic decline, the national economy reflects this decline to some extent. However, the national decline will be lower than some states' declines because the total decline has been offset by states with small decreases or even increases (i.e., states with growing economies). The U.S. per capita personal income, because of this balancing of positive and negative, has only a small percentage change each year. Since the FMAP formula compares state changes in per capita personal income (which can have large changes each year) to the U.S. per capita personal income, this comparison can result in significant state FMAP rate changes. In addition to annual revisions of per capita personal income data, comprehensive NIPA revisions undertaken every four to five years may also influence regular FMAP rates (e.g., because of changes in the definition of personal income). The impact on FMAP rates will depend on whether the changes are broad (affecting all states) or more selective (affecting only certain states or industries). FY2014 Regular FMAP Rates Regular FMAP rates for FY2014 (the federal fiscal year that begins on October 1, 2013) were calculated and published November 30, 2012, in the Federal Register . In the Appendix to this report, Table A-1 shows regular FMAP rates for each of the 50 states and the District of Columbia for FY2006 through FY2014. Figure 1 shows the state distribution of regular FMAP rates for FY2014. Fifteen states will have the statutory minimum FMAP rate of 50.00% (Rhode Island is very close at 50.11%), and Mississippi will have the highest FMAP rate of 73.05%. As shown in Figure 1 , from FY2013 to FY2014, the regular FMAP rates for 36 states will change, while the regular FMAP rates for the remaining 15 states (including the District of Columbia) will remain the same. For most of the states experiencing an FMAP rate change from FY2013 to FY2014, the change will be less than one percentage point. The regular FMAP rate for 12 states will increase by as much as one percentage point, and the FMAP rate for 16 states will decrease by as much as one percentage point. For states that will experience an FMAP rate change greater than one percentage point from FY2013 to FY2014, two states will experience an FMAP rate increase of greater than one percentage point, and six states will experience an FMAP rate decrease of greater than one percentage point. Nevada will have the largest FMAP rate increase with a 3.36 percentage point increase, and South Dakota will have the largest FMAP rate decrease with a 2.65 percentage point decrease. Two states will have FY2014 FMAP rates that are not calculated according to the regular FMAP formula: the District of Columbia and Louisiana. The FMAP rate for the District of Columbia has been set in statute at 70% since 1998, and Louisiana will receive a disaster-recovery FMAP adjustment (discussed in further detail below) increase over its FY2014 regular FMAP rate. FMAP Exceptions Although FMAP rates are generally determined by the formula described above, Table 1 lists exceptions that have been added to the Medicaid statute over the years. Table 1 identifies whether the exception is a current (i.e., the exception currently applies), future (i.e., the exception will apply beginning at the specified date), or past (i.e., the exception no longer applies) FMAP rate exception. Recent Issues Some recent issues related to the FMAP rate include FMAP changes in the ACA, federal deficit reduction proposals impacting the FMAP rate, and the disaster-related FMAP adjustment. FMAP Changes in the ACA The Medicaid provisions in ACA represent the most considerable reform to Medicaid since its enactment in 1965. The most noteworthy change begins in 2014, or sooner at state option, when the ACA expands Medicaid to include a new mandatory eligibility group: all adults under age 65 with income up to 133% of the federal poverty level (FPL) (effectively 138% FPL with the Modified Adjusted Gross Income or MAGI 5% FPL income disregard). Originally, it was assumed that all states would implement the ACA Medicaid expansion in 2014 as required by statute because implementing the ACA Medicaid expansion was required in order for states to receive any federal Medicaid funding. However, on June 28, 2012, the United States Supreme Court issued its decision in National Federation of Independent Business (NFIB) v. Sebelius finding that the federal government cannot terminate the federal Medicaid funding a state receives for its current Medicaid program if a state refuses to implement the ACA Medicaid expansion. If a state accepts the new ACA Medicaid expansion funds, it must abide by the new expansion coverage rules. However, based on the Court's opinion, it appears that a state can refuse to participate in the ACA Medicaid expansion without losing any of its current federal Medicaid matching funds. While not all states are expected to implement the ACA Medicaid expansion, the Congressional Budget Office (CBO) estimates the Medicaid expansion will increase Medicaid enrollment by 7 million in FY2014, which is a 20% increase over the Medicaid enrollment estimated for FY2014 without the ACA Medicaid expansion. As a result, the expansion will significantly increase Medicaid expenditures, and the federal government will cover a vast majority of the costs for individuals who are "newly eligible" due to ACA. ACA contains a number of provisions that affect FMAP rates, such as the "newly eligible" FMAP rates, the "expansion state" FMAP rates, and other FMAP rate changes discussed below. "Newly Eligible" FMAP Rates . An increased FMAP rate will be provided for "newly eligible" individuals who will gain Medicaid eligibility due to the ACA Medicaid expansion. The "newly eligible" are defined as nonelderly, nonpregnant adults with family income below 133% FPL who would not have been eligible for Medicaid in the state as of December 1, 2009, or were eligible under a waiver but not enrolled because of limits or caps on waiver enrollment. States will receive 100% FMAP rate for the cost of providing benchmark or benchmark-equivalent coverage to "newly eligible" individuals, from 2014 through 2016. For "newly eligible" individuals, the FMAP rate will phase down to 95% in 2017, 94% in 2018, 93% in 2019, and 90% afterward (See Table 2 ). "Expansion State" FMAP Rates. Although Medicaid eligibility has generally been limited to certain categories of individuals, some states provide health coverage for all low-income individuals using Medicaid waivers. As a result, they have few or no individuals who will qualify for the "newly eligible" FMAP rate. As of CY2014, these states will receive an increased FMAP rate, which is referred to as the "expansion states" FMAP rate. "Expansion states" are defined as those that, as of March 23, 2010 (ACA's enactment date), provided health benefits coverage meeting certain criteria statewide to parents and nonpregnant childless adults at least through 100% FPL. Although HHS will make the official determination, one source suggests that 11 states (Arizona, Delaware, Hawaii, Maine, Massachusetts, Minnesota, New York, Pennsylvania, Vermont, Washington, and Wisconsin) and the District of Columbia might meet the definition of an "expansion state." The "expansion state" FMAP rate will be available for individuals in "expansion states" who were eligible for Medicaid on March 23, 2010 and are in the new eligibility group for nonelderly, nonpregnant adults at or below 133% FPL. The formula used to calculate the "expansion state" FMAP rates is based on a state's regular FMAP rate, so the "expansion state" FMAP rates will vary from state to state until CY2019, at which point the "newly eligible" FMAP rates and the "expansion state" FMAP rates will both be equal (see Table 2 ). "Expansion states" are not excluded from receiving the "newly eligible" FMAP rates. Populations in an "expansion state" that meet the definition for the "newly eligible" FMAP rate will receive the "newly eligible" FMAP rate. For example, an "expansion state" that currently provides Medicaid coverage to childless adults and parents up to 100% FPL that chooses to implement the ACA Medicaid expansion will receive the higher "newly eligible" FMAP rate for individuals between 100% and 133% FPL. Also, "expansion states" will receive the "newly eligible" FMAP rate for individuals who received limited Medicaid benefits. In addition, "expansion states" that provided state-funded health benefits coverage will receive the "newly eligible" FMAP rate for individuals previously covered by the state-only program. Additional FMAP Increase for Certain "Expansion States." During CY2014 and CY2015, an FMAP rate increase of 2.2 percentage points is available for "expansion states" that (1) the Secretary of HHS determines will not receive any FMAP rate increase for "newly eligible" individuals and (2) have not been approved to divert Medicaid disproportionate share hospital funds to pay for the cost of health coverage under a waiver in effect as of July 2009. The FMAP rate increase applies to those who are not "newly eligible" individuals as described in relation to the new eligibility group for nonelderly, nonpregnant adults at or below 133% FPL. It appears that Vermont meets the criteria for this increase. Additional Medicaid Changes . As noted in Table 1 , ACA also provides—subject to various requirements—an increased FMAP rate for certain disaster-affected states, primary care payment rate increases, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, home and community-based attendant services and supports, and state balancing incentive payments. Three of these FMAP provisions went into effect on January 1, 2013: primary care payment rate increases, specified preventive services and immunizations, smoking cessation services for pregnant women. The other provisions have been in place for the past few years. CHIP. Prior to ACA, federal CHIP allotments were provided through FY2013 and states received reimbursement for CHIP expenditures based on the E-FMAP rate described at the beginning of this report. Under ACA, the E-FMAP rate for CHIP expenditures in FY2016-FY2019 will be increased by 23 percentage points, up to 100%. ACA also provides new federal CHIP allotments for FY2014 and FY2015. However, no federal CHIP allotments are provided during the period in which the 23 percentage point increase in the E-FMAP rate is slated to be in effect. Federal Deficit Reduction In a typical year, the federal government funds roughly 57% of the total cost for Medicaid, and federal Medicaid expenditures account for almost 8% of all federal spending. In FY2013, federal Medicaid payments to states are estimated to amount to $276 billion. Federal Medicaid payments are anticipated to grow significantly beginning in FY2014 due to the expansion of Medicaid eligibility provided in the ACA. As a percentage of gross domestic product (GDP), federal Medicaid expenditures are expected to increase from about 1.7% of GDP in FY2013 to 2.4% of GDP in FY2022. As a result, controlling federal Medicaid spending has been a focus of federal deficit reduction proposals, and amending the FMAP structure has been identified as a way to reduce federal Medicaid spending by a reduction to the statutory FMAP floor. Reduce the FMAP Floor As mentioned above, the FMAP has a statutory maximum of 83% and a statutory minimum of 50%. In its Choices for Deficit Reduction report, CBO provided estimates for a series of options that Congress may choose to examine as it considers deficit reduction. One such option would reduce federal Medicaid spending by reducing the statutory FMAP floor, and CBO estimates this option would save $20 billion in federal Medicaid expenditures in FY2020. Regular FMAP rates for FY2014 range from 50% (15 states) to 73% (Mississippi). If this option were in place for FY2014, it would impact the 15 states that have FMAP rates of 50%. The other 35 states and the District of Columbia would not be impacted by this option. Disaster-Recovery Adjusted FMAP Rate The ACA added a disaster-recovery FMAP adjustment for states that have experienced a major, statewide disaster. This adjustment was available to states beginning the fourth quarter of FY2011. There are two criteria for states to qualify for the disaster-recovery FMAP adjustment. First, during the preceding seven years, the President must have declared a major disaster under the Stafford Act in the state where every county in the state was eligible for public assistance from the federal government. Second, the state's regular FMAP rate must have declined at least three percentage points from the prior year's FMAP rate. In the first year a state qualifies for the disaster-recovery adjusted FMAP rate, the FMAP rate shall be equal to the regular FMAP rate as determined for the fiscal year, plus 50% of the difference between the current year's regular FMAP rate and the preceding year's FMAP rate. For the second and subsequent years a state qualifies for the adjustment, the FMAP rate shall be equal to the state's regular FMAP rate for that year plus 25% of the difference between the current year's regular FMAP rate and the preceding year's disaster-recovery adjusted FMAP rate. Originally (i.e., as enacted by the ACA), for the second and subsequent years, the FMAP increase was applied to the prior year's disaster-recovery adjusted FMAP. However, this caused the state's FMAP rate to increase, rather than phase down as intended, each year a state qualifies for the adjustment. As a result, Section 3204 of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) revised the formula so that for the second and subsequent years the increase will be applied to the regular FMAP as determined for the fiscal year. This provision had an effective date of October 1, 2013. The effective date was later amended by Section 100123 of the Moving Ahead for Progress in the 21 st Century Act (MAP-21, P.L. 112-141 ) to October 1, 2012. In addition, MAP-21 amended the formula for FY2013 by changing the adjustment factor from 25% to 50% for only FY2013. Louisiana was the only state that met both requirements for FY2011, FY2012, FY2013, and FY2014. Table 3 shows the calculation for Louisiana's disaster-recovery adjusted FMAP rate for each of those years. In the fourth quarter of FY2011, Louisiana met the Stafford Act criteria (due to Hurricane Katrina and Hurricane Gustav), and its regular FY2011 FMAP rate (63.61%) was at least three percentage points less than its regular FY2010 FMAP rate plus hold harmless from the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) temporary FMAP rate increase (72.47%). As shown in Table 3 , Louisiana's regular FMAP rate was adjusted 4.43 percentage points for a total FMAP rate of 68.04% for the fourth quarter of FY2011. For FY2012, Louisiana met the Stafford Act criteria (due to Hurricane Katrina and Hurricane Gustav), and its regular FY2012 FMAP rate (61.09%) is at least three percentage points less than its FY2011 disaster-recovery adjusted FMAP rate (68.04%). As shown in Table 3 , Louisiana's FY2012 disaster-recovery FMAP adjustment is 3.48 percentage points, which was applied to the FY2011 disaster-recovery adjusted FMAP rate for a total FMAP rate of 69.78%. For FY2013, Louisiana meets the Stafford Act criteria (due to Hurricane Gustav), and Louisiana's regular FMAP rate for FY2013 (61.24%) is more than three percentage points lower than Louisiana's disaster-recovery adjusted FMAP rate for FY2012 (69.78%). As shown in Table 3 , Louisiana's FY2013 regular FMAP rate is increased by 4.27 percentage points for a total FMAP rate of 65.51%. For FY2014, Louisiana will meet the Stafford Act criteria (due to Hurricane Gustav), and Louisiana's regular FMAP rate for FY2014 (60.98%) is more than three percentage points lower than Louisiana's disaster-recovery adjusted FMAP rate for FY2012 (65.51%). As shown in Table 3 , Louisiana's FY2014 regular FMAP rate will be increased by 1.13 percentage points for a total FMAP rate of 62.11%. Conclusion The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures. In FY2014, 15 states will have the statutory minimum FMAP rate of 50%, and Mississippi will have the highest FMAP rate of 73.05%. From FY2013 to FY2014, the regular FMAP rates for 36 states will change, while the regular FMAP rates for the remaining 15 states (including the District of Columbia) will remain the same. Exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. The ACA added a number of exceptions to the FMAP for "newly eligible" individuals, "expansion states," disaster-affected states, primary care payment rate increases, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, home and community-based attendant services and supports, and state balancing incentive payments. Since federal Medicaid expenditures are a large and growing portion of the federal budget, controlling federal Medicaid spending has been a focus of federal deficit reduction proposals. Amending the FMAP structure has been identified as a way to reduce federal Medicaid spending by reducing the statutory FMAP floor. Appendix. Regular FMAP Rates for Medicaid, by State Table A-1 shows regular FY2006-FY2014 FMAP rates calculated according to the formula described in the text of the report (see " How FMAP Rates Are Calculated "). In FY2014, FMAP rates range from 50% (15 states) to 73% (Mississippi). From FY2013 to FY2014, regular FMAP rates will decrease for 22 states, increase for 14 states, and remain the same for 14 states and the District of Columbia. All of the 14 states for which the FMAP rates do not change have the statutory minimum FMAP rate of 50%, and the FMAP rate for the District of Columbia is statutorily set at 70%.

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term care. Medicaid is jointly funded by the federal government and the states. The federal government's share of a state's expenditures is called the federal medical assistance percentage (FMAP) rate. The remainder is referred to as the nonfederal share, or state share. Generally determined annually, the FMAP formula is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). FMAP rates have a statutory minimum of 50% and a statutory maximum of 83%. For FY2014, regular FMAP rates range from 50.00% to 73.05%. The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. Some recent issues related to FMAP include FMAP changes in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended), federal deficit reduction proposals that would amend the FMAP rate, and the disaster-related FMAP adjustment. The ACA contains a number of provisions affecting FMAP rates. Most notably, the ACA provides initial FMAP rates of up to 100% for certain "newly eligible" individuals. Also, under the ACA, "expansion states" receive an enhanced FMAP rate for certain individuals. In addition, ACA provides increased FMAP rates for certain disaster-affected states, primary care payment rate increases, specified preventive services and immunizations, smoking cessation services for pregnant women, specified home and community-based services, health home services for certain people with chronic conditions, home and community-based attendant services and supports, and state balancing incentive payments. Since federal Medicaid expenditures are a large and growing portion of the federal budget, controlling federal Medicaid spending has been included in some federal deficit reduction proposals. Some of the federal deficit reduction proposals include provisions that would amend the current FMAP structure through either a blended FMAP or a reduction to the statutory FMAP floor. The ACA included a provision providing a disaster-recovery FMAP adjustment for states that have experienced a major, statewide disaster. Louisiana is the only state that has been eligible for the disaster-recovery adjusted FMAP since the fourth quarter of FY2011 (when the adjustment was first available). Both the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96) and the Moving Ahead for Progress in the 21st Century Act (MAP-21, P.L. 112-141) amended the formula for the disaster-recovery adjusted FMAP. This report describes the FMAP calculation used to reimburse states for most Medicaid expenditures, and it lists the statutory exceptions to the regular FMAP rate. In addition, this report discusses other FMAP-related issues, including FMAP changes in ACA, federal deficit reduction proposals affecting the FMAP rate, and the disaster-recovery FMAP adjustment.

Introduction The federal government has a number of policy tools available to encourage the development and deployment of innovative clean energy technologies (see text box below). Some of these policy tools include (1) clean energy mandates, (2) carbon taxes, (3) carbon cap and trade, (4) environmental regulations, (5) loan guarantees, (6) grants, and (7) tax expenditures. In 2005, Congress passed legislation that provided loan guarantee authority to the Department of Energy (DOE) for innovative clean energy technologies. In 2009, Congress passed legislation that modified DOE's loan guarantee authority and created a temporary loan guarantee program for the deployment of clean energy technologies and the development of clean energy projects. In 2011, the high-profile bankruptcy, and subsequent loan default, of Solyndra resulted in a congressional investigation and subjected DOE's loan guarantee program to a high degree of scrutiny. This report provides analysis of goals for and concerns about the use of loan guarantees as a mechanism to support the deployment of innovative clean energy technologies. A discussion of several policy options for Congress to consider is also provided, should Congress decide to debate the future of clean energy loan guarantee programs. Background and History of Federal Loan Guarantees A loan guarantee might be defined as "a loan or security on which the federal government has removed or reduced a lender's risk by pledging to repay principal and interest in case of default by the borrower." Historically, loan guarantees have been used as a policy tool for many different purposes, including home ownership, university education, small business growth, international development, and others. Today, 14 federal government agencies manage approximately 68 loan guarantee accounts that include approximately $1.9 trillion of primary guaranteed loans outstanding in 2010 (see Figure 1 ). Primary guaranteed loan amounts include the total face value of the loans and not just the federally guaranteed portion of those loans. The first large-scale use of federal loan guarantees occurred during the 1930s Great Depression, when loan guarantees were used as a mechanism to assist families with purchasing homes. Home purchase loan guarantees are designed to be actuarially sound by charging borrowers insurance fees, which are pooled and used to pay for program operating costs and probable losses associated with loan defaults. Loan guarantees have also been used for higher risk borrowers such as students or low-income families. These borrowers might be considered higher risk because of a greater likelihood of default or inadequate collateral to support a loan. As a result, the government bears a portion of the default risk when lending to these types of borrowers; therefore these loans generally include some degree of government subsidy. Concerns about budgetary reporting of loan guarantees resulted in the Federal Credit Reform Act of 1990 (FCRA), which was included in the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ). Prior to the enactment of FCRA, fiscal year cash flow accounting was used to report the budgetary costs of loan guarantees, and this approach did not accurately take into account the expected losses associated with loan guarantee programs. Therefore, the total cost of long-term loan guarantees was not adequately accounted for, and reported, in the short-term congressional budget window. FCRA mandated an accrual accounting approach for budget reporting and required that budgetary costs of loan guarantees be reported as the net present value of subsidy costs associated with long-term loan guarantees. The Office of Management and Budget provides guidance for calculating the credit subsidy cost to agencies that administer loan guarantee programs. Loan guarantees have also been used to finance relatively large (from $10 million to over $1 billion) energy and infrastructure projects. Programs for such projects typically consist of a small number of projects with large capital requirements. As a result, it is difficult for loan guarantee programs for these types of projects to be actuarially sound because there is not a large enough project pool to spread the risk. While federal credit guidelines require credit subsidy costs (much like a loan loss reserve) for loan guarantee projects be collected, these costs are typically paid for through federally appropriated funds. Congress has two primary mechanisms for controlling federal loan guarantee programs. First, Congress can appropriate funds to pay for credit subsidy costs, and this approach can limit the amount of federally supported loan guarantees once the credit subsidy appropriation has been exhausted. Second, Congress can stipulate volume limits for loan guarantee programs. For example, Congress could limit the total value of loans supported by a certain program to $20 billion. Loan Guarantees for Innovative Clean Energy Technologies Federal loan guarantee authorizations for demonstrating alternative energy technologies date back to the 1970s, when the Geothermal Energy Research, Development, and Demonstration Act of 1974 ( P.L. 93-410 ) authorized loan guarantees for geothermal demonstration facilities. The Department of Energy Act—Civilian Applications ( P.L. 95-238 ), which became law in 1978, authorized the Secretary of Energy to guarantee loans for alternative fuel demonstration facilities. In response to an energy price shock in 1979, Congress passed the Energy Security Act of 1980 ( P.L. 96-294 ) that authorized $20 billion to create a domestic synthetic fuels industry through the use of loans, loan guarantees, price guarantees, joint ventures, and fuel purchase agreements. To execute this endeavor, the law established the quasi-public U.S. Synthetic Fuels Corporation (SFC), although the Department of Energy was authorized to fund projects prior to the official start-up of SFC. Five projects were supported by the SFC, only one of which utilized a loan guarantee. The Great Plains coal gasification project (located in Beulah, ND), which converts lignite coal into pipeline-quality methane (the primary component of natural gas), received a $2.02 billion federal loan guarantee (approximately $1.5 billion of the loan guarantee was actually used) to construct the plant. Due to energy price declines in the mid-1980s, along with a denied request to restructure debt and institute price support mechanisms, the Great Plains project was not able to meet debt service requirements and subsequently defaulted on its loan obligations in August 1985. After paying off the defaulted loan, DOE proceeded to sell the Great Plains facility, which was purchased by Basin Electric for an initial price of $85 million. Basin Electric assumed ownership of the plant on October 31, 1988. Today, the Great Plains facility is operated by the Dakota Gasification Company, a subsidiary of Basin Electric. The Energy Security Act of 1980 ( P.L. 96-294 ) also resulted in the creation of the Office of Alcohol Fuels (OAF) within the Department of Energy. OAF was given the authority to guarantee loans for alcohol fuel projects and eventually guaranteed loans totaling approximately $265 million for three alcohol fuel projects. Of the three projects that received DOE loan guarantees, one had to refinance its loan, one experienced technology performance complications, and one ceased operations. Most recently, loan guarantees have been used as a mechanism to encourage development and deployment of innovative clean energy technologies. The Energy Policy Act of 2005 and the American Recovery and Reinvestment Act of 2009 resulted in the creation of DOE's Loan Programs Office (LPO), which was chartered to administer clean energy loan guarantee initiatives. Loan guarantees for innovative clean energy technologies constitute a small but growing portion of federal direct loans and loan guarantees (see Figure 2 ). Energy Policy Act of 2005 The Energy Policy Act of 2005 (EPACT 2005; P.L. 109-58 ), enacted on August 8, 2005, established loan guarantee programs for multiple energy technologies. EPACT 2005 enabled loan guarantees to be used in support of projects for (1) commercial byproducts from municipal solid waste and cellulosic biomass, (2) sugar ethanol, (3) integrated coal/renewable energy systems, (4) coal gasification, (5) petroleum coke gasification, and (6) electricity production on Indian lands, among others. Title XVII of EPACT 2005 created a new loan guarantee program for these innovative energy technologies. Title XVII—Incentives for Innovative Technologies Title XVII of EPACT 2005 authorized the Department of Energy to provide loan guarantees for eligible innovative technologies that are not yet commercially available. Projects eligible for federal loan guarantees, per Section 1703 of Title XVII, include a variety of technologies such as renewable energy systems, advanced fossil energy technologies, advanced nuclear technologies, and many others. Title XVII also stipulates that no loan guarantees shall be made to projects unless the cost of the project is paid for by either (1) appropriated funds, or (2) the borrower. The definition of "cost" is based on that provided in Section 502(5)(C) of the Federal Credit Reform Act of 1990. No funds were initially appropriated to pay for costs of loan guarantees provided under Title XVII, therefore borrowers were expected to pay for all loan guarantee costs. American Recovery and Reinvestment Act of 2009 The American Recovery and Reinvestment Act of 2009 (ARRA 2009; P.L. 111-5 ) modified Title XVII of EPACT 2005 in two ways. First, ARRA established Section 1705, a temporary loan guarantee program for deployment of renewable energy and electricity transmission systems. Section 1705 loan guarantee authority ended on September 30, 2011. Second, ARRA 2009 included a $6 billion appropriation to pay for subsidy costs associated with projects authorized under the temporary Section 1705 program. This amount was reduced to $2.435 billion after rescissions and transfers. DOE's Loan Programs Office To execute and administer federal credit programs for innovative energy technologies, the Department of Energy created its Loan Programs Office (LPO). LPO administers three loan programs: 1. Section 1703: loan guarantees for innovative clean energy technologies with high degrees of technology risk. 2. Section 1705: loan guarantees for certain renewable energy systems, electric power transmission, and innovative biofuel projects that may have varying degrees (high or low) of technology risk. 3. Advanced Technology Vehicle Manufacturing (ATVM): direct loans to support advanced technology vehicles and associated components. As of December 2011, all finalized loan guarantee commitments have been for 27 projects within LPO's Section 1705 program, which equal approximately $16.15 billion of federal loan guarantee commitments. LPO's Section 1703 program has issued conditional loan guarantee commitments to four projects with a total loan guarantee value of approximately $10.6 billion. Figure 3 illustrates how Section 1705 loan guarantee commitments were distributed by technology types. New Technology Deployment vs. Project Finance Two general types of financing activities can be supported by loan guarantee programs for innovative clean energy technologies. The first type of finance activity is categorized as "new technology deployment." New technology deployment, for the purpose of this report, might include projects such as building a new manufacturing facility for a new energy technology (solar modules, wind turbines). Project finance includes projects that will use commercial, or near-commercial, technologies to generate electricity that will be purchased by a third party. Of the two financing types, new technology deployment projects are generally considered higher risk due to external technology and market dynamics that can significantly impact the financial performance of such projects. Project finance projects typically have lower risk profiles due to their ability to utilize contractual mechanisms (power purchase agreements, technology performance guarantees) as a means to minimize financial risk. However, all project finance projects are not equal and the financial risk profile for these projects could be impacted by technology type, possible construction delays, and/or operations and maintenance characteristics. Figure 4 provides an assessment of the types of projects supported by DOE's Section 1705 loan guarantee program. Goals for Clean Energy Loan Guarantees One primary objective for providing federal loan guarantees for clean energy technologies and projects is to provide access to low cost financial capital that might not otherwise be available due to certain technology and market risks. Access to such capital may result in achieving certain policy objectives, assuming loan guarantee projects are successful and realize anticipated outcomes. Using loan guarantees as a mechanism for supporting U.S. clean energy technology deployment, project development, and system manufacturing can help meet various policy goals. Some of those goals are discussed below. Commercialization of Innovative Technologies Renewable energy technologies typically follow a common commercialization development path. Development of new technologies generally consists of the following stages: (1) feasibility analysis, (2) research and development, (3) system demonstration, (4) system scale-up and operation, and (5) commercial deployment (see Figure 5 ). Various federal government incentives can be used to support every stage of technology commercialization. However, the focus of this report is on system scale-up and commercial deployment due to the high-risk nature of these activities and the large amounts of capital required. Typically as technologies move through the development life cycle, the cost to complete each subsequent development stage increases, and in some cases the cost increases can be substantial. System scale-up and operation, and commercial deployment, are usually the most costly development stages. Financing these development activities can sometimes be difficult because the capital requirements are large and the risks (technology performance, market dynamics) are usually high. Some people refer to this situation as the "valley of death" or the "chasm" that all new technologies might encounter as they move from demonstration to commercial deployment. Formulating and executing a plan to realize commercial deployment is a challenge in itself. Financing that plan can further complicate new technology commercialization. By providing a source of low-cost capital for these development stages, loan guarantees could support the commercialization of new and innovative renewable energy technologies. Positioning U.S. Manufacturing for an Emerging Global Market Global renewable energy use is expected to grow. For example, the International Energy Agency (IEA) estimates, under one scenario, that electricity generation from renewable energy will grow from 3% of global electricity in 2009 to approximately 15% by 2035 (see Figure 6 ). In order to realize these projections, IEA estimates that approximately $6 trillion of investment in renewable electricity generation will be needed between now and 2035. As global renewable electricity markets expand, many countries may look to position themselves as leading manufacturers of renewable electricity generation systems and technologies. Loan guarantees for renewable electricity technology manufacturers could provide a source of low cost financial capital that might incentivize build-out of U.S. renewable energy manufacturing capacity. This capacity build-out could potentially result in economies of scale and make U.S. manufacturing cost competitive. If global markets expand as projected, U.S. manufacturers could be positioned to manufacture and export renewable energy technologies and systems for the global marketplace. Job Creation Loan guarantees might result in job creation as a result of building and operating projects that utilize loan guarantee finance mechanisms and possibly through the expansion of new industries that establish a competitive position in the global marketplace. According to DOE's Loan Programs Office, jobs related to fully committed Section 1705 loan guarantees include approximately 14,300 construction jobs and 2,400 permanent jobs. Construction jobs are typically temporary in nature, while permanent jobs are functions required to operate projects over their respective lifetimes. Additional job creation might occur if projects supported by loan guarantees are successful and realize their commercial deployment goals and objectives. The number of jobs that might ultimately result from loan guarantee projects that become globally competitive is difficult to estimate at this time due to unknown market, technology, and policy variables that will likely determine future renewable energy market growth. Reducing Greenhouse Gas Emissions Deployment of clean energy technologies and projects could potentially support greenhouse gas reduction goals, for example, by increasing the total amount of electricity generation from low carbon sources. Emission reductions that are directly associated with projects supported by DOE loan guarantees will likely be modest due to the massive scale of the U.S. energy industry. However, larger indirect emission reductions may be achieved as a result of future deployment of clean energy projects, should loan guarantee projects achieve their objectives. Supply Chain Build-Out On its website, DOE's Loan Programs Office emphasizes that loan guarantees provided by LPO are supporting some of the largest solar photovoltaic, solar thermal, and wind electricity generation projects in the world. Developing and constructing these large-scale projects may require domestic supply chains to support deployment of certain technologies. As a result, loan guarantees may support the build-out of a U.S. supply chain for clean energy technology, system, component, and logistics companies. This build-out may help position these companies for global clean energy opportunities. Concerns About Loan Guarantees for Innovative Energy Technologies While there are a number of goals and potential benefits associated with federal loan guarantees for innovative clean energy technologies and projects, there are also multiple concerns about loan guarantees as an incentive mechanism for clean energy. The Congressional Budget Office (CBO) released a background paper in 1978 regarding concerns about loan guarantees for new energy technologies. A brief overview of CBO's paper is provided in the text box at the end of this section . Cash Flow Demand for Development-Stage Companies A company that uses a loan guaranteed by the federal government to finance capital projects, or other business operations, has a legally binding requirement to pay back principal and interest to the loan issuer based on a defined repayment schedule. Additionally, loan agreements typically have certain conditions and covenants that may require a company to maintain minimum cash holding levels for certain cash accounts. Therefore, a loan essentially results in a source of demand for a company's operating cash flow. For most development stage companies, managing cash flow is the essential financial management function that enables a company to operate and ultimately survive. However, when development-stage companies with pre-commercial technologies use loans to finance new technology deployment (e.g., manufacturing facilities), the loan repayment requirements could potentially increase cash flow demands on a company and thus create liquidity challenges (see Figure 7 ). The significant cash flow demands during this stage of a company's development could result in a high risk of loan default. Many companies in this development stage do not have an established commercial presence in their respective markets and are spending substantial amounts of cash to develop a sales force, establish marketing and distribution channels, complete technology performance validation, and establish other core elements of a sustainable business operation. Additionally, many companies in this development stage will sell products at a loss as they work to achieve production economies of scale, which may or may not be realized. Using a loan as a means to finance a corporate asset, such as a manufacturing facility, during this development phase could potentially increase total cash flow demand and the likelihood of defaulting on the loan. In essence, loan guarantees may encourage the use of debt funding during risky development and deployment stages that might be more appropriate for equity investments. Solyndra, which received a loan guarantee for a manufacturing facility, might be considered an example of a new technology deployment project with high cash flow demands. Figure 8 shows Solyndra's actual operating losses from 2005 to 2009. Solyndra finalized its loan guarantee agreement in September 2009. Solar market conditions, which changed dramatically between 2009 and 2011, contributed to the company's negative operating cash flow during this period. Several reports indicate that when Solyndra initially defaulted on its loan obligation in 2010 the primary cause was due to cash flow issues that prevented the company from making a $5 million payment per the terms of the loan agreement. This example is not meant to show any cause and effect relationship between loan guarantees and bankruptcies or defaults. Rather, it illustrates the potential difficulty development stage companies might encounter when having to service debt obligations during periods of market uncertainty with high degrees of cash flow demand. On the other hand, using loan guarantees as a way to finance renewable electricity generation projects may be less risky since these types of projects are generally supported by long-term power purchase agreements (PPAs) and other contractual agreements that may provide a stable source of revenue and positive cash flow (see Figure 7 ). Since the risk profile of such projects might be low, some critics of clean energy loan guarantees may question why a federal loan guarantee is needed for these projects. However, default risk for these types of projects does exist and can result from technology performance and operational cost risks. Indeed, different companies have different cash flow requirements, and cash management is best assessed on a project-by-project basis. Also, federally guaranteed loans may demand less cash when compared to commercial loans since interest rates on guaranteed loans are typically lower than those available in the commercial debt market. Nevertheless, a loan guarantee can still result in an additional cash flow burden for a company that is operating in the early stages of commercial deployment. Government Risk/Reward Imbalance Unlike corporate entities such as banks, private equity firms, and venture capital firms, the federal government is generally not designed to seek profits and financial returns. However, since taxpayer dollars are the source of federal financial incentive programs, when considering certain financial incentive policies it is worth considering how such policies will benefit the federal government, the country, and U.S. citizens. Loan guarantees are federal government commitments to fulfill the repayment obligations of certain loans in the event the borrower defaults. In essence, unless a loan guaranteed by the federal government defaults, the "cost" of the loan guarantee is essentially zero. However if a guaranteed loan defaults, then the federal government may be required to pay back principal and interest to the loan issuer, at which time the "cost" to the government could be as high as the total amount of principal borrowed for the loan. In financial terms, the federal government is risking an amount equal to the amount of principal guaranteed, yet the potential direct financial return to the government is essentially zero (See Figure 9 ). Financial return for the government is zero because the loan may be issued either by a commercial debt provider, who receives loan interest payments, or by the Federal Financing Bank (FFB). FFB loans have low interest rates that are generally equal to Treasury debt. Therefore, FFB is typically not making any money on an interest rate spread. Rather, FFB may use the interest received from federally guaranteed loans to pay down the Treasury debt used to source the loan funds. The loan guarantee example illustrated in Figure 9 does not take into account potential U.S. government benefits associated with job creation, a potentially larger tax base, and increased exports if the project succeeds. These benefits could be substantial, yet they are very difficult to accurately quantify and include in this type of analysis. As such, quantifying these potential benefits is beyond the scope of this report. Nevertheless, at the individual project level, some might perceive the government's risk/reward profile to be somewhat out of balance. Charging "credit subsidy costs" to projects that receive loan guarantees is one way the federal government attempts to mitigate the risk of losses associated with loan guarantees. However, under Section 1705, all credit subsidy costs for loan guarantees were paid for by appropriated funds. As a result, risk of loss to the Section 1705 Loan Guarantee Program is effectively reduced, yet the federal government is assuming all risks associated with loan defaults under the program. Long-Term Commitments in a Dynamic Marketplace Loans for renewable energy projects typically have a payback period of between 20 and 30 years, where the borrower is typically required to make periodic (monthly, quarterly) principal and interest payments based on terms and conditions of the loan agreement. Loan guarantees may cover the entire duration of a loan agreement. Especially for corporate finance activities that might support new technology manufacturing projects, the long-term nature of loans, and loan guarantees, is somewhat in contrast with the rapidly evolving renewable energy technology landscape. Innovation is occurring in the energy marketplace through venture capital investments in new energy technologies and federal government energy innovation programs. For example, the Department of Energy manages the SunShot Initiative, which "aims to dramatically decrease the total costs of solar energy systems by 75% before the end of the decade." Successful future renewable energy technology innovations could, theoretically, make current technologies obsolete. As a result, technologies that may be commercially viable today could become outdated in less than a decade. The dynamic nature, and potential technology obsolescence, of renewable energy markets could introduce a certain amount of risk associated with using long-term loan guarantee commitments as an incentive mechanism for certain types of renewable energy projects. Furthermore, the amortized payback schedule of most debt instruments increases the risk to the government of principal losses associated with loan defaults that result from technology obsolescence. Pressure to Approve Loan Guarantees A federally managed loan guarantee program for large clean energy projects essentially performs several banking-like functions. Financial analysis, market analysis, company due diligence, and other activities must be managed by such programs to facilitate sound financing decisions on the part of the federal government. However, government-managed loan guarantee efforts may be subject to certain pressures that might not be experienced by commercial banks. For example, Section 1705 was a temporary program, and loan guarantee authority under Section 1705 ended on September 30, 2011. Evaluation and proper due diligence of large, in some cases more than $1 billion, loan guarantee projects can take considerable amounts of time. Furthermore, there are certain project finance variables (executing power purchase agreements, supply agreements) that may not be within the immediate control of the Loan Programs Office. Therefore, having a pre-defined deadline for making loan guarantee commitments, along with a desire to expedite funding for technology deployment projects, may have adverse results. Projects that received loan guarantees may not be the best projects to have supported; rather these projects may have been in a better position to meet the deadlines associated with Section 1705 loan guarantee authority. Policy Options Should Congress decide to debate the use of loan guarantees, or other government financial tools, as a clean energy deployment support mechanism, several policy options might be explored as a means to achieve clean energy policy objectives. As discussed earlier, a primary goal for loan guarantee programs is to provide a source of capital to projects that may not be able to secure low cost financing in the commercial market. Should this continue to be the fundamental objective of this type of incentive mechanism, the following discussion explores some policy options that Congress may also choose to consider. Grants or Tax Expenditures Instead of Loan Guarantees Grants for innovative clean energy technologies are a policy tool that could be used to incentivize commercialization and deployment of such technologies. Instead of appropriating funds to pay for loan guarantee subsidy costs, Congress could appropriate funds for a grant program that would provide financial assistance to projects that commercialize new energy technologies. The grant program could be structured in such a way that requires projects receiving federal grants to have secured all other necessary funding before receiving grant funds. Congress could also utilize tax expenditures as a financial mechanism for incentivizing the deployment of innovative clean energy technologies. Production tax credits and investment tax credits are two mechanisms currently used to incentivize renewable energy projects. Companies receiving a federal grant or tax incentive would not be required to repay the grant amount or tax expenditure and, as a result, may not experience additional cash flow demands associated with loan repayments. In theory, using funds in this manner could be just as effective as using appropriated funds for subsidy costs. However, in practice different incentive mechanisms may be more useful depending on market characteristics and the financial credit environment. Using grants and tax expenditures as incentive mechanisms would limit the federal government's exposure to project failures. However, a drawback to this approach may be that using grants or tax expenditures, compared with loan guarantees, may not be perceived as providing an opportunity to leverage government funds. Equity Positions One option Congress could explore is setting up a structure in which the federal government can assume equity positions in innovative clean energy technologies and projects. Since initial commercial deployment of new technologies is high risk in nature, equity investments, arguably, might be more appropriate than loans or loan guarantees for this stage of the technology commercialization life cycle. Equity positions might serve to alleviate the cash flow demands associated with loans and may also provide the federal government with an opportunity to participate in the return upside if a project is successful. Thus, equity positions in clean energy technologies may serve to balance the federal government's risk/return profile. Making these types of high risk investments may require the federal government to operate much like a venture capital firm, where a portfolio of equity positions are taken in high risk/high return investments. The overall goal would be that successful projects should more than compensate for project failures. Congress could create a clean energy venture capital-like entity that would have the funding, charter, and authority needed to invest in commercial deployment of innovative clean energy technologies. However, this approach raises concerns about the federal government assuming a venture capital-like function and how such an organization may improve or hinder the existing venture capital and private equity community. Furthermore, equity positions in companies also raise concerns about the federal government control of industry. However, federal government equity positions are not unprecedented. Financial support in return for such positions has been provided recently to auto companies, banks, and others. In those instances, this type of financial assistance was done under what might be considered emergency circumstances and not without controversy. Flexible Financial Management Tools Should Congress decide to continue using loan guarantees as a support mechanism for clean energy deployment, providing authority for loan programs to use certain flexible financial management tools may be an option to consider. Financial tools that might be used by federal loan programs may include the following: Warrants: A stock warrant provides the holder of that warrant the opportunity to purchase a company's stock at a certain price sometime in the future. As part of a loan guarantee agreement, the federal government could possibly receive warrants from companies that receive loan guarantees. These warrants would provide the federal government with an opportunity to participate in the financial return of successful projects and balance the risk/return profile of individual projects. The use of warrants could be a way for the federal government to recover appropriated credit subsidy costs used for loan guarantee projects. Portfolio management: Portfolio management is intended to ensure that gains from certain projects would offset, and possibly exceed, losses from other projects. Currently, innovative clean energy technology loan guarantees are managed on a project-by-project basis and there is no opportunity to reduce the risk of losses through portfolio management. A portfolio management approach, along with financial tools such as warrants, may serve to reduce the overall financial risk of loan guarantee programs. Convertible preferred equity: To reduce the initial cash flow demands associated with loans and loan guarantees, Congress might consider the use of a convertible preferred equity instrument as a way to fund innovative clean energy projects. The concept would be, for example, for the federal government to provide the necessary funding needed for a new project and, in return, receive a controlling preferred equity position in the project or company. Once the project, or company, has achieved positive cash flow that would allow for adequate debt service, the preferred equity is converted into debt, which is then repaid based on a determined repayment schedule. This approach would give the federal government a high degree of management control of the project during its start-up phase, a clear incentive for the project/company to realize positive cash flow as soon as possible, and a reasonable loan repayment schedule to recover the investment. Furthermore, this approach may reduce cash flow demand during the initial start-up phase of projects. Although, as discussed in the "Equity Positions" section above, this approach raises concerns about the level of federal government control. Clean Energy Financial Support Authority Should Congress decide to continue supporting development and deployment of clean energy technologies, creating an organization to manage various forms of federal financial support for such endeavors may be a policy option to consider. The organization could be given authority to utilize various financial tools to manage a portfolio of clean energy deployment investments. This new organization could be located within an existing federal agency or it could be an independent body. If Congress were to decide to locate this new organization within an existing federal agency, it may want to evaluate the most appropriate federal agency to be chosen. The Department of Energy is where the current clean energy deployment loan guarantee program resides and DOE may be the appropriate agency for such a program. However, Congress may want to consider the U.S. Treasury as another option for locating a new clean energy financing authority as Treasury may offer existing finance, banking, and investment expertise that could potentially manage an organization with a variety of financial investment tools. Legislative Action In the 112 th Congress, the Clean Energy Financing Act of 2011 ( S. 1510 ) proposes to create a Clean Energy Deployment Administration (CEDA) within the Department of Energy. As proposed in S. 1510 , CEDA would be able to use financial tools such as direct loans, loan guarantees, and insurance products to support clean energy technology manufacturing and deployment. The bill allows for a portfolio management approach as a way to manage financial risk. S. 1510 also allows the use of "alternative fee arrangements" such as profit participation, stock warrants, and others as a way to potentially reduce the amount of upfront cash fees.

Government guaranteed debt is a financial tool that has been used to support a number of federal policy objectives: home ownership, higher education, and small business development, among others. Loan guarantees for new energy technologies date back to the mid-1970s, when rapidly rising energy prices motivated the development of alternative, and renewable, sources of energy. Recently, the Energy Policy Act of 2005 created a loan guarantee program for innovative clean energy technologies (nuclear, clean coal, renewables) commonly known as Section 1703. The American Recovery and Reinvestment Act of 2009 created Section 1705, a temporary loan guarantee program focused on deployment of renewable energy technologies and projects. Loan guarantee authority for the Department of Energy Loan Programs Office (LPO) Section 1705 program ended on September 30, 2011, prior to which approximately $16.15 billion of loans were guaranteed for a variety of clean energy projects. In August 2011, the high-profile bankruptcy of Solyndra, the first company to receive a Section 1705 loan guarantee, resulted in a congressional investigation and increased scrutiny of the DOE Loan Guarantee Program. As a result, Congress may decide to evaluate the use of loan guarantees as a mechanism for supporting the development and deployment of clean energy technologies. This report analyzes goals and concerns associated with innovative clean energy loan guarantees. Fundamentally, loan guarantees can provide access to low-cost capital for projects that might be considered high risk by the commercial banking and investment community. There are many goals for using loan guarantees to support innovative energy technology commercialization and deployment. Commercializing new technologies that may increase the performance and reduce the cost of clean energy generation is one objective. Also, the potential global market for clean energy technologies and systems is substantial (trillions of dollars over the next 25 years by some estimates) and loan guarantees could help position U.S. manufacturers to supply product for this growing market. Loan guarantees may also result in near- and long-term job creation as well as contribute toward reducing emissions of various pollutants. The high-risk nature of clean energy projects, however, raises some concerns about the use of loan guarantees as a mechanism to encourage the deployment of new technologies. First, loan repayment demands cash flow from development stage companies at a time when they may already have high cash flow requirements, so loan repayment obligations could actually increase the risk of default for certain projects. Second, at a project level, the government's potential return is not commensurate with the risk being assumed. Third, loan guarantees for clean energy technologies are essentially long-term commitments in a dynamic and evolving marketplace. As a result, technologies supported today could be obsolete in less than a decade, thereby increasing the risk of loan default. Finally, federally managed loan guarantee programs may be subject to certain pressures that could result in less-than-optimal decision making. Should Congress decide to continue the use of government financial tools as a clean energy technology deployment support mechanism, it may wish to consider various policy options for future initiatives. Some policy options could include (1) using grants or tax expenditures instead of loan guarantees; (2) taking equity positions in new technologies and projects through a new government-backed venture-capital-like organization; (3) authorizing the use of flexible management tools such as stock warrants, portfolio management, and convertible equity; and (4) creating a dedicated clean energy financial support authority to manage federal clean energy deployment investments. Each of these policy options is explored and discussed in this report.

Introduction The conventionally powered aircraft carrier John F. Kennedy (CV-67) was decommissioned at Mayport, FL, on March 23, 2007. The ship will be towed to the Navy's inactive ship facility at Philadelphia, where it will be placed in preservation ("mothball") status. The Navy had proposed retiring the Kennedy and reducing the size of the carrier force from 12 ships to 11 as part of its proposed FY2006 and FY2007 budgets. Until mid-2005, the Kennedy was homeported in Mayport, FL. Prior to the proposal to retire the Kennedy, the Navy's plan was to maintain a 12-carrier force and keep the Kennedy in operation until 2018. The issue for the 109 th Congress was whether to approve, reject, or modify the Navy's proposal in the FY2006 and FY2007 budget submissions to retire the Kennedy and reduce the carrier force to 11 ships. In acting on the proposed FY2006 defense budget, the 109 th Congress passed a provision that amended 10 U.S.C. 5062 to require the Navy to maintain a force of not less than 12 operational carriers. In acting on the proposed FY2007 defense budget, the 109 th Congress passed a provision ( Section 1011 ) in the FY2007 defense authorization act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) that amended 10 U.S.C. 5062 to reduce the required size of the carrier force from 12 operational ships to 11 and to permit the retirement of the Kennedy under certain conditions. In light of Section 1011 and the Kennedy's retirement, one potential issue for the 110 th Congress concerns the Navy's future plans for the home port facility at Mayport. Background Proposal to Retire Kennedy and Reduce to 11 Carriers The proposal to retire the Kennedy and reduce the carrier force to 11 ships first came to light in January 2005, in an internal FY2006 DOD budget-planning document called Program Budget Decision (PBD) 753 , which was approved on December 23, 2004, by then-Deputy Secretary of Defense Paul Wolfowitz. PBD 753 set forth a number of significant adjustments to the FY2006 budget and FY2006-FY2011 Future Years Defense Plan (FYDP), including the proposal to retire the Kennedy. PBD 753 estimated that retiring the Kennedy in FY2006 would reduce DOD funding requirements for FY2006-FY2011 by a net total of about $1.2 billion. Table 1 shows the year-by-year funding changes for FY2006-FY2011 of retiring the Kennedy in FY2006, as estimated in PBD 753 . As shown in the table, retiring the Kennedy was estimated to produce a steady-state savings of roughly $300 million per year starting in FY2008, including roughly $200 million per year for crew pay and allowances, and roughly $100 million per year in ship operation and maintenance (O&M) costs. In February 2006, the Navy estimated that overhauling the Kennedy and keeping it in service during the five-year period FY2007-FY2011 would cost more than $2 billion. The Kennedy was originally scheduled for a $350-million overhaul that was to begin at its home port of Mayport, FL, on May 2, 2005, shift to the government-operated Norfolk Naval Shipyard at Norfolk, VA, on June 17, 2005, and be finished there on August 18, 2006. In light of the proposal to retire the Kennedy, the Navy said it wanted to use the $350 million to finance other Navy needs. On April 1, 2005, the Navy announced that it had canceled the overhaul. Navy officials said in early 2005 that following its retirement, the Kennedy would be placed in preservation ("mothball") status to preserve the option of reactivating it at some point. The ship might be reactivated, they said, if a conventionally powered carrier were needed to succeed the conventionally powered Kitty Hawk (CV-63) as the carrier that is forward-homeported in Japan (see section below on carrier home ports). On October 27, 2005, however, the Navy announced that it intends to use one of its Nimitz (CVN-68) class nuclear-powered carriers to replace the Kitty Hawk as the Japan-homeported carrier when the Kitty Hawk retires in 2008. A Navy spokesman said the decision to replace the Kitty Hawk with a nuclear-powered carrier was a mutual agreement between the United States and Japan. In November 2005, it was reported that the Navy had selected the George Washington (CVN-73) as the carrier to replace the Kitty Hawk in Japan in 2008. The Navy publicly confirmed this on December 2, 2005. In February 2006, the Navy announced that it had restricted the Kennedy from conducting flight operations with fixed-wing aircraft due to newly discovered corrosion problems with the ship's arresting gear mounts. The Navy also stated that two of the ship's four aircraft catapults were operating under waivers that were scheduled to expire in June 2006, and that four of its eight boilers were operating under waivers that were scheduled to expire in September 2006 and could renewed. Size of Carrier Force in Past Years From FY1951 through FY2006, the Navy's force of large-deck aircraft carriers generally fluctuated between 12 and 15 carriers. It reached a late-Cold War peak of 15 ships in FY1987-1991, and began declining after that, along with the size of the Navy as a whole. The carrier force declined to 12 ships in FY1994, and remained there through FY2006, even while the total number of ships in the Navy continued to decline. From FY1995 through FY2000, the Kennedy was operated as an "operational/reserve training carrier" with a partially reserve crew. During this period, the Navy's force of 12 carriers was often characterized as an "11+1" force. The Kennedy reverted to being a fully active carrier in FY2001. Carrier Force Prior to Kennedy Decommissioning Table 2 summarizes the Navy's carrier force just prior to the decommissioning of the Kennedy. As shown in the table, the force included 2 conventionally powered carriers—the Kitty Hawk (CV-63) and the Kennedy (CV-67)—and 10 nuclear-powered carriers—the one-of-a-kind Enterprise (CVN-65) and 9 Nimitz-class ships (CVN-68 through CVN-76). The Kitty Hawk , Navy's oldest carrier, entered service in April 1961. In 1991, the ship completed an extensive service life extension program (SLEP) overhaul that was intended to extend its service life from about 30 years to about 45 years. The ship is scheduled to be retired in 2008, at age 47. The carrier force is to be maintained at 11 ships by the commissioning in 2008 of the George H. W. Bush (CVN-77), which was procured in FY2001. CVN-73 is to be transferred to Japan in 2008 to succeed the Kitty Hawk as the Japan-homeported carrier. The Enterprise , the Navy's next-oldest carrier, entered service in November 1961, seven months after the Kitty Hawk. In 1994, the ship completed a nuclear refueling complex overhaul (RCOH) that was intended to extend its service life by about 20 years, to 2013. The ship is scheduled to be replaced in 2015 by CVN-78, a new carrier that the Navy plans to procure in FY2008. Unlike the Navy's newer Nimitz-class carriers, each of which is powered by two nuclear reactors, the Enterprise is powered by eight nuclear reactors, making the Enterprise's reactor plant more complex and expensive to maintain, at least in the view of some observers, than the reactor plants of the Nimitz-class ships. The Kennedy , the Navy's third-oldest carrier, entered service in 1968. Unlike the Kitty Hawk, which was given an extensive SLEP overhaul, the Kennedy was given a less extensive (but still fairly substantial) complex overhaul (COH) that was completed in 1995. Prior to the proposal to retire the Kennedy in FY2006, the Kennedy was scheduled to retire in 2018, at age 50, and be replaced in 2019 by CVN-79, an aircraft carrier that the Navy wants to procure in FY2012. Since the Kennedy did not receive a SLEP overhaul at about age 30, some observers questioned whether the ship could be kept in service to age 50. The Nimitz (CVN-68), the first of the Navy's Nimitz-class carriers, entered service in 1975 and completed an RCOH in 2001. The Dwight D. Eisenhower (CVN-69), which entered service in 1977, completed an RCOH in 2004. These RCOHs, like the Enterprise RCOH, are intended to permit each ship to remain in service for an additional 20 years. The Carl Vinson (CVN-70), the third Nimitz-class carrier, entered service in 1982. The ship is undergoing an RCOH that began in November 2005 and is scheduled to finish in November 2008. The total estimated cost of this RCOH is $3,134.3 million, of which $861.5 million in advance procurement funding has been provided from FY2001 through FY2005. The Navy requested another $1,493.6 for FY2006, and planned to request the final $779.2 million in FY2007. Nimitz-class RCOHs are performed by Northrop Grumman's Newport News (NGNN) shipyard, located at Newport News, VA. Potential Future Size of Carrier Force The Navy is proposing to maintain in coming years a 313-ship fleet that includes 11 aircraft carriers. The final report on the 2005 Quadrennial Defense Review (QDR), submitted to Congress in February 2006, endorses a Navy that includes 11 carriers. Admiral Michael Mullen, the CNO, said he supported the decision to retire the Kennedy and reduce the carrier force to 11 ships, and that he would also support qualifying Mayport, FL, as a home port for a nuclear-powered carrier. Roles and Missions of Carriers Many observers consider the Navy's carriers to be its primary capital ships—its most important ships, both operationally and symbolically. Past shorthand descriptions of the Navy were often been based on the number of carriers in the fleet. The 600-ship Navy planned by Reagan administration in the 1980s, for example, was often referred to as a 15-carrier Navy. Observers have noted over the years that when a crisis occurs overseas, one of the first questions asked by U.S. leaders has often been, "Where are the carriers?" Carrier-based aircraft are capable of performing various missions. Since the end of the Cold War, Navy carriers and their air wings have spent much of their time enforcing no-fly zones over Iraq and conducting land-attack operations in the Balkans, Afghanistan, and Iraq. Carriers and their air wings are considered particularly useful in situations where U.S. access to overseas air bases is absent or restricted—a circumstance that some observers believe has become more likely since the end of the Cold War. Carriers can also be used for other purposes. In 1994, a carrier was used to transport a helicopter-borne Army unit to the vicinity of Haiti, and in 2001-2002, a carrier was used to embark helicopter-borne special operations forces that were used in Afghanistan. Carriers have also been used in disaster-relief operations, such as the one for assisting countries affected by the December 2004 tsunami in the Indian Ocean. Given their ability to embark different combinations of aircraft, carriers are considered to be highly flexible naval platforms. Carrier Home Ports As of September 30, 2006, the Navy's 6 Pacific Fleet carriers were homeported at San Diego, CA (2 ships), Bremerton, WA (1 ship), Everett, WA (1 ship), Yokosuka, Japan (1 ship), and Newport News, VA (1 ship). The ship homeported at Newport News, the Vinson, is there for a refueling complex overhaul. The Navy's 6 Atlantic Fleet carriers were homeported at Norfolk, VA (6 ships, including the Kennedy). Until mid-2005, the Kennedy was homeported at Mayport, FL. The final report on the 2005 Quadrennial Defense Review (QDR), submitted to Congress in February 2006, directed the Navy to provide at least six operationally available and sustainable carriers (and also 60% of its submarines) in the Pacific to support engagement, presence, and deterrence. Following completion of its RCOH, the Carl Vinson is to be homeported at one of four Pacific-fleet home ports: Bremerton, WA, San Diego, CA, Pearl Harbor, HI, or Guam. The Navy reportedly plans to select the ship's home port in April or May of 2007. Some informed observers reportedly think the Navy may be less inclined to select Pearl Harbor, and more inclined to select Bremerton, because Bremerton could accommodate the ship with less need for construction or renovation of facilities. The Kennedy, whose crew numbered about 2,900, contributed, by one estimate, about $250 million each year to the local Mayport economy. As of September 30, 2006, Mayport was the home port for 18 Navy ships—four cruisers, three destroyers, and 11 frigates. Mayport currently is not qualified to serve as the home port for a nuclear-powered carrier, but some studies on what it would take to qualify Mayport as a nuclear-carrier home port have been undertaken in recent years. Mayport is near the naval air station at Jacksonville, FL, where some of the Navy's aircraft are based, and to the naval aviation depot at Jacksonville, which repairs some of the Navy's planes. The Navy has forward-homeported a carrier at Yokosuka (pronounced yo-KOS-ka) since the early 1970s. The forward homeporting of a carrier in Japan reduces considerably the total number of carriers needed in the force to maintain day-to-day deployments of carriers in the Western Pacific and Indian Ocean. The Kitty Hawk is the third Navy carrier to be homeported there. All three have been conventionally powered. (The other two have since been retired.) In light of anti-nuclear sentiments in Japan that date back to the U.S. use of two nuclear weapons against Japan in World War II, some observers believed that a Navy proposal to homeport one of its nuclear-powered carriers there could meet with public opposition. Other observers, however, believe that Japanese views on the issue have begun to change in a way that would reduce public opposition. The Navy's announcement that a nuclear-powered carrier would succeed the Kitty Hawk as the next Japan-homeported carrier generated some concern and opposition in Japan. Issues for 109th Congress DOD's proposal in FY2006 and FY2007 to retire the Kennedy and reduce the carrier force to 11 ships raised potential issues for the 109 th Congress concerning the appropriate size of the carrier force, the Navy's selection of the Kennedy as the carrier to retire, and carrier homeporting arrangements. Size of Carrier Force The appropriate size of the carrier force is a frequent, even classic, topic of debate in military force-structure planning. Over the years, as strategic, technological, and budgetary circumstances have evolved, some observers have argued in favor of a force of 12 or more carriers, while others have argued for a force of 11 or fewer carriers. Supporters of maintaining a force of 12 or more carriers could argue the following: During the past half century, carrier force has never dropped below 12 ships, illustrating the enduring need for a force of at least that many ships. After experimenting with an "11+1" carrier force in FY1995-FY2000 (11 fully active carriers plus one operational/reserve training carrier), DOD returned to a force of 12 fully active carriers, suggesting that DOD was dissatisfied with a force of less than 12 fully active carriers. If the carrier force were reduced in to 11 ships in 2007, as the Navy proposes, then the Navy projects that it will fall further, to 10 ships, in 2013, when the Enterprise retires, and not get back to 11 ships until 2015, when CVN-78 enters service. Even if an 11-carrier force would be operationally acceptable, a 10-carrier force would not be. To avoid dropping to a 10-carrier force during this period, the Navy needs to maintain a 12-carrier force through at least 2013. The Navy further projects that the size of the carrier force will increase from 11 ships to 12 ships in 2019, when CVN-79 enters service, and be maintained at 12 ships through at least 2036. This suggests strongly that Navy actually prefers a carrier force of 12 ships, not 11. Since the end of the Cold War, carriers have been kept very busy and have proven their value in numerous operations. In an era of uncertain U.S. access to overseas air bases, the value of carriers as sovereign U.S. bases that can operate in international waters, free from political constraints, is particularly significant. The increasing number of targets that can be attacked each day by a carrier air wing is making carriers even more cost effective as U.S. military platforms, which argues in favor of retaining them in the U.S. force structure, not retiring them. Supporters of reducing the carrier force to 11 or fewer carriers starting in FY2006 could argue the following: Due to changes over time in factors such as carrier missions, the technologies that are available to carriers and their air wings for performing missions, and policies for basing and deploying carriers, historical figures for carrier force size are not a precise guide to whether a future carrier force size would be adequate for performing its required missions. The increasing number of targets that can be attacked each day by a carrier air wing will make it possible to conduct future contingency operations with fewer carriers than were required in the past, reducing the number of carriers needed for warfighting purposes. The Navy's recently implemented Fleet Response Plan (FRP) has increased the Navy's ability to surge carriers to respond to overseas contingencies, which likewise reduces the number of carriers needed for warfighting purposes. The Navy's ability to base tactical aircraft at sea will be augmented in future years by the Navy's planned LHA(R)-class amphibious assault ships, which can be viewed as medium-sized aircraft carriers. The first LHA(R) is to be procured in FY2007. Keeping the carrier force at 12 ships rather than reducing it to 11 would add to Navy funding requirements and thereby require offsetting reductions to other DOD programs, such as Navy, Air Force, or Army procurement programs, or other elements of DOD force structure. Those offsetting reductions could pose greater operational risks than reducing the carrier force to 11 ships. The Navy can manage the projected reduction to a 10-carrier force in 2013 and 2014 by scheduling maintenance and taking other actions so as to maximize the operational availability of the 10 carriers it will have during this period. At hearings on the proposed FY2006 defense budget, DOD and Navy officials argued that an 11-carrier force is acceptable in light of the increasing capabilities of carrier air wings, the increased deployability of Navy carriers under the FRP, the aviation capabilities of the Navy's planned LHA(R) ships, and operational risks of cutting other DOD programs to pay for keeping the carrier force at 12 ships. The Navy testified that with a 12-carrier force, the Navy, under the FRP, could surge six carriers within 30 days and another two carriers within 60 days after that—a capability referred to as "6+2." With an 11-carrier force, the Navy testified, that would change to either 6+1 or 5+2. The Navy's FY2007 budget states that an 11-carrier force can support 6+1. Carrier to Be Retired If a carrier was to be retired in the near term so as to reduce the carrier force to 11 ships, a second potential issue for the 109 th Congress was whether that carrier should be the Kennedy or another ship. Potential alternatives to the Kennedy included the Kitty Hawk, the Enterprise, and the Vinson. Supporters of retiring the Kennedy rather than the Kitty Hawk, Enterprise, or Vinson could argue the following: The Kennedy did not receive a full service life extension program (SLEP) overhaul at about age 30, so keeping it in service in coming years could become increasingly difficult and expensive. The Kitty Hawk, in contrast, received a full SLEP overhaul at about age 30, giving it a firmer engineering foundation for being operated to about age 45. As mentioned in the Background section, the Navy in February 2006 announced that it had restricted the Kennedy from conducting flight operations with fixed-wing aircraft due to newly discovered corrosion problems with the ship's arresting gear mounts. The Navy also stated that two of the ship's four aircraft catapults are operating under waivers that are scheduled to expire in June, and that four of its eight boilers are operating under waivers that are scheduled to expire in September and cannot be renewed. Retiring the Kitty Hawk and shifting the Kennedy to Japan to replace the Kitty Hawk there would mean, at least for some time, that all the Atlantic Fleet carriers would be based in a single area (the Norfolk-Newport News, VA, area), which might not be prudent in light of the potential ability of terrorists to make a catastrophic one-time attack on a U.S. home port somewhere. Shifting a nuclear-powered carrier to Japan to replace the Kitty Hawk there would take time and money, given the need to qualify Yokosuka as a nuclear-carrier home port. The conventionally powered Kennedy is less capable than the nuclear-powered Enterprise and Vinson. The Navy invested more than $2 billion for the Enterprise RCOH; retiring the Enterprise in the near term rather than in 2014 would not realize a full return on this investment. Retiring the Vinson and not performing the RCOH now scheduled for the ship would significantly reduce the work load at Northrop Grumman's Newport News (NGNN) shipyard, the yard that would perform the work, which would increase the cost of other work being done at the yard (including construction of new carriers and construction of new attack submarines) due to reduced spreading of fixed costs and other factors at NGNN. Increases in costs for other work being done at NGNN would offset, perhaps significantly, the savings associated with avoiding the Vinson RCOH and the Vinson's annual personnel, operation, and maintenance costs. Supporters of retiring the Kitty Hawk, Enterprise, or Vinson rather than the Kennedy could argue the following: The Kitty Hawk is generally no more capable than the Kennedy, and is about 6½ years older than the Kennedy. Since the Kitty Hawk is currently scheduled to be retired in 2008, about four years from now, retiring it in the near term would not represent much of a change from current life-cycle plans for the ship. The Kennedy, in contrast, had been scheduled to remain in service until 2018, 14 years from now, so retiring it in FY2006 would involve a significant change from current life-cycle plans for the ship. The Kennedy's current maintenance issues, including those relating to its arresting gear mounts, catapults, and boilers, can be addressed in an overhaul. The Kennedy could be shifted to Yokosuka to replace the Kitty Hawk there. The first carrier homeported at Yokosuka, the Midway (CV-41), did not receive a full SLEP overhaul, but careful maintenance on the ship during its stay at Yokosuka permitted it to remain in operation to age 46. In the meantime, Mayport, FL could be qualified as quickly as feasible as a nuclear-carrier home port. A nuclear-powered carrier could then be transferred there so as to once again divide Navy's Atlantic Fleet carriers between two ports rather than concentrating them at a single home port. Since the Kitty Hawk is currently scheduled to be retired in 2008, retiring the Kitty Hawk in the near term might only accelerate a plan that the Navy may already have for taking these actions. Compared to the two-reactor propulsion plants on the Navy's Nimitz-class carriers, the eight-reactor propulsion plant on the Enterprise can be more difficult and expensive to maintain. Although the Enterprise was given an RCOH with the intention of keeping it in service until 2014, retiring it in the near term would give the Navy an all-Nimitz-class nuclear-carrier fleet, streamlining nuclear-carrier logistics and reducing nuclear-carrier support costs. Retiring the Vinson in the near term would avoid a $2.27-billion cost in FY2006 and FY2007 to complete funding for the Vinson's RCOH. It would also eliminate the annual personnel, operation, and maintenance costs for the Vinson, which might be comparable to, or even greater than, those of the Kennedy. Equipment purchased with the $861.5 million in FY2005 and prior-year funding for the Vinson RCOH could be used, where possible, for the RCOH on the next Nimitz-class ship. At hearings on the proposed FY2006 defense budget, DOD and Navy officials noted that the Kennedy has not been fully modernized and argued that the additional warfighting capability provided by the Kennedy is marginal. Carrier Homeporting Arrangements A third potential issue for the 109 th Congress raised by the proposal to retire the Kennedy concerned carrier homeporting arrangements. In addition to the local economic benefits associated with homeporting a carrier—e.g., carrier crew members spending their pay and allowances in the local economy and thus generating local jobs, and non-depot ship-maintenance work being done by local ship-repair firms, thus generating additional jobs—a potential additional factor to consider concerned the relative military advantages of different homeporting arrangements. With the Kennedy's retirement, all of the Atlantic Fleet's carriers will be, for some time at least, homeported in a single area (the Norfolk-Newport News, VA, area). Possible advantages of such an arrangement include economies of scale in carrier maintenance and the training of carrier crew members. Possible disadvantages include the effect on fleet operations of a terrorist attack on that single area. At hearings on the proposed FY2006 defense budget, Navy officials noted the potential efficiencies of co-locating carriers but also acknowledged the potential security risks of having carriers concentrated into a small number of home ports. Options for 109th Congress Options for the 109 th Congress arising from the proposal the retire the Kennedy in FY2006 and reduce the carrier force to 11 ships included the following: Options for Preserving 12 Carriers Permanent Legislation This option would involve adding a provision to Title 10 of the U.S. Code (the primary title covering DOD) stating that the Navy shall include not less than 12 large-deck aircraft carriers or prohibiting the Navy from taking any steps to reduce the carrier force to less than 12 ships. The provision could be somewhat similar to 10 U.S.C. 5063, which Congress amended in 1952 to state in part: "The Marine Corps, within the Department of the Navy, shall be so organized as to include not less than three combat divisions and three air wings, and such other land combat, aviation, and other services as may be organic therein." As mentioned earlier, in acting on the proposed FY2006 defense budget, Congress passed a provision—Section 126 of the FY2006 defense authorization act ( H.R. 1815 / P.L. 109-163 of January 6, 2006)—that amended 10 U.S.C. 5062 to require that the Navy include not less than 12 operational aircraft carriers. In acting on the proposed FY2007 defense budget, Congress passed a provision—Section 1011 of the FY207 defense authorization act ( H.R. 5122 / P.L. 109-364 of October 17, 2006)—that, among other things, amends 10 U.S.C. 5062 to reduce the required size of the carrier force from 12 operational ships to 11. (See " Legislative Activity For FY2007 And Prior Years " below.) Annual Legislation This option, which could be used in addition to the above option of permanent legislation, could involve adding a provision to the annual defense authorization bill or appropriations bill (or both) directing DOD to maintain a force of at least 12 carriers for the fiscal year in question, or prohibiting DOD from expending any funding that year to plan or carry out the retirement of an aircraft carrier. Binding Annual Report Language This option is similar to the previous option except that the direction to DOD would be provided through report language rather than bill language. Non-Binding Language This could take the form of bill or report language expressing sense of the Congress that the Navy should maintain a force of not less than 12 carriers. This option would have considerably less force than the previous options, since it would do nothing concrete to compel DOD to maintain a force of 12 carriers. Its effectiveness would depend on how much weight DOD could give it in DOD's own deliberations. DOD could decide to politely ignore the provision, making it totally ineffective. Options for Retiring a Carrier and Reducing to 11 Retire Kennedy in FY2007 This option could be supplemented by taking steps, such as adding military construction or other funding to the DOD budget, to accelerate the process of qualifying Mayport as a nuclear-carrier home port. It could also involve bill or report language directing the Navy to transfer a nuclear-powered carrier to Mayport as soon as the port is qualified to receive it. Retire Kennedy When Mayport Is Nuclear-Qualified This option would defer the retirement of the Kennedy until Mayport is qualified as a nuclear-carrier home port. As with the previous option, this option could include taking steps to accelerate the process of qualifying Mayport as a nuclear-carrier home port, as well as bill or report language directing the Navy to transfer a nuclear-powered carrier to Mayport as soon as the port is qualified to receive it. Retire Kitty Hawk and Transfer Kennedy to Yokosuka This option, too, could involve taking steps to accelerate the process of qualifying Mayport as a nuclear-carrier home port, as well as bill or report language directing the Navy to transfer a nuclear-powered carrier to Mayport as soon as the port is qualified to receive it. Retire Kitty Hawk and Transfer a Nuclear Carrier to Yokosuka Compared to the option of transferring the Kennedy to Yokosuka, this option would not require taking steps to accelerate the process of qualifying Mayport as a nuclear-carrier home port (though such steps could be taken anyway). Retire Enterprise This option could be timed so that the ship is retired following the completion of its next deployment. Retire Vinson This option, too, could be timed so that the ship is retired following the completion of its next deployment. Issue And Options For 110th Congress In light of Section 1011 and the Kennedy's retirement, one potential issue for the 110 th Congress concerns the Navy's future plans for the home port facility at Mayport. One potential option would be to qualify Mayport for homeporting a nuclear-powered carrier—a process that could take a few years—and then transfer one of the Navy's nuclear-powered carriers there. Another potential option would be to transfer one or more conventionally powered non-carrier ships, rather than a nuclear-powered carrier, to Mayport—a step that could be taken in the near term. A third potential option would combine the previous two by homeporting one or more additional conventionally powered ships at Mayport until Mayport is qualified for homeporting a nuclear-powered carrier and a nuclear-powered carrier takes their place. Potential questions for Congress to consider include the following: How much time would be required to qualify Mayport, FL as a nuclear-carrier home port? How much could this schedule be accelerated, and what actions would be necessary to accelerate it? How much would it cost to qualify Mayport, FL as a nuclear-carrier home port, and how might this cost be affected by accelerating the schedule? What would it cost to transfer a nuclear carrier from Norfolk, VA, to Mayport? On a steady-state basis, what would be the annual difference in cost between homeporting all Atlantic Fleet carriers at Norfolk vs. homeporting one nuclear carrier at Mayport and the rest at Norfolk? What are the relative operational advantages and disadvantages of homeporting all Atlantic Fleet carriers at Norfolk versus homeporting one nuclear carrier at Mayport and the rest at Norfolk? What are the relative vulnerabilities of Norfolk and Mayport to a potential one-time terrorist attack? What kinds of Navy ships other than a nuclear-powered carrier might be suitable for transferring to Mayport? What would be the relative operational advantages and disadvantages of transferring these ships to Mayport? How quickly could they be transferred? What military construction work, if any, would be required at Mayport to accommodate these ships, and what would be the cost of this work? How would the local economic impact of homeporting these other ships at Mayport compare to the economic impact of homeporting a nuclear-powered carrier there? Legislative Activity For FY2007 And Prior Years FY2007 Defense Authorization Act (H.R. 5122/P.L. 109-364) House The House Armed Services Committee, in its report ( H.Rept. 109-452 of May 5, 2006) on H.R. 5122 , stated: The committee is concerned by the Chief of Naval Operation's plan to retire the USS John F. Kennedy. According to the Navy's long range shipbuilding plan, if the Navy retires the Kennedy, then the aircraft carrier force will drop to 11 between now and 2012, and then drop to 10 in 2013 and 2014. With the commissioning of CVN-78 in 2015, the aircraft carrier force increases to 11 and then back to 12 in 2019 and beyond. The committee believes it is the objective of the Chief of Naval Operations to maintain a force of 12 aircraft carriers since the long range shipbuilding plan shows a total of 12 aircraft carriers between 2019 and the far range of the plan in 2036. It is apparent to the committee that the decision to allow the force structure to fall to 10 in the near future is fiscally rather than operationally driven. The committee believes that the Navy should continue to maintain no less than 12 operational aircraft carriers in order to meet potential global commitments. The committee believes that a reduction below 12 aircraft carriers puts the nation in a position of unacceptable risk. (Page 67) The report also stated: The committee notes that the Department of Defense's legislative proposal for fiscal year 2007, included a section that would effectively allow retirement of the conventionally-powered aircraft carrier, USS John F. Kennedy, thereby reducing the carrier force structure from 12 to 11 ships. The committee believes that the Navy's decision to reduce the number of carriers was not based on mission requirements analysis; rather, the decision was based on fiscal constraints. Section 126 of the National Defense Authorization Act for Fiscal Year 2006 (Public Law 109-163) amended section 5062 of title 10, United States Code, to set a minimum carrier force structure of not less than 12 operational aircraft carriers. The committee believes the aircraft carrier force structure should be maintained at 12 ships in order to meet worldwide commitments. However, the committee would like to explore options for maintaining the USS John F. Kennedy in an operational status either within or outside the U.S. Navy, to include the possibility of transferring operational control to the North Atlantic Treaty Organization (NATO). Therefore, the committee directs the Secretary of Defense to submit a report to the congressional defense committees by March 1, 2007, that examines options for maintaining the USS John F. Kennedy in an operational status both within and outside the U.S. Navy. In examining the NATO option, the Secretary shall coordinate an assessment with the NATO Secretary General. The report shall include the cost and manning required, statutory restrictions that would preclude transfer of the USS John F. Kennedy to organizations or entities outside the U.S. Navy, and a classified annex on how the Navy would meet global operational requirements with an aircraft carrier force structure of less than 12 ships. (Pages 369-370) The report also included additional views on the issue from Representative Jeff Miller (page 502). Senate Section 1011 of the Senate version of the bill ( S. 2766 ) would repeal the requirement for the Navy to include not less than 12 carriers that was enacted in P.L. 109-163 . The Senate Armed Services Committee, in its report ( S.Rept. 109-254 of May 9, 2006) on S. 2766 , stated: The 2006 Quadrennial Defense Review (QDR) Report determined that a naval force including 11 aircraft carriers meets the combat capability requirements of the National Military Strategy. In testimony before the Committee on Armed Services in March 2006, the Chief of Naval Operations (CNO) emphasized that the decision by the QDR followed a rigorous evaluation of future force structure requirements by the Navy, and that 11 aircraft carriers are sufficient to ensure the Navy's ability to provide coverage in any foreseeable contingency with persistent combat power. The committee is further aware that advances in ship systems, aircraft, and precision weapons, coupled with fundamental changes to fleet maintenance and deployment practices implemented by the Navy, have provided today's aircraft carrier and associated air wings substantially greater strike capability and greater force availability than possessed by the fleet during previous quadrennial defense reviews. The Navy has reported on revisions to its method and frequency of deployments for vessels. Under the new concept, referred to as the ''Fleet Response Plan,'' the Navy has reduced forward presence requirements in order to increase surge capability in response to national security demands. Under this approach, with 12 aircraft carriers in the fleet, the Navy proposed to have six carrier strike groups available for a crisis response within 30 days and two more carrier strike groups available in 90 days, referred to as "6 plus 2." At a force structure of 11 aircraft carriers, this becomes "6 plus 1" or "5 plus 2," which the Navy determined supports the National Military Strategy with acceptable risk. In certain cases, the success of the Fleet Response Plan relies on the timeliness of the decision to surge-deploy the naval forces, and with smaller force levels and reduced forward presence, the Fleet Response Plan approach may increase risk if we do not have the level of insight into the threat necessary for timely action. Further, the Navy's long-term plan for aircraft carrier force structure declines to 10 carriers in 2013, when the USS Enterprise is scheduled to retire. That carrier would be replaced by CVN-21 in 2015, which has yet to start construction. The Navy believes that they can manage this gap through a number of added measures, but if there are any delays in delivering CVN-21, this gap will increase. The committee maintains its concern, expressed in the Senate report accompanying S. 1042 ( S.Rept. 109-69 ) of the National Defense Authorization Act for Fiscal Year 2006, regarding the declining size of the naval force and the reduction to the number of aircraft carriers. The committee agrees, however, with the Navy's determination that it is not feasible to maintain 12 operational aircraft carriers by restoring the USS John F. Kennedy (CV-67) to a deployable, fully mission-capable platform. The committee believes that it is vital to the national security of the United States that a fleet of at least 11 aircraft carriers be maintained to support the National Military Strategy, and has taken extraordinary action to support the CNO's force structure plan by authorizing increased procurement for shipbuilding and, specific to aircraft carriers, by authorizing additional advance procurement and incremental funding for the construction of the first 3 CVN-21 class aircraft carriers. Further, recognizing the increased need for timeliness of surge operations that today's smaller force structure places on the Fleet Response Plan, the committee reaffirms the judgment that the Chief of Naval Operations, Admiral Clark, provided in testimony before the Committee on Armed Services in February 2005, that the Atlantic Fleet should continue to be dispersed in two homeports. (Pages 379-380) The report also included additional views on the issue from Senator Bill Nelson (pages 528-529). Conference Report The conference report ( H.Rept. 109-702 of September 29, 2006) on H.R. 5122 was signed into law as P.L. 109-364 on October 17, 2006. Section 1011 of the act amends 10 U.S.C. 5062 to reduce the required size of the carrier force from 12 operational ships to 11. The provision prevents the Navy from retiring the Kennedy until it has certified to Congress that it has received formal notices from the Department of Homeland Security (DHS) and NATO that these organizations do not desire to maintain and operate the ship. The provision requires, upon retirement of the ship, that while the ship is in the Navy's custody and control, the Navy maintain the ship in a condition that would allow for it to be reactivated in response to a national emergency. The provision requires, as a condition for transferring custody and control of the ship to another party, that the transferee return the ship to the Navy upon request of the Secretary of Defense in time of national emergency. The provision does not appear to require the transferee, while it has custody and control of the ship, to maintain the ship in a condition that would allow for it to be reactivated by the Navy in response to a national emergency. Section 1011 states: SEC. 1011. AIRCRAFT CARRIER FORCE STRUCTURE. (a) REDUCTION IN MINIMUM NUMBER OF OPERATIONAL AIRCRAFT CARRIERS REQUIRED BY LAW.—Section 5062(b) of title 10, United States Code, is amended by striking "12" and inserting "11". (b) REQUIRED CERTIFICATION BEFORE RETIREMENT OF U.S.S. JOHN F. KENNEDY.—The Secretary of the Navy may not retire the U.S.S. John F. Kennedy (CV—67) from operational status unless the Secretary of Defense first submits to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives the Secretary's certification that the Secretary has received— (1) a formal notice from the Secretary of Homeland Security that the Department of Homeland Security does not desire to maintain and operate that vessel; and (2) a formal notice from the North Atlantic Treaty Organization that the North Atlantic Treaty Organization does not desire to maintain and operate that vessel. (c) CONDITIONS ON STATUS OF U.S.S. JOHN F. KENNEDY IF RETIRED.—Upon the retirement from operational status of the U.S.S. John F. Kennedy (CV-67), the Secretary of the Navy— (1) while the vessel is in the custody and control of the Navy, shall maintain that vessel in a state of preservation (including configuration control, dehumidification, cathodic protection, and maintenance of spares) that would allow for reactivation of that vessel in the event that the vessel was needed in response to a national emergency; and (2) if the vessel is transferred from the custody and control of the Navy, shall require as a condition of such transfer that— (A) if the President declares a national emergency pursuant to the National Emergencies Act (50 U.S.C. 1601 et seq.), the transferee shall, upon request of the Secretary of Defense, return the vessel to the United States; and (B) in such a case (unless the transferee is otherwise notified by the Secretary), title to the vessel shall revert immediately to the United States. The report stated: The conferees understand that the 2006 Quadrennial Defense Review Report concluded that a naval force including 11 aircraft carriers meets the combat capability requirements of the National Military Strategy. The conferees agree with the Navy's determination that the cost of maintaining 12 operational aircraft carriers by restoring the USS John F. Kennedy (CV-67) to a deployable, fully mission-capable status would significantly impact the Chief of Naval Operations' (CNO) plan to build a future naval force of 313 ships. The conferees also agree with the Navy's proposal to inactivate the USS John F. Kennedy (CV-67) in fiscal year 2007. However, the conferees believe that it is important to retain the ability to reactivate the USS John F. Kennedy (CV-67) in the event that 12 aircraft carriers are required in response to a national emergency. The conferees expect, therefore, in conjunction with decommissioning the USS John F. Kennedy (CV-67), that the Secretary of Defense, in coordination with the Supreme Allied Commander, Europe and the Secretary of Homeland Security, will evaluate the feasibility of maintaining the aircraft carrier in an operational status by transferring custody and control to the North Atlantic Treaty Organization or the Department of Homeland Security. The Secretary shall provide notification of the findings to the Committees on Armed Services of the Senate and the House of Representatives prior to decommissioning the USS John F. Kennedy (CV-67). The conferees further expect that, upon decommissioning from the U.S. Navy and completion of the ship's inactivation availability, the Navy will maintain CV-67 in a state of preservation (dehumidification, cathodic protection, and configuration control) pending determination of final disposition. In the event it is determined that CV-67 is to be retired from operational status, the Secretary of the Navy shall evaluate other alternatives for final disposition, to include maintenance in a reduced mobilization status, donation as a museum article, or striking from the naval vessel registry; and report the findings with the Secretary of the Navy's recommendation to the congressional defense committees not later than October 1, 2007. Under all circumstances, the Navy shall retain custody of CV-67 at least until commissioning of CVN-77 [which is scheduled for 2008]. If the aircraft carrier is transferred from the custody and control of the Navy, the Secretary of the Navy shall require as a condition of such transfer that the transferee, upon request of the Secretary of Defense, return the vessel to the United States. In such a case, unless the transferee is otherwise notified by the Secretary of the Navy, the title to the vessel shall revert immediately to the United States. The conferees agree with the CNO statement in his letter dated August 14, 2006, to the Ranking Member of the Committee on Armed Services of the Senate, that "Naval Station Mayport and the many resources of the Jacksonville area remain vitally important to Navy readiness," and support the CNO commitment "to maintaining the infrastructure necessary to support the strategic dispersal of the Atlantic Fleet at this key east coast port." The conferees note that the USS John F. Kennedy (CV-67) has served proudly in defense of freedom around the world, in times of peace and in war in the course of her 38 years of service. She has brought great honor to our Nation, to her namesake, and to the tens of thousands of sailors who "stood the watch" on her decks these many years. It is most fitting, therefore, that the Navy plan the decommissioning of the USS John F. Kennedy (CV-67) with ceremony befitting her distinguished history of service to our Nation. (Pages 804-805) FY2006 Defense Authorization Act (H.R. 1815/P.L. 109-163) Section 126 of the conference report ( H.Rept. 109-360 of December 18, 2006) on the FY2006 defense authorization bill ( H.R. 1815 ; P.L. 109-163 of January 6, 2006) amended 10 U.S.C. 5062 to state that "The naval combat forces of the Navy shall include not less than 12 operational aircraft carriers. For purposes of this subsection, an operational aircraft carrier includes an aircraft carrier that is temporarily unavailable for worldwide deployment due to routine or scheduled maintenance or repair." The section also authorized $288 million for repair and maintenance to extend the life of the Kennedy. FY2005 Emergency Supplemental (H.R. 1268/P.L. 109-13) The conference report ( H.Rept. 109-72 of May 3, 2005) on the Emergency Supplemental Appropriations Act for FY2005 ( H.R. 1268 / P.L. 109-13 of May 11, 2005), contained a provision (Section 1025) stating: AIRCRAFT CARRIERS OF THE NAVY SEC. 1025. (a) FUNDING FOR REPAIR AND MAINTENANCE OF U.S.S. JOHN F. KENNEDY-Of the amount appropriated to the Department of the Navy in this Act, necessary funding will be made available for such repair and maintenance of the U.S.S. John F. Kennedy as the Navy considers appropriate to extend the life of U.S.S. John F. Kennedy. (b) LIMITATION ON REDUCTION IN NUMBER OF ACTIVE AIRCRAFT CARRIERS-No funds appropriated or otherwise made available in this Act may be obligated or expended to reduce the number of active aircraft carriers of the Navy below 12 active aircraft carriers until after the date of the submittal to Congress of the quadrennial defense review required in 2005 under section 118 of title 10, United States Code. (c) ACTIVE AIRCRAFT CARRIERS-For purposes of this section, an active aircraft carrier of the Navy includes an aircraft carrier that is temporarily unavailable for worldwide deployment due to routing or scheduled maintenance. (d) PACIFIC FLEET AUTHORITIES-None of the funds available to the Department of the Navy may be obligated to modify command and control relationships to give Fleet Forces Command administrative and operational control of U.S. Navy forces assigned to the Pacific fleet: Provided, That the command and control relationships which existed on October 1, 2004 shall remain in force unless changes are specifically authorized in a subsequent act.

The conventionally powered aircraft carrier John F. Kennedy (CV-67) was decommissioned at Mayport, FL, on March 23, 2007. The ship will be towed to the Navy's inactive ship facility at Philadelphia, where it will be placed in preservation ("mothball") status. The Navy had proposed retiring the Kennedy and reducing the size of the carrier force from 12 ships to 11 as part of its proposed FY2006 and FY2007 budgets. Until mid-2005, the Kennedy was homeported in Mayport, FL. Prior to the proposal to retire the Kennedy, the Navy's plan was to maintain a 12-carrier force and keep the Kennedy in operation until 2018. The issue for the 109th Congress was whether to approve, reject, or modify the Navy's proposal in the FY2006 and FY2007 budget submissions to retire the Kennedy and reduce the carrier force to 11 ships. In acting on the proposed FY2006 defense budget, the 109th Congress passed a provision that amended 10 U.S.C. 5062 to require the Navy to maintain a force of not less than 12 operational carriers. In acting on the proposed FY2007 defense budget, the 109th Congress passed a provision (Section 1011) in the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006) that amended 10 U.S.C. 5062 to reduce the required size of the carrier force from 12 operational ships to 11 and to permit the retirement of the Kennedy under certain conditions. Specifically, Section 1011 prevented the Navy from retiring the Kennedy until it certified to Congress that it had received formal notices from the Department of Homeland Security (DHS) and NATO that these organizations did not desire to maintain and operate the ship. The provision requires, upon retirement of the ship, that while the ship is in the Navy's custody and control, the Navy maintain the ship in a condition that would allow for it to be reactivated in response to a national emergency. The provision requires, as a condition for transferring custody and control of the ship to another party, that the transferee return the ship to the Navy upon request of the Secretary of Defense in time of national emergency. The provision does not appear to require the transferee, while it has custody and control of the ship, to maintain the ship in a condition that would allow for it to be reactivated by the Navy in response to a national emergency. In light of Section 1011 and the Kennedy's retirement, one potential issue for the 110th Congress concerns the Navy's future plans for the home port facility at Mayport. One potential option would be to qualify Mayport for homeporting a nuclear-powered carrier—a process that could take a few years—and then transfer one of the Navy's nuclear-powered carriers there. Another potential option would be to transfer one or more conventionally powered non-carrier ships, rather than a nuclear-powered carrier, to Mayport—a step that could be taken in the near term. A third potential option would combine the previous two by homeporting one or more additional conventionally powered ships at Mayport until Mayport is qualified for homeporting a nuclear-powered carrier and a nuclear-powered carrier takes their place. This report will no longer be updated.

Introduction On October 25, 2012, Tropical Storm Sandy strengthened to become Hurricane Sandy. The next day, the Federal Emergency Management Agency (FEMA) elevated its ongoing preparedness efforts, sending Incident Management Assistance Teams to states from North Carolina to Vermont. Public and private sector entities began to ramp up efforts to prepare for the storm, including a wide range of federal entities from the Federal Aviation Administration to the Department of Energy. On October 28 and 29, as the storm neared land, the President signed emergency declarations for eight states, as well as the District of Columbia, making federal resources available to help state and local governments as they prepared and as the storm began to impact coastal communities. Hurricane Sandy made landfall in New Jersey the night of October 29, 2012, as a Category 1 Hurricane, with a field of hurricane-force winds 900 miles across. The storm was responsible for at least 131 deaths in the United States, and damage estimates are still being made. In early November EQECAT, an economic forecasting firm, estimated economic losses from Sandy as $30 billion to $50 billion. As of January 31, 2013, the President had declared major disasters for 12 states as well as the District of Columbia under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act). Given the scale of the damage, the Administration submitted a request to Congress on December 7, 2012, for $60.41 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. Legislative History 112th Congress On December 12, 2012, the Senate Appropriations Committee published a draft amendment to H.R. 1 on its website that would have provided $60.41 billion in supplemental appropriations. The amendment also included a variety of authorizing provisions sought by the Administration as well as provisions originating in the Senate to modify disaster assistance processes and functions. On December 17, 2012, this proposal was introduced as S.Amdt. 3338 . On December 19, the amendment was withdrawn and S.Amdt. 3395 , with the same title and overall cost was offered in its place. The Senate amended the amendment, passed it by voice vote and then passed the underlying legislation ( H.R. 1 ) on December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112 th Congress. However, one facet of the Administration's request did become law through the 112 th Congress. The Administration had sought a legislative provision to increase the bond limit for the Small Business Administration's Surety Bond Guarantees Revolving Fund. A provision increasing the bond limit to $6.5 million, and up to $10 million if a federal contracting officer certified it was necessary, was included in P.L. 112-239 , the National Defense Authorization Act for Fiscal Year 2013. 113th Congress On January 4, 2013, the House and Senate both passed H.R. 41 , legislation providing an additional $9.7 billion in borrowing authority for the National Flood Insurance Program (NFIP), which had been a part of the Administration's request. The President signed it into law as P.L. 113-1 on January 6, 2013. H.R. 152 , which included another portion of the Administration's supplemental request, was introduced on January 4, 2013, and an amendment was filed that same day that included further portions of the original request. The House Appropriations Committee described H.R. 152 as including $17 billion "to meet immediate and critical needs," and the amendment as including $33 billion "funding for longer-term recovery efforts and infrastructure improvements that will help prevent damage caused by future disasters." On January 7, an amendment in the nature of a substitute to H.R. 152 which contained some minor textual changes, along with a restructured "long-term recovery" amendment, was posted on the House Rules Committee website. The House took up the legislation on January 15, 2013. The amendment with long-term recovery funding passed with several amendments, and the amended bill passed the House by a vote of 241-180. The rule for consideration of the bill combined H.R. 219 , a House-passed package of legislative provisions reforming disaster assistance programs, with the appropriations legislation upon engrossment of H.R. 152 , and sent them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. P.L. 113-2 is split into two divisions. Division A provides the supplemental funding for disaster relief, while Division B contains the originating text of H.R. 219 amending a number of disaster assistance programs authorized in the Stafford Act. Analysis of the Administration's Supplemental Request and the Legislative Response Table 1 below outlines the Administration's request for supplemental funding and mitigation funding in the wake of Hurricane Sandy, and the congressional response to those requests. All figures are in millions of dollars of budget authority. The Administration's request is redistributed by appropriations subcommittee. There is no distinction made in this table for mitigation funding. A breakdown of the Administration's request that illuminates the Administration's separate request for mitigation funding is included in the Appendix . Headers in bold italics note the Appropriations subcommittee of jurisdiction, followed by the department or independent agency in bold capitals. Two columns then specify where a given appropriation is going, by bureau, if applicable, then account or program. The Administration's request is next, in millions of dollars of budget authority, followed by the appropriations that would have been provided if Senate-amended H.R. 1 from the 112 th Congress had been enacted. This is provided only for historical reference, as the bill expired with the end of the 112 th Congress. The last column reflects the amount of funding provided in H.R. 152 as it passed both House and Senate and was ultimately signed into law. Where accounts are funded through transfers, that number is shown in the table and the donor account is reduced accordingly. After the table is an analysis of this supplemental appropriations bill in the context of the Budget Control Act, and a more detailed discussion of the contents of the request and the positions taken by the House and Senate in response to it. Disaster Relief and Emergency Funding Under the Budget Control Act The Budget Control Act (BCA) changed the way Congress accounted for federal funding for disaster response and recovery. In previous years, Congress provided funds over and above limits on discretionary appropriations by designating additional appropriations as being for emergency needs. Budget authority provided in this manner did not count against funding limitations on discretionary spending in budget resolutions. Although the BCA included legislation allowing for emergency appropriations, the new law included provisions that outlined separate treatment for disaster relief, as distinct from emergency funding. Funding designated as disaster relief in future spending bills could be "paid for" by adjusting upward the discretionary spending caps. This allowable adjustment for disaster relief is limited, however, to an amount based on the 10-year rolling average of what has been spent by the federal government on relief efforts for major disasters. This disaster relief allowable adjustment for FY2013 is $11.8 billion. Under the terms of the continuing resolution signed into law on September 28, 2012 ( P.L. 112-175 ), the amount of disaster relief that would be provided under the BCA if the CR extended for the year was $6.4 billion. The Administration proposed using the remainder of the allowable adjustment for disaster relief in its supplemental request, and using an emergency funding designation to ensure the remaining resources provided through the request do not count against the FY2013 budget caps. The Administration proposed designating all of the supplemental funding it sought as an emergency requirement, with the exception of a portion of the request for the DRF, which would be designated as being for disaster relief under the BCA. The Administration noted in the letter accompanying the request that it was unclear how much of the disaster relief allowable adjustment might be available pending the finalization of general FY2013 appropriations, and that therefore these numbers could require adjustment. Senate-passed H.R. 1 proposed that $5,379 million in DRF funding be designated as being for disaster relief under the BCA, with all but $3,461 million (for Army Corps of Engineers construction activities) of the remaining funding in the bill designated as emergency funding. P.L. 113-2 contains $41,669 million in emergency funding, $5,379 million for the DRF designated as disaster relief, and $3,461 million for Army Corps of Engineers construction activities that would count against the discretionary budget caps. P.L. 113-2 Appropriations by Subcommittee This section of the report is organized by alphabetically by subcommittee of jurisdiction. Except where otherwise noted, all numbers are in budget authority rounded to the nearest million. Agriculture, Rural Development, Food and Drug Administration, and Related Agencies16 Both the President's request and H.R. 152 as enacted ( P.L. 113-2 ) included $224 million for programs under the jurisdiction of the Agriculture Appropriations subcommittee. The Senate bill, H.R. 1 as amended, would also have provided $224 million for the same programs. Three of the four programs that received funding under the President's proposal and P.L. 113-2 are for emergency land assistance and typically only receive funding through supplemental appropriations bills, rather than annual appropriations bills. The fourth is a nutrition assistance program. While the President's request and P.L. 113-2 are similar, they are not identical. The difference between the two is that the President's proposal would have provided $150 million for watershed protection mitigation efforts, while P.L. 113-2 added this $150 million to watershed response and recovery. The Senate bill would have divided the $150 million for mitigation between all four programs proposed under response and recovery. The Emergency Conservation Program (ECP) and the Emergency Forest Restoration Program (EFRP) are administered by the USDA Farm Service Agency (FSA). ECP assists landowners in restoring the productivity of agricultural land damaged by natural disaster. Participants are paid a percentage of the cost to restore the land to a productive state. EFRP assists private forestland owners with damage caused by a natural disaster on nonindustrial private forest land. Both the President's request and P.L. 113-2 provided $15 million for ECP and $23 million for EFRP; the Senate bill would have provided approximately $25 million and $59 million, respectively. Following Hurricane Sandy, USDA made $15.5 million in previously appropriated ECP funds available to producers in counties that received a major disaster declaration pursuant to the Stafford Act. According to press releases, producers in counties without a declaration were still encouraged to sign up in the event that future funds were made available (further discussed below). Similarly, USDA announced that no funding is available under EFRP; likewise, producers were encouraged to apply if future funding becomes available. The Emergency Watershed Protection (EWP) program and the EWP floodplain easement program are administered by USDA's Natural Resources Conservation Service (NRCS) and the U.S. Forest Service (USFS). The EWP program assists sponsors, landowners, and operators in implementing emergency recovery measures for runoff reduction and erosion prevention to relieve imminent hazards to life and property created by a natural disaster. The EWP floodplain easement program is a mitigation program that pays for permanent easements on private land in order to safeguard lives and property from future floods, drought, and the products of erosion. The President's proposal would have provided $30 million for EWP recovery and response and $150 million for EWP floodplain easements for mitigation. P.L. 113-2 did not include funding for EWP floodplain easements and instead added $150 million to the general EWP program. Similarly, Senate-passed H.R. 1 did not include funding for EWP floodplain easements, but rather would have provided the equivalent of the President's proposed $150 million to the other USDA programs proposed for funding response and recovery efforts, including $125 million for general EWP. Following Hurricane Sandy, USDA released $5.3 million in prior appropriated EWP funds to 11 states to respond to imminent hazards to life and property. The EWP floodplain easement program has not received funding since FY2009 and has no current funding available for mitigation. The emergency agricultural land assistance programs are funded through supplemental appropriations, rather than annual appropriations. As a result, funding for emergency agricultural land assistance varies greatly from year to year. These programs traditionally do not require a federal disaster designation from either the President or a state official. Recent changes in appropriations and budget law, however, have altered how disaster funding for the programs may be used. Funding appropriated in FY2012 was to be used for major disasters declared pursuant to the Stafford Act. This same Stafford Act requirement was present in P.L. 113-2 with the additional requirement that funding may only be used for expenses related to the consequences of Hurricane Sandy. The Senate bill also included the Stafford Act requirement but only to a portion of the appropriation for all three land assistance programs. The Senate bill did not include P.L. 113-2 's requirement that funds only be used for Hurricane Sandy expenses. The President requested and P.L. 113-2 provided $6 million for the Commodity Assistance Program account—specifically for The Emergency Food Assistance Program (TEFAP). The Senate-passed H.R. 1 would have provided $15 million for TEFAP. TEFAP funding provides USDA commodity foods and administrative funding to food banks and other emergency feeding organizations. In their request for $6 million, the Administration reasoned that "this amount is equivalent to one month's worth of TEFAP entitlement commodities in the affected areas." In annual appropriations, TEFAP funds are typically available for one fiscal year, but Senate-passed H.R. 1 would have allowed the funds to be available through the end of FY2014. P.L. 113-2 did not include this extended availability of funding. In addition, P.L. 113-2 granted USDA flexibility to allocate foods and funds for administrative expenses to the Sandy-affected areas beyond the TEFAP authorizing law's parameters. Senate-passed H.R. 1 carried the same provision. Commerce, Justice, Science, and Related Agencies21 The Administration's request included $513.3 million for the accounts that are traditionally funded by the Commerce, Justice, Science, and Related Agencies (CJS) appropriations bill. The Senate-passed H.R. 1 would have provided $513.3 million for these accounts. P.L. 113-2 provided $363.3 million for the CJS accounts. As outlined in Table 1 , the Administration's request for the CJS agencies included $493.0 million for the National Oceanic and Atmospheric Administration (NOAA), $15.3 million for the Department of Justice (DOJ), $4.0 million for the National Aeronautics and Space Administration (NASA), and $1.0 million for the Legal Services Corporation (LSC). Senate-passed H.R. 1 would have provided $11.0 million less for NOAA and $11.0 million more for NASA than the Administration's request. P.L. 113-2 provided $167.0 million less than the Administration's request for NOAA, $6.0 million more for DOJ, and $11 million more for NASA. Some of the specific differences between the Administration's request, Senate-passed H.R. 1 , and P.L. 113-2 are as follows. The Administration requested $4.0 million for NASA's Construction and Environmental Compliance and Protection account. The Senate-passed H.R. 1 would have provided $15.0 million for this account. P.L. 113-2 provided $15.0 million for this account. The Administration requested a total of $393.0 million for NOAA's Operations, Research, and Facilities (ORF) account. The Administration's request would have allocated most funding to mitigation projects that would have enhanced resiliency of coastal communities and ecosystems. The Senate bill would have allocated more funding to repairs, replacement, and enhancement of equipment and facilities. P.L. 113-2 , like the Senate bill, allocates more funding to repairs, replacement, and enhancement of equipment and facilities. Specifically, the Administration requested $360.0 million under the ORF account to assess risks associated with storms and flooding, provide technical assistance to improve preparedness and resiliency in coastal communities, improve forecast and modeling capabilities to support mitigation efforts, and stabilize and restore ecosystems. The Administration requested $13.0 million under the ORF account to repair or replace damaged weather observation, weather radio, and ocean observing assets and facilities belonging to the National Ocean Service, National Marine Fisheries Service, and National Weather Service. The Administration also requested $20.0 million to evaluate impacts on natural resources, support mapping and charting missions, and conduct marine debris assessments. Senate-passed H.R. 1 would have provided $373.0 million for the ORF account, of which $6.2 million was for repairing or replacing ocean observing and coastal monitoring assets damaged by Hurricane Sandy; $10.0 million was for repairing and improving weather forecasting capabilities; $150.0 million was for evaluating, stabilizing, and restoring costal ecosystems damaged by the storm; $56.8 million was for mapping, charting, damage assessment, and marine debris coordination and remediation; and $150.0 million was for necessary expenses related to fishery disasters declared in 2012. P.L. 113-2 provided $140.0 million for the ORF account, of which $50.0 million was for mapping, charting, geodesy services and marine debris surveys for coastal states impacted by Hurricane Sandy, $7.0 million was to repair and replace ocean observing and coastal monitoring assets damaged by Hurricane Sandy, $3.0 million was for providing technical assistance to support state assessments of coastal impacts of Hurricane Sandy, $25.0 million was for improving weather forecasting and hurricane intensity forecasting capabilities, $50.0 million was for laboratories and cooperative institutes research activities associated with sustained observations weather research programs, and ocean and coastal research, and $5.0 million was for necessary expenses related to fishery disasters declared in 2012 that were the direct result of Hurricane Sandy. The Administration's request for NOAA included $100.0 million under the Procurement, Acquisition and Construction (PAC) account to support state and local acquisition of land to restore and build coastal resiliency in areas where rebuilding physical infrastructure is not feasible or desirable, and on activities that can increase the protective capacity of natural ecosystems. Senate-passed H.R. 1 would have provided $109.0 million for the PAC account, of which $47.0 million was for the Coastal and Estuarine Land Conservation Program to support state and local restoration in areas affected by Hurricane Sandy, $9.0 million was for repairing NOAA facilities damaged by the storm, $44.5 million was for repairs and upgrades to NOAA hurricane reconnaissance aircraft, and $8.5 million was for improvements to weather forecasting equipment and supercomputer infrastructure. P.L. 113-2 provided $186.0 million for the PAC account, of which $9.0 million was to repair NOAA facilities damaged in the storm, $44.5 million was for repairs and upgrades to NOAA hurricane reconnaissance aircraft, $8.5 million was for improvements to weather forecasting equipment and supercomputer infrastructure, $13.0 million was to accelerate the National Weather Service ground readiness project, and $111.0 million was for a weather satellite data mitigation gap reserve fund. Defense The Administration sought $90 million for the Department of Defense in accounts managed by the Defense Appropriations subcommittees in its request for FY2013 supplemental appropriations for repair and replacement of damaged equipment and facilities. Both Senate-passed H.R. 1 and P.L. 113-2 provided $88 million for the Department of Defense, following the same structure. The only difference between the bills and the request was a slightly more than $1 million reduction in both bills in the $41 million request for Navy Operations and Maintenance funding. Energy and Water Development, and Related Agencies24 The President's request, Senate-passed H.R. 1 in the 112 th Congress and H.R. 152 as enacted ( P.L. 113-2 ) all included $5.35 billion in supplemental funds for the U.S. Army Corps of Engineers (Corps) Civil Works program. The Corps receives annual appropriations through the Energy & Water Development Appropriations bill. Major differences between the bills and the President's request are summarized below. While the three proposals shared the same total level of Corps funding, they differed in distribution of funds across Corps accounts, eligible uses, and availability of funds. The Senate bill and P.L. 113-2 as enacted both designated Corps funding as an "emergency requirement," with the exception of the Corps Construction Account funding. Thus, while the bills' funding for the Corps Construction Account counted against discretionary budget caps, their funding for other Corps accounts did not count against the caps. For the Investigations account, the President requested $30 million, while the Senate-passed H.R. 1 and P.L. 113-2 both provided $50 million. P.L. 113-2 set aside $29.5 million of these funds for ongoing storm damage reduction studies in Hurricane Sandy-impacted areas of the Corps North Atlantic Division (which spans the Atlantic coast from Maine to Virginia). Senate-passed H.R. 1 would have made $34.5 million available for a similar study, and expanded the study area to include Gulf Coast areas in the Mississippi Valley Division impacted by Hurricane Isaac (principally Mississippi and Louisiana). Senate-passed H.R. 1 also would have provided $15 million for an interagency planning process with federal and nonfederal officials that would have developed plans to address coastal flooding risks and include innovative approaches to long-term stability. P.L. 113-2 provided the Corps $20 million to conduct a comprehensive coastal flood risk study of the Hurricane Sandy-impacted areas of the Corps North Atlantic Division. For the Construction Account, the Administration requested $3.83 billion, including $9 million for repair of existing Corps construction projects and $3.82 billion in "mitigation" funding for projects to reduce damages from future storms. The Administration proposed allowing the Corps to transfer the funds to other agencies, states, or local governments to implement elements of plans that would have resulted from the studies funded in the Investigation account. Senate-passed H.R. 1 and P.L. 113-2 both agreed with the Administration's request for $9 million for repair of existing projects, but included $3.46 billion for all other construction needs, approximately $360 million less than the Administration's request. The two bills differed in their direction regarding the use of the funding. P.L. 113-2 designated the overall funding allocation for rehabilitation, repair, and construction of Corps projects, while Senate-passed H.R. 1 would have provided the funding for these same efforts as they relate to the "consequences of natural disasters." It would have also allowed for the transfer of up to $499 million in funds to other Corps accounts "to address damages from previous natural disasters, following normal policies and cost sharing." P.L. 113-2 included no such provision. Both Senate-passed H.R. 1 and P.L. 113-2 designated $2.90 billion of the $3.83 billion for specific construction purposes. The enacted bill set the funding aside for projects that reduce future flood risk and support long-term sustainability in coastal areas of the North Atlantic Division affected by Sandy, while under Senate-passed H.R. 1 funding would have also been available for projects in Gulf Coast areas of the Mississippi Valley Division affected by Hurricane Isaac. The enacted bill provided that any project "under study" by the Corps in the North Atlantic Division for reducing flooding and storm damage in areas affected by Sandy that the Secretary determines is "technically feasible, economically justified, and environmentally feasible," is eligible for funding, provided House and Senate appropriations committees approve such a recommendation. Eligibility for the construction funding in Senate-passed H.R. 1 would have been based on the study demonstrating "that the project will cost-effectively reduce those risks and is environmentally acceptable and technically feasible." The three proposals also differed in their approach to construction cost sharing. The construction costs of Corps projects for flood control and coastal storm damage reduction generally are shared 65% federal, 35% nonfederal (33 U.S.C. 2213), with the nonfederal entity receiving credit toward its share for the provision of lands, easements, rights-of-way, relocations, and disposal areas (known collectively as LEERDs). Senate-passed H.R. 1 proposed to alter this practice, and instead required that nonfederal sponsors provide 10% of project costs, plus the LEERD costs. P.L. 113-2 included a waiver for ongoing construction activities to be undertaken at 100% federal expense. This waiver applied only to ongoing construction activities funded by the bill, not for other construction projects. Both bills allowed nonfederal costs to be repaid over a 30-year period. Both bills waived a requirement for congressional approval for projects that exceed 120% of their authorization of appropriations under §902 of the Water Resources Development Act (WRDA) of 1986 (33 U.S.C. 2280). Other differences between the three proposals included differences in the Corps Operation and Maintenance (O&M) and the Flood Control and Coastal Emergencies (FCCE) accounts. While the President had requested $899 million for the O&M account, both P.L. 113-2 and Senate-passed H.R. 1 provided $821 million. This account includes expenses for dredging of navigation channels and project repair. P.L. 113-2 limited availability for these funds to expenses related to the consequences of Hurricane Sandy, while O&M funding in Senate-passed H.R. 1 would have been available nationally. Both bills provided $1.01 billion for the FCCE account, or $409 million more than the Administration requested. While P.L. 113-2 limited these funds to expenses related to Hurricane Sandy, the FCCE amounts in Senate-passed H.R. 1 would have been for "flood, hurricane, or other natural disasters," with $430 million of that amount specified to restore projects impacted by Hurricane Sandy to their design profiles. Therefore, under Senate-passed H.R. 1 , remaining FCCE funds would have been available to support Corps emergency expenditures nationwide, including emergency operations preparations for future events. P.L. 113-2 also set aside $430 million to restore projects impacted by Hurricane Sandy to their "design profiles," but made these funds contingent on completion of one of the major studies required pursuant to language in the Investigations Account. Both bills also waived FCCE project cost limits under §902 of WRDA 1986, similar to the proposed provisions for the Construction Account. Finally, both P.L. 113-2 and Senate-passed H.R. 1 provided $10 million for the Corps and Assistant Secretary of the Army (Civil Works) expenses for oversight of emergency response and recovery activities. The Assistant Secretary is to use these funds to facilitate monthly reporting to the House and Senate Appropriations Committees on the allocations and obligations of all the aforementioned Corps funding, beginning 60 days after enactment. The Administration's request included no such funding or reporting requirement. Financial Services and General Government35 One consequence of Hurricane Sandy is that properties under the control of the General Services Administration (GSA) may have been damaged or deemed uninhabitable until repairs are made. The President requested $7 million to be deposited in the Federal Buildings Fund (FBF) at GSA for the repair and alteration of GSA properties damaged by Sandy. Senate-passed H.R. 1 would have provided the amount the President requested. P.L. 113-2 provides $7 million to GSA for repairs to properties damaged by Sandy and other real property activities. The provisions for the Small Business Administration (SBA) in P.L. 113-2 provided $804 million in budget authority. Senate-passed H.R. 1 would have provided $805 million in budget authority, along with legislative language sought by the Administration. Although P.L. 113-2 contained similar provisions to Senate-passed H.R. 1 , there are some slight differences between the two bills and the Administration's request. These differences are discussed below and include P.L. 113-2 provided $20 million for salaries and expenses as well as a provision for grants for cooperative agreements with organizations (such as Small Business Development Centers and Women's Business Centers) to provide technical assistance related to disaster recovery, response, and long-term resiliency to small businesses that are recovering from Hurricane Sandy. However, P.L. 113-2 did not specify—as Senate-passed H.R. 1 did—how the funds should be disbursed between salaries and expenses and grants for cooperative agreements. With respect to grants for cooperative agreements and technical assistance, P.L. 113-2 retained the provision to waive matching requirements that was proposed in Senate-passed H.R. 1 . The designated recipients of the cooperative agreements and grants differed between the two bills. H.R. 1 would have explicitly directed the grants and cooperative agreements for only current recipients of grants and cooperative agreements. P.L. 113-2 , on the other hand, directed the grants and cooperative agreements for small businesses that are recovering from Hurricane Sandy. Both P.L. 113-2 and H.R. 1 contained provisions to expedite the delivery of assistance. H.R. 1 would have expedited the delivery of assistance by using a process that relied, to the maximum extent practicable, upon previously submitted documentation. P.L. 113-2 did not mention the use of previously submitted documents as a method for expediting assistance. P.L. 113-2 provided $5 million—the same amount proposed in Senate-passed H.R. 1 —to the SBA's Office of Inspector General. P.L. 113-2 provided $520 million for the Disaster Loan Program Account for the cost of direct loans to small businesses. It also provided $260 million for administrative expenses to carry out the direct loan program, of which $250 million was for direct administrative expenses of loan making and servicing (including salaries), and $10 million was for indirect administrative expenses (such as information technology security, staffing, and financial management expenses). Senate-passed H.R. 1 would have provided $500 million for the Disaster Loan Program Account as well as $260 million for direct and indirect administrative expenses of loan making. The Administration requests for response, recovery, and mitigation funding in the wake of Hurricane Sandy included a provision for surety bond guarantees. This provision was not included in P.L. 113-2 as enacted because a similar provision was included in P.L. 112-239 , the National Defense Authorization Act for Fiscal Year 2013. Senate-passed H.R. 1 would have amended the Small Business Act to prohibit the SBA from requiring small business owners to use their primary residence as collateral for disaster loans of up to $200,000 relating to damage to or destruction of the small business, or for economic injury to the small business if the SBA determined that the small business owner had other assets with a value equal to or greater than the amount of the loan that could be used as collateral for the loan. The President's request did not address the issue concerning the use of collateral for the loans, and the provision was not included in P.L. 113-2 . Homeland Security The Administration requested $12,085 million for the Department of Homeland Security (DHS), as well as $9,700 million in additional borrowing authority for the National Flood Insurance Fund. In the opening days of the 113 th Congress, both the House and Senate passed P.L. 113-1 , a separate piece of legislation providing the additional borrowing authority. P.L. 113-2 included $12,072 million for DHS, with several slight changes in its structure from the Administration's request. P.L. 113-2 provided almost $11,488 million for the Disaster Relief Fund (DRF), approximately $12 million less than the request. P.L. 113-2 also included a transfer of $3 million from the DRF to the Office of the Inspector General for DHS. $5,379 million of the appropriation for the DRF was designated as "disaster relief" under the Budget Control Act, as requested by the Administration. The remainder of the funding for the DRF (and in this section) was designated as an emergency requirement, and therefore none of the funding in this section counts against the discretionary budget caps. P.L. 113-2 included $0.7 million less for replacement of Customs and Border Protection equipment (down from the $2.4 million request). It included a larger appropriation and transfer authority for the Coast Guard's Acquisition, Construction and Improvements function to meet costs in the Operating Expenses function, rather than providing the $67 million requested by the President as a separate appropriation. Senate-passed H.R. 1 had included the same funding levels for these accounts. The Administration requested $300 million in subsidy loan authority for the Disaster Assistance Direct Loan Program account, which funds the Community Disaster Loan (CDL) program. The CDL program provides loan assistance to local governments in declared disaster areas to help them overcome a loss in revenues. In Senate-passed H.R. 1 , $300 million would have been appropriated to the account to subsidize no more than $400 million in direct loan obligations. The Senate also directed that $4 million of the amount can be used for administration of the program. P.L. 113-2 included these amounts, as well as an additional provision (Section 401) that repurposed approximately $146 million in unused subsidy loan authority for CDLs in the wake of Hurricane Katrina provided in the Community Disaster Loan Act of 2005 ( P.L. 109-88 ). As the eligibility of local governments to get loans under this act had expired, the unobligated subsidy loan authority would have remained unused without this provision, which allows it to be used for CDLs sought pursuant to a major disaster declaration for Hurricane Sandy. Senate-passed H.R. 1 did not include this provision. Homeland Security Legislative Provisions Senate-passed H.R. 1 included a number of legislative provisions in its section on homeland security, some of which had been requested by the Administration. One of these—$9,700 million in additional borrowing authority for the National Flood Insurance Program—was enacted separately. The Senate also included a number of general provisions in Senate-passed H.R. 1 that would have amended programs funded through the DRF. The House passed many of these provisions in H.R. 219 , which passed the House on January 14, 2013, and was appended to House-passed H.R. 152 at engrossment as directed by the rule governing floor consideration of the supplemental appropriations bill. These provisions were ultimately enacted as part of P.L. 113-2 . Several other provisions from Senate-passed H.R. 1 were not taken up by the House as part of their legislative response to Hurricane Sandy. NFIP Borrowing Authority39 In an attempt to protect the financial integrity of the National Flood Insurance Program (NFIP), and ensure that the FEMA has the financial resources to cover its existing commitments following the devastation caused by Hurricane Sandy, both the President's request and Senate-passed H.R. 1 as amended would have provided for an increase of an additional $9.7 billion in borrowing authority for the NFIP, which is now capped at $20.725 billion. On January 4, both the House and Senate passed H.R. 41 , a separate piece of legislation providing this $9.7 billion in additional borrowing authority. This legislation was signed by the President on January 6, 2013 as P.L. 113-1 , and no further borrowing authority for the NFIP is included in P.L. 113-2 . As background, in the aftermath of Hurricane Katrina in 2005, Congress passed and the President signed into law legislation to increase the NFIP's borrowing authority to allow the agency to continue to pay flood insurance claims: first to $3.5 billion on September 20, 2005; to $18.5 billion on November 21, 2005; and finally to $20.725 billion on March 23, 2006. The NFIP is currently about $18 billion in debt largely as a result of the claims from Hurricane Katrina. By law, the NFIP does not operate under the traditional definition of insurance solvency—that is, it has not been capitalized, rates are set at levels that make the program self-supporting for the historic average loss year, losses and operating expenses are paid out of policyholder premiums, and the program does not generate sufficient premium income to cover flood insurance claims and expenses and build a reserve fund for future catastrophic loss years. Consequently, while the program typically generates a surplus in less-than-average-loss years, when faced with insufficient funds to pay claims and expenses in catastrophic loss years, such as occurred in the aftermath of Hurricanes Katrina, Rita, and Wilma in 2005, Midwest floods of 2008, Hurricane Irene and Tropical Storm Lee in 2011, and Hurricane Sandy in 2012, the NFIP must resort to its statutory authority to borrow from the Treasury to pay approved claims. Disaster Recovery Act of 2012 and the Sandy Recovery Improvement Act of 2013 The final general provision in Senate-passed H.R. 1 's homeland security title, Section 609, was entitled the "Disaster Recovery Act of 2012" and included a number of legislative provisions that are beyond the scope of this report to discuss at length. The Disaster Recovery Act of 2012 included a number of provisions that were similar to H.R. 219 , the "Sandy Recovery Improvement Act of 2013." These provisions were not necessarily identical, but in general, the provisions amended a number of disaster assistance programs authorized in the Stafford Act. For a full discussion of the Sandy Recovery Improvement Act of 2013, passed as Division B of P.L. 113-2 , see CRS Report R42991, Analysis of the Sandy Recovery Improvement Act of 2013 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. Provisions Unique to Senate-Passed H.R. 146 Senate-passed H.R. 1 also included a number of provisions not requested by the Administration that were not included P.L. 113-2 . Some of these mirrored proposed legislation in the 112 th Congress. These included Section 602—Would have allowed the Administrator of FEMA, in consultation with state, tribal, and local governments, to give greater weight to the effects of a disaster on special populations in making determinations on Individual Assistance; Section 603—Would have broadened eligibility of certain costs for reimbursement under the Public Assistance program; Section 604—Would have accelerated FEMA's cost-share adjustment process for Section 406 and 407 (generally Public Assistance and Debris Removal) of the Stafford Act for Hurricane Sandy; Section 605—Would have established a pilot program for the relocation of state facilities from disaster-prone areas; Section 606—Would have authorized construction of permanent flood-risk reduction levees on land purchased with Hazard Mitigation Grant Program (HMGP) funds in West North Central States. Section 607—Would have directed the FEMA Administrator to re-evaluate Community Disaster Loans (CDLs) issued to local governments in Louisiana and Mississippi following Hurricane Katrina; Section 608—Would have allowed Louisiana communities to request DHS Inspector General audits of post-Gustav debris removal projects. Interior, Environment, and Related Agencies49 P.L. 113-2 contained $1.44 billion for accounts within agencies typically funded by the Interior, Environment, and Related Agencies Appropriations bill. Both the President's request and Senate-passed H.R. 1 (from the 112 th Congress) had included slightly more—$1.45 billion for these accounts. Of the total in the law, $829.2 million was for specified accounts of agencies within the Department of the Interior (DOI), $0.2 million more than the President's request of $829.0 million and $200.2 million more than the $629.0 million in Senate-passed H.R. 1 . The law also contained $607.7 million for certain accounts within the Environmental Protection Agency (EPA), $10.0 million less than the $617.7 million requested and $210.0 million less than the $817.7 million in Senate-passed H.R. 1 . Finally, the total in the law, like the President's request and Senate-passed H.R. 1 , contained $6.4 million for "related agencies," namely the Forest Service ($4.4 million) and the Smithsonian Institution ($2.0 million). At the account level, P.L. 113-2 included funding for 11 accounts within seven agencies/offices, as had Senate-passed H.R. 1 . The President's request had contained funding for 10 accounts within six agencies/offices, as reflected in Table 1 . The law, President's request, and Senate-passed H.R. 1 proposed the same level of funding for seven accounts. The differences were as follows. The President sought $1.09 billion for three accounts, including $78 million for Construction within the Fish and Wildlife Service (FWS). The remaining $1.01 billion would have been for "mitigation projects" through the Resource Management account within the FWS ($400.0 million) and the State and Tribal Assistance Grants (STAG) account within EPA ($610.0 million). Together with mitigation funding requested for agencies funded through other appropriations subcommittees, such funding was to be used for projects that would reduce the risk or damage from future disasters, according to the President. Senate-passed H.R. 1 also included $1.09 billion, but for four accounts as follows: FWS Construction ($78.0 million); Historic Preservation Fund, within the National Park Service ($50.0 million); Departmental Operations, within the Office of the Secretary of DOI ($150.0 million); and EPA STAG ($810.0 million). P.L. 113-2 provided slightly less—$1.08 billion—for the same four accounts: FWS Construction ($68.2 million); NPS Historic Preservation Fund ($50.0 million); Departmental Operations ($360.0 million); and EPA STAG ($600.0 million). Neither the law nor Senate-passed H.R. 1 included funding for FWS Resource Management, while the Administration's request did not include funding for the Historic Preservation Fund or Departmental Operations. The $600.0 million in P.L. 113-2 for EPA's STAG account are allocated entirely for capitalization grants for the State Revolving Fund (SRF) programs under the Clean Water Act (CWSRF), which received $500.0 million and the Safe Drinking Water Act (DWSRF), which received $100.0 million. Similarly, all of the $810.0 million in Senate-passed H.R. 1 would have been allocated to CWSRF ($700.0 million) and DWSRF ($110.0 million) capitalization grants. The Administration had requested $600.0 million for clean water and drinking water SRF capitalization grants but did not specify an allocation between the two, and $10.0 million for wetlands restoration and other ecosystem enhancements. The Administration stated that legislative language would be needed to target the $600.0 million for the SRF capitalization grants to the affected states for mitigation projects. While no specific language accompanied the Administration's request, P.L. 113-2 contained several terms and conditions for the EPA STAG account. P.L. 113-2 included a requirement that the states use not less than 20% but not more than 30% of the SRF capitalization grant funds to provide additional subsidization to SRF loan recipients in the form of forgiveness of principal, negative interest loans, or grants, or any combination of these. Senate-passed H.R. 1 had included a requirement that the states must use not less than 50% of the capitalization grant funds for this purpose. Both the law and Senate-passed H.R. 1 also required the SRF funds to be used only for "…eligible projects whose purpose is to reduce flood damage risk and vulnerability or to enhance resiliency to rapid hydrologic change or a natural disaster at treatment works…" or eligible facilities, and other eligible tasks necessary to further such purposes. Finally, SRF funds in the law are allocated entirely to states in EPA Region 2 for wastewater and drinking water treatment works and facilities impacted by Hurricane Sandy, rather than allocated according to the existing state-by-state allotment formula under the Clean Water Act for the CWSRF or according to needs surveys under the Safe Drinking Act's for the DWSRF. H.R. 1 as passed by the Senate would have allocated CWSRF and DWSRF funds only to states that have received a major disaster declaration for Hurricane Sandy under the Stafford Act. The President's request did not include a similarly explicit statement, but did indicate that funds for SRF grants would be allocated to "affected states." Senate-passed H.R. 1 also would have waived the normal requirement that states provide a 20% match for the SRF capitalization funds, and would have allowed states to use CWSRF funds for purchase of land and easements necessary for siting of treatment works projects, which is currently not an eligible activity under the Clean Water Act program. Neither of these provisions was included in P.L. 113-2 . Two other accounts that received funding in P.L. 113-2 also contained specific terms and conditions. One account is in the NPS, while the second is in the DOI, Office of the Secretary. First, both the law and H.R. 1 similarly conditioned appropriations for the NPS Historic Preservation Fund, which provides funds for restoring historic districts, sites, buildings, and objects significant in American history and culture. They limited funding to expenses related to the consequences of Hurricane Sandy, including costs to administer the program and costs to states to ensure compliance with Section 106 of the Historic Preservation Act. Section 106 requires federal agencies to consider the effects of projects they carry out, approve, or fund on historic properties. They also stated that grants could be provided only in areas that have a major disaster declaration under the Stafford Act, and that grant recipients would not be required to provide a match for federal funding, which typically is required. Second, the law and Senate-passed H.R. 1 contained differing provisions for the DOI Office of the Secretary, Departmental Operations, regarding the purposes for which the funds are to be used. The provision in H.R. 1 was broader. Under both the law and H.R. 1 , for instance, DOI bureaus and offices are to use funds for necessary expenses related to the consequences of Hurricane Sandy, but under H.R. 1 they also could have been used for other activities related to storms and natural disasters. Under both the law and H.R. 1 , funds also are to be used for increasing the capacity of coastal habitat and infrastructure to withstand storms, and for restoring and rebuilding parks, refuges, and other public assets. However, the law specified that these entities are to be national/federal. Senate-passed H.R. 1 would have provided for other uses of the funds, namely protecting natural and cultural values, and assisting state, tribal, and local governments. Other language in the law and H.R. 1 as passed the Senate was similar. In particular, both measures authorized the Secretary of the Interior to transfer the funds to any account in the Department, and required the Secretary to submit to the Appropriations Committees a detailed spending plan for the funds within 60 days of enactment. Finally, provisions of the law prohibited the use of funds for two different purposes. First, one provision barred the Secretary of the Interior and the Secretary of Agriculture from using funds in the bill to acquire land. Second, another provision prohibited FWS Construction funds from being used to repair seawalls or buildings on islands in the Stewart B. McKinney National Wildlife Refuge. Labor, Health and Human Services, Education, and Related Agencies The President's request, Senate-passed H.R. 1 , and P.L. 113-2 each called for supplemental funding to be provided to several programs typically funded by the Labor, Health and Human Services (HHS), Education, and Related Agencies' appropriations bill (see Table 1 ). The majority of these funds ($800 million) will go to HHS to support health, mental health, and social services needs in affected states, including costs related to the construction and renovation of damaged health, mental health, biomedical research, child care, and Head Start facilities. However, P.L. 113-2 included a different mechanism for providing these funds than did the President's request. The President proposed for these funds to be appropriated directly to three separate accounts, while P.L. 113-2 appropriated the entire $800 million to one account and required that some of these funds be transferred elsewhere. In addition to funding for HHS, the President's request, Senate-passed H.R. 1 , and P.L. 113-2 each called for funds (of differing amounts) to the Department of Labor to support dislocated workers. P.L. 113-2 provides $25 million for employment services and job training for dislocated workers. Department of Labor50 The President requested funds for the Training and Employment Services account within the Employment and Training Administration of the Department of Labor. Specifically, the President requested $50 million for the Workforce Investment Act (WIA) Dislocated Worker (DW) National Reserve to support National Emergency Grants (NEG). Funds from the NEG are used to support employment and training activities, such as job search assistance and job training, for workers dislocated from employment by major economic dislocations, including natural disasters. Senate-passed H.R. 1 differed slightly in two ways from the President's request. First, Senate-passed H.R. 1 would have provided $50 million for the DW National Reserve, but would not have specified that the funds were to be used solely for NEGs, which are funded out of the National Reserve. Second, Senate-passed H.R. 1 would have allowed the Secretary of Labor to transfer up to $3.5 million of the appropriated funds to any other DOL account for other reconstruction and recovery needs related to Hurricane Sandy. P.L. 113-2 included $25 million for the WIA DW National Reserve, did not specify that funds for the DW National Reserve are to be used solely for NEG, and provided that the Secretary of Labor has authority to transfer up to $3.5 million of the appropriated funds to any other DOL account for other reconstruction and recovery needs related to Hurricane Sandy. Department of Health and Human Services52 The President's request, Senate-passed H.R. 1 , and P.L. 113-2 each called for $800 million in supplemental disaster funding for HHS programs, for ultimate distribution as follows: $500 million to the Social Services Block Grant (SSBG), $100 million to the Head Start program, and $200 million to the Public Health and Social Services Emergency Fund (PHSSEF) for other HHS programs. However, P.L. 113-2 used a different approach from the other two measures to appropriate these funds. The request and Senate-passed H.R. 1 called for the $800 million to be appropriated directly to the three separate HHS appropriations accounts. By contrast, P.L. 113-2 appropriated the full $800 million directly to one of the accounts (the PHSSEF), requiring the HHS Secretary to transfer portions of these funds to the other programs and activities in amounts largely consistent with the request: $500 million to the SSBG, $100 million to the Head Start program, at least $5 million to the HHS Office of the Inspector General (OIG), and the remaining $195 million to the HHS Secretary for other activities. In addition, in contrast to the request and Senate-passed H.R. 1 , P.L. 113-2 made the $800 million available through FY2015. As noted, the President's request, Senate-passed H.R. 1 , and P.L. 113-2 each used the PHSSEF to fund all or part of HHS's response efforts. The PHSSEF is an account managed by the HHS Secretary and used by appropriations committees to fund certain emergency management activities, and to provide one-time funds through emergency supplemental appropriations. It is not authorized in law except through annual appropriations, and has no accompanying regulations or guidance. PHSSEF funds are intended for transfer to HHS institutes, agencies, and offices to carry out activities specified in appropriations laws. The President requested $200 million to the PHSSEF for transfer to support a number of health-related activities throughout HHS, including (1) National Institutes of Health (NIH) grantees for losses to their NIH-funded biomedical research programs; (2) substance abuse and mental health programs; (3) environmental and public health support; and (4) other activities the Secretary deems necessary for response and recovery from storm-related damage. Senate-passed H.R. 1 largely followed this approach. P.L. 113-2 provided $800 million (the entire HHS amount) to the PHSSEF, for transfer as noted above, specifying that of the $200 million for health-related activities, at least $5 million be transferred to the HHS OIG, and the remaining $195 million to other accounts within HHS as determined by the Secretary. The latter amount may be used, in unspecified amounts, for repair and rebuilding of non-federal biomedical research facilities (presumably NIH grantees). PHSSEF funds may not be used for costs that are reimbursable by FEMA or covered by insurance. The President's request and P.L. 113-2 both included $500 million for the SSBG at the HHS Administration for Children and Families. The SSBG is a flexible source of funding used by states to support a wide variety of social services, ranging from child care to special services for the disabled. The request called for the $500 million to be directly appropriated to the SSBG, while P.L. 113-2 called for these funds to be transferred to the SSBG from an $800 million appropriation to the PHSSEF. Both the request and P.L. 113-2 included special language targeting supplemental SSBG funds to states directly affected by Hurricane Sandy (i.e., waiving the statutory allocation formula) and allowing states to use these funds for the provision of health services (including mental health services), and costs of renovating, repairing, or rebuilding health care facilities, child care facilities, and other social services facilities. In addition, P.L. 113-2 included several other provisions applicable to the SSBG. For instance, the law gives states up to three years to expend these funds, one year longer than the SSBG's standard two-year expenditure period. In addition, as with other funds in the PHSSEF appropriation, P.L. 113-2 allows SSBG funds to be used for obligations incurred prior to the bill's enactment (provided these costs align with purposes specified in the bill) and prohibits these funds from being used for costs that are reimbursable by FEMA or covered by insurance. Senate-passed H.R. 1 included similar (though not always identical) provisions, along with several others not enacted in P.L. 113-2 . For instance, Senate-passed H.R. 1 included language allowing states to use up to 10% of their allotments to supplement any other funds available for the costs of compensating employees of health care providers for lost wages as a result of Hurricane Sandy and for supporting the viability of health care providers whose facilities were substantially damaged. Senate-passed H.R. 1 also included language requiring states to follow certain federal regulations on establishing a Notice of Federal Interest in real property, where applicable. The President's request and P.L. 113-2 both included $100 million for the Head Start program, funded within the Children and Families Services Programs account at the HHS Administration for Children and Families. The Head Start program provides comprehensive early childhood development services to low-income children. The request called for the $100 million to be directly appropriated to Head Start, while P.L. 113-2 called for these funds to be transferred to Head Start out of the $800 million appropriation to the PHSSEF. The request specified that funds would be made available to affected Head Start agencies for costs of renovating, repairing, or rebuilding damaged facilities, as well as for certain services for affected children and families, including costs of transporting children enrolled in now-closed centers to other Head Start programs. P.L. 113-2 did not include any language about damaged Head Start facilities or affected children. However, the overall PHSSEF appropriations language made it clear that these funds are for disaster response and recovery in affected states. To this end, P.L. 113-2 included language explicitly waiving the statutory Head Start allocation formula and clarifying that funds awarded from this supplemental appropriation would not be considered part of a Head Start program's "base grant" in subsequent fiscal years. As with other funds in the PHSSEF appropriation, P.L. 113-2 allowed Head Start funds to be used for obligations incurred prior to the bill's enactment (provided these costs align with purposes specified in the bill) and prohibits these funds from being used for costs that are reimbursable by FEMA or covered by insurance. Senate-passed H.R. 1 included similar (though not always identical) provisions, along with several others not enacted in P.L. 113-2 . For instance, Senate-passed H.R. 1 included language specifying that these funds could be used for costs of renovating, repairing, or rebuilding damaged facilities; costs of supportive and mental health services for affected children and families; and costs of technical assistance for affected Head Start centers. Senate-passed H.R. 1 also included a provision (not in P.L. 113-2 ) that would have waived the program's non-federal matching rules for these funds. According to a press release on the draft Senate bill from the 112 th Congress, these funds were expected to support approximately 265 Head Start centers damaged by the hurricane. Military Construction, Veterans Affairs and Related Agencies The Administration sought $259 million for military construction activities and the Department of Veterans Affairs (VA) in its request for FY2013 supplemental appropriations for repair and replacement of damaged equipment and facilities. The request sought $24 million for Army National Guard military construction efforts to repair damaged facilities and utilities at Sea Girt National Guard Training Center, and $236 million for the VA. The largest single project was a $207 million request through the Major Construction account for renovation and repair of the Manhattan VA Medical Center, which experienced severe flooding. This project would ordinarily require congressional authorization to be funded. Senate-passed H.R. 1 proposed $259 million for these accounts. P.L. 113-2 included $260 million for these accounts, the only difference from the request being an additional $1 million for the VA's National Cemetery Administration to repair storm damage. Both pieces of legislation included language to allow the Army National Guard Military Construction funding and the VA Major Construction funding to be expended on otherwise unauthorized projects. Transportation, Housing and Urban Development, and Related Agencies58 As requested by the President and proposed in Senate-passed H.R. 1 , P.L. 113-2 provided over $29 billion for accounts within agencies typically funded by the Transportation, HUD and Related Agencies bill. Department of Transportation59 The President's request included $12.07 billion for accounts within the Department of Transportation (DOT), as did Senate-passed H.R. 1 . P.L. 113-2 included $13.07 billion for DOT accounts, $1 billion more than requested. In each case the vast majority of funding was for public transit. While the request and Senate-passed H.R. 1 were similar in total funding, they differed in funding allocation, and P.L. 113-2 differs from both, as shown in Table 1 . Briefly, P.L. 113-2 provided (a) more funding for Amtrak than the President requested but less than Senate-passed H.R. 1 provided, and (b) more funding for highway repair than either the President requested or the Senate-passed H.R. 1 provided. For transit assistance, the President requested a total of $11.7 billion, divided between repair and mitigation funding. Both types of funding would go into the recently created Public Transportation Emergency Relief Program (previously, some public transit emergency relief funding could have been provided under the Stafford Act). The President requested $6.2 billion for repairs and $5.5 billion for mitigation; the repair funding request specified that the funding would be provided as a 90% federal match; that funding could also be transferred for use for highway and bridge repairs at the discretion of the Secretary of Transportation; that funding should not supplant private insurance coverage, and that $3 million would go to the Department of Transportation Inspector General for oversight. Senate-passed H.R. 1 would have provided $10.78 billion, up to $5.38 billion of which could have been transferred by the Secretary of Transportation to be used to mitigate damage to highway and transit facilities from future disasters (which, by inference, assures that at least $5.4 billion is available for repairs). The President's request would have allowed the repair money to also be used for highway infrastructure, with no language concerning mitigation funding, while the Senate bill reversed that, proposing to make the mitigation funding available for transfer to highway projects, with no corresponding language for the repair funding. Also, as with the Amtrak section, Senate-passed H.R. 1 did not include language addressing the issue of not supplanting private insurance. P.L. 113-2 provided $10.9 billion for the Public Transportation Emergency Relief Program, $2 billion to be made available immediately and the remainder after the Federal Transit Administration publishes interim regulations for the program. Of the total, the Secretary of Transportation may transfer up to $5.383 billion to fund transportation projects to reduce the risk of damage from future disasters in the areas impacted by Hurricane Sandy. The law also is silent about the issue of not supplanting private insurance money. For repairs to Federal Aviation Administration (FAA) equipment, the President requested $30 million; Senate-passed H.R. 1 included the President's requested funding level, as did P.L. 113-2 . This funding will be drawn from the Airport and Airway Trust Fund. The President requested $308 million for highway repairs, and called for a portion of the funding requested for the Public Transportation Emergency Relief Program to be available for highway repairs in areas affected by Hurricane Sandy at the discretion of the Secretary of Transportation. P.L. 113-2 provided $2.022 billion, over six times the amount requested, and also allows a portion of the funding provided for the Public Transportation Emergency Relief Program to be available for highway (and other types of transportation) disaster mitigation projects. Senate-passed H.R. 1 would have provided $921 million for highway repair, and also allowed for funds to be made available for mitigation projects. The President requested $32 million for Amtrak, while Senate-passed H.R. 1 would have provided $336 million. Amtrak has estimated that its property damage and business interruption losses will be around $60 million; it has insurance to cover this, with a $10 million deductible, though it may be some time before the insurance claim can be settled. Amtrak has also identified $276 million in mitigation and capacity-expanding activities for rail tunnels into New York City that it would like to undertake. The President's request included language providing that federal funding should not be used to supplant insurance coverage for Amtrak's damages. Senate-passed H.R. 1 would have provided Amtrak the entire sum ($60 million for repairs and $276 million for mitigation and improvements), with no language addressing the insurance issue. P.L. 113-2 provided $32 million for repairs and $86 million for recovery and resiliency projects in the affected area, a total of $118 million, which is more than requested by the President but considerably less than would have been provided by Senate-passed H.R. 1 . Some transit agencies have proposed that, instead of using emergency relief funding to simply restore infrastructure to its pre-disaster condition by replacing equipment that may be antiquated, they take this opportunity (and funding) to install equipment that makes their systems more functional (such as, for example, increasing capacity) as well as more resilient in coping with future emergencies. The new Federal Transit Administration Emergency Relief Program may provide grantees this flexibility, as both Congress and recent administrations have provided similar flexibility for the Federal Highway Administration Emergency Relief Program. Such an approach may raise questions about how the costs of repairs that include system improvements should be allocated between the federal Emergency Relief programs and state and local governments. Housing and Urban Development61 During the last days of the 112 th Congress the President requested, and the Senate-passed version of H.R. 1 included, $17 billion in supplemental funding for HUD, all of which would have been appropriated to the Community Development Fund (CDF), the account that funds the Community Development Block Grant (CDBG) program. During the first weeks of the 113 th Congress, the House and Senate considered and passed H.R. 152 , which included $16 billion for HUD, all allocated to the CDF. The President signed the measure into law as P.L. 113-2 on January 29, 2013. While P.L. 113-2 and the Administration's request would have set aside CDBG funds for the activities of the Office of the Inspector General (OIG), P.L. 113-2 transferred $10 million for OIG activities, significantly more than the $4 million requested by the Administration. A provision in Senate-passed H.R. 1 also proposed transferring $10 million to fund OIG activities. P.L. 113-2 did not include a proposed Administration request that would have set aside $2 billion of the total CDBG disaster aid request for mitigation activities. The Senate-passed proposal also included a proposed set-aside of $2 billion for mitigation activities. Consistent with the Administration's request, P.L. 113-2 included a $10 million set aside for salaries and expenses to be used to fund technical assistance and cover the costs incurred by HUD's Office of Community Planning and Development (OCPD) in administering CDBG disaster funds. The Senate-passed bill also recommended transferring $10 million to the OCPD for such activities. P.L. 113-2 allowed HUD to distribute CDBG disaster funds appropriated under the act to the most impacted and distressed areas affected by Hurricane Sandy and other eligible disaster events occurring during calendar years 2011, 2012, and 2013. A similar provision included in Senate-passed H.R. 1 recommended setting aside a specific amount—$500 million—in CDBG disaster funds to address the unmet needs resulting from other (non-Hurricane Sandy) major disasters declared via the Stafford Act that occurred during 2011 or 2012, or for small, economically distressed areas with a disaster declared in 2011 or 2012. P.L. 113-2 included several terms and conditions that vary from the rules governing the regular CDBG program, but are consistent with language included in Senate-passed H.R. 1 . These can be grouped into three broad areas governing the submission and content of disaster plans, allocation and use of funds, and waiver authority. P.L. 113-2 : directed HUD to promulgate regulations governing the distribution and use of funds within 45 days after passage of this act, including establishing minimum allocations for CDBG grantees; required states and local government grantees to submit, and for HUD to approve, disaster plans before CDBG disaster funds may be obligated; required that a grantee's disaster plans articulate how proposed activities will support long-term recovery efforts; required HUD to certify that state and local government grantee disaster plans include adequate financial controls and procurement processes that would prevent duplication of benefits; waste, fraud, and abuse; and encourage timely expenditure of funds; and directed HUD to allocate one-third of CDBG disaster appropriations provided in the bill to states and local government grantees within 60 days after passage of the bill. P.L. 113-2 also established conditions and terms for the use of funds, including allowing grantees to use up to 5% of their CDBG disaster grant allocation for administrative expenses; prohibiting grantees from contracting out the responsibility for administering the CDBG disaster programs; requiring grantees to include performance requirements and penalties when eligible activities are undertaken through the use of contractors or procurement services; prohibiting disaster funds from being used for activities that are reimbursable by, or made available by, FEMA or the Army Corps of Engineers; requiring grantees to maintain a publicly accessible website identifying how all grant funds are used, including information on contracting and procurement processes; and holding harmless a state or community's regular CDBG allocation by ensuring that the amount of such funds awarded to grantees would not be affected by CDBG disaster-assistance allocations. P.L. 113-2 did not include two provisions that were included in Senate-passed H.R. 1 . Specifically, P.L. 113-2 did not include provisions removing the $250,000 ceiling on the amount of CDBG disaster funds that may be used to meet the non-federal cost share of a disaster-related project funded by the Army Corps of Engineers; or limiting disaster recovery assistance to for-profit entities to businesses that meet the Small Business Administration's definition of small business and to public utilities. Finally, P.L. 113-2 granted HUD broad authority to waive or establish alternative program requirements, except for provisions governing fair labor standards, fair housing, civil rights, and environmental review. However, P.L. 113-2 included two exceptions related to environmental review requirements. Specifically, it allowed CDBG disaster fund grantees who use their funding to meet certain FEMA matching requirements to adopt, without public review, environmental reviews performed by other federal agencies. In cases where a grantee has already performed an environmental review or the activity or project is excluded from an environmental review, P.L. 113-2 explicitly allowed for the expedited release of funds. The law also allowed HUD to reduce, from 70% to 50%, the percentage of funds that must be targeted to activities benefiting low and moderate income (LMI) persons, and allows HUD to reduce the LMI-targeting requirement below 50% only if the grantee can demonstrate a compelling need. Similar provisions were included in Senate-passed H.R. 1 . The President also requested legislative language for one HUD account for which funds were not sought: the tenant-based rental assistance account, which funds the Section 8 Housing Choice Voucher program. Specifically, the President requested that Congress "hold harmless" program administrators (public housing authorities, or PHAs) affected by the disaster when allocating FY2013 voucher renewal and administrative fee funding provided through the regular annual appropriations process. The President requested that disaster-affected PHAs be funded no lower than their FY2012 funding levels. P.L. 113-2 , like Senate-passed H.R. 1 , included similar language. It provided the Secretary the authority to make adjustments to PHAs' funding levels to "avoid significant adverse funding impacts that would otherwise result from the disaster," at a PHA's request and provision of supporting documentation. Additional legislative provisions in the THUD section of Senate-passed H.R. 1 would have (1) required DOT and HUD to submit implementation plans within 45 days of enactment and biannually thereafter and (2) required DOT and HUD to notify the House and Senate Committees on Appropriations not less than three full business days before the announcement that a project, state, or locality has been selected to receive a grant award totaling $500,000 or more. P.L. 113-2 included similar provisions, except that the threshold for notifying the congressional appropriations committees about individual grants was raised to $1 million. General Legislative Provisions While the Administration indicated a need for legislative language on a number of issues, no draft texts of proposed language was circulated publicly. There are four general provisions that apply to the appropriations provided in P.L. 113-2 . Three of these were generally administrative in nature, as were two of the nine included in Senate-passed H.R. 1 —provisions traditionally carried in supplemental appropriations bills with emergency funding. Internal Control Plans62 The President's request included a proposal to require the Office of Management and Budget (OMB) to direct federal agencies to submit internal control plans for the programs receiving supplemental appropriations. The President's request stated that the internal control plans should contain enhanced grant management protocols, including quarterly program and financial monitoring, timely submission of single audit reports and grants closeout, and improper payments testing and reporting. Existing statutory and regulatory provisions, and OMB guidance, already address these grants management practices, so it is unclear what enhancement of grant management protocols might entail. Additionally, the President's request did not include specific provisions for additional resources for federal agencies to implement grants oversight, such as supplemental funds for federal agency inspector general offices or an increase in the allowable management and administration percentage for individual grant programs. The Administration's request also did not identify which programs would be affected by the enhanced protocols. In the 112 th Congress, Senate-passed H.R. 1 included a provision that would have required OMB to issue guidance to federal agencies to develop internal control plans for funds provided by the bill. The bill also included funding for oversight of supplemental funding and certain management and administration activities, however the amounts were provided at the program level and not all programs received additional funding for these activities. P.L. 113-2 requires federal agencies to submit internal control plans to OMB, GAO, agency Inspectors General, and House and Senate Appropriations Committees for all supplemental funding provided therein; and directs GAO to develop the template for the internal control plans. Improper Payments The President's request did not specifically address improper payments, but included a provision to ensure the integrity of federal spending. Both P.L. 113-2 and Senate-passed H.R. 1 included a provision that designated all programs and activities funded through the legislation as "susceptible to significant improper payments" under the provisions of the Improper Payments Information Act of 2002 (IPIA). This designation requires federal agencies to estimate the annual amount of improper payments made under the program and submit the estimates to Congress annually. Additionally, for programs that have estimated improper payments that exceed $10 million, the federal agency is required to develop a report that identifies the causes and corrective actions the agency will take to reduce the improper payments. Several programs that receive funding under the bill are not currently identified as "susceptible to significant improper payments." This provision, therefore, increases the administrative burden on agencies and grant recipients. No specific appropriations to fund compliance with this provision were requested or included. Two provisions were added to Senate-passed H.R. 1 through the floor amendment process that sought to prohibit payments from funds provided in the bills. One provision would have prohibited payments to individuals who were deceased at the time funds were made available, and another would have prohibited payments to an individual or entity using funds provided under the bill if the individual or entity had a pending "seriously delinquent tax debt." In regards to the tax provision, it was unclear how agencies would have implemented this provision, as there is some question regarding federal agencies' ability to access IRS tax records to screen disaster recipients prior to providing federal disaster assistance. Neither the President's request nor P.L. 113-2 included these provisions. Trigger to De-Obligate Unexpended Grant Funding The President's request recommended the withdrawal of grant funds awarded through certain programs if funds were not expended within 24 months of the award. It was unclear exactly which federal grant programs, and what types of grant awards, were the intended objects of this proposal. Senate-passed H.R. 1 would have directed agencies to identify (for application of the trigger) grants funded through the legislation where funds should have been expended within the 24-month period following the federal agency obligation of funding. The bill would also have required the Director of OMB to issue guidance establishing the methods federal agencies would use to identify grant awards affected by the trigger. Recipients of identified grants would have had to expend funds in the 24-month period following the award. The federal agency would have had to de-obligate any funds remaining unexpended after the 24-month period. Federal agency heads could have requested a waiver of the 24-month expenditure requirement after consultation with the Director of OMB to discuss exceptional circumstances that might justify an extension. It is unclear whether the Senate provision would have required the director to approve the waiver, and what "consultation" might have entailed. Additionally, in the absence of specific language establishing a time frame for the waiver process, grant recipients could have faced uncertainty about whether they could have continued expending funds once the 24-month period had elapsed. This could have resulted in disaster recovery activities coming to a halt while federal agencies debate approval of the waiver. P.L. 113-2 contains a provision requiring grant recipients to expend funds within the 24-month period following the federal agency obligation of funds for the grant award unless the OMB Director waives the requirement. If the requirement is waived, the OMB Director must submit written justification to the House and Senate Appropriations Committees. Grant recipients that receive a waiver are required to return any funds remaining unexpended after 24 months to the awarding federal agency. Planning for and Projecting Future Vulnerabilities and Risks74 The Administration's request proposed that federal agencies work in partnership with State, local, and tribal officials to develop mutually agreed upon assessments of future risks and vulnerabilities facing the region, including extreme weather, sea level rise, and coastal flooding and incorporate these into their recovery planning and implementation. While Congress did not address these specific factors in P.L. 113-2 , the language of the request was reflected in the text of Section 1104 of Senate-passed H.R. 1 . For example, Section 1104(a) of Senate-passed H.R. 1 would have directed federal agencies, in partnership with state, tribal, and local governments to " inform plans for response, recovery, and rebuilding to reduce vulnerabilities from and build long-term resiliency to future extreme weather events, sea level rise, and coastal flooding" (italics added). Further, the provision stated that with respect to "repairing, rebuilding, or restoring infrastructure and restoring land, project sponsors shall consider, where appropriate , the increased risks and vulnerabilities associated with future extreme weather events, sea level rise and coastal flooding" (italics added). Section 1104(b) would also have made available funds under the legislation for the coordinated development of "regional projections and assessments of future risks" to help improve the plans required under 1104(a). In general, the impact of this full provision would have depended on how the relevant federal agencies interpreted and implemented the directive to inform their plans, and how recipient project sponsors interpreted and implemented the directive to consider these increased risks. It is possible, for example, that a requirement, or choice, to take into account the risks delineated in the provision could have resulted in the need for new flood hazard maps that reflect new flood insurance zones based on the future impact of extreme weather events, sea level rise, and coastal flooding; and also possibly new floodplain management standards requiring communities under the NFIP that reflect new land-use planning and construction standards in Special Flood Hazard Areas (SFHA). Also by example, in interpreting and implementing this provision, the U.S. Army Corps of Engineers could have adjusted their plans for the level of flood protection needed along the eastern seaboard.  Mitigation of Future Power Outages76 Section 1105 of Senate-passed H.R. 1 as amended would have required the Secretary of HUD, as the chair of the Hurricane Sandy Rebuilding Task Force, to issue guidelines on how recipients of federal funds for reconstruction should "to the greatest extent practicable ... maximize the utilization of technologies designed to mitigate future power outages, continue delivery of vital services and maintain the flow of power to facilities critical to public health, safety and welfare." These guidelines could have been issued in a number of ways, ranging from policy guidance to enforceable regulations. Depending on the scope of the guidelines and whether recipients were required to follow them, the guidelines could have impacted the expenditure of funds for a number of programs. For example, recipients may have been more likely to invest funds received from FEMA's Hazard Mitigation Grant Program or HUD's Community Development Block Grant program in technologies that would mitigate power outages, such as backup generators. The Administration's proposal did not specifically request this provision, but it was arguably consistent with the Administration's emphasis on using funding to mitigate future damages. No similar provision was included in P.L. 113-2 . Embassy Security78 Section 1107 of Senate passed H.R. 1 would have authorized the Department of State to transfer up to about $1 billion in Overseas Contingency Operations (OCO) funds, previously appropriated in FY2012 for operations in Iraq, for increased security at U.S. embassies and other overseas posts identified in the Department's security review after the Benghazi attack. These unobligated funds are no longer needed because of reduced operations in Iraq, according to Senator Mikulski. CBO had determined that the amendment had no outlay scoring impact, but the legislation did require the Department of State to follow congressional notification requirements prior to using the funds. P.L. 113-2 carried no such provision, and it was not included in the Administration's formal request. Appendix. Summary of the Administration's Request The Administration's proposal included $47.44 billion in funding for response and recovery, and $12.97 billion specifically for mitigation of damage from potential future storms and flooding. This division is not typical of recent supplemental requests, and does not conform to either traditional definitions of "recovery and repair" versus "mitigation" or the recent patterns for funding mitigation. Of note, there are four accounts that have funding requests for both "repair and recovery" and "mitigation," and five accounts where the request for mitigation was the only request. The Administration also requested that the mitigation portion include legislative provisions that would allow monies to be flexibly transferred between programs. In reading the mitigation portion of the Administration's request, it is useful to understand how the Administration may be defining "recovery and repair" and "mitigation." Using definitions drawn from Presidential Policy Directive 8 (PPD-8), "recovery" refers to those capabilities necessary to assist communities affected by an incident to recover effectively, including, but not limited to, rebuilding infrastructure systems; providing adequate interim and long-term housing for survivors; restoring health, social, and community services; promoting economic development; and restoring natural and cultural resources. In the same Directive, the Administration noted that "mitigation" refers to those capabilities necessary to reduce loss of life and property by lessening the impact of disasters. Mitigation capabilities include, but are not limited to, community-wide risk reduction projects; efforts to improve the resilience of critical infrastructure and key resource lifelines; risk reduction for specific vulnerabilities from natural hazards or acts of terrorism; and initiatives to reduce future risks after a disaster has occurred. If one relies on these definitions, the key difference between recovery funding and mitigation funding may be that the mitigation funding will be explicitly directed to "initiatives to reduce future risk after a disaster has occurred." However, some of the activities outlined in the Administration's proposal as "mitigation" appeared to be orientated towards "recovery and repair," and vice versa. For example, the Administration proposed $400 million in mitigation funding for the Fish and Wildlife Service's Resource Management account that would be used, among other purposes, for "restoring and enhancing natural systems on State, local and private lands." Further, the Administration's proposal for mitigation funds did not include at least one noteworthy program most traditionally linked with hazard mitigation, that being FEMA's Hazard Mitigation Grant Program (HMGP), which is funded through the Disaster Relief Fund. When Congress considered supplemental funding for Hurricane Sandy, it did not follow the Administration's format for providing a distinction between funding for "mitigation" and the funding for "repair and recovery." In Senate-passed H.R. 1 there was no distinct chapter or title that separately funded accounts for mitigation. As H.R. 152 worked its way through the House on its way to enactment, $17.1 billion was identified by the House Appropriations Committee as being for "immediate needs." An amendment provided $33 billion in additional funds, but the distinction between the "immediate needs" and other assistance was not clearly split between "repair and recovery" and "mitigation. Provisions in H.R. 152 as it passed the House included "mitigation" as part of the purpose of the funds, without separating that purpose from recovery. In another circumstance, provisions in Senate-passed H.R. 1 specifically identified subset of funds from the total appropriation to an account that may be used exclusively for "mitigation." In addition, Sections 1104 and 1105 of Senate-passed H.R. 1 , which were general provisions applying to all funds in the legislation, would have encouraged funds provided in the bill to be used in a manner that mitigates future risks. Requested funding levels are provided by appropriations account in Table A-1 , below. It provides a summary and brief analysis of the Administration's budget request. A series of columns notes the agency, bureau, and account for which appropriations were requested. The table then notes how much the Administration sought as funds needed for recovery and repair of damage, as opposed to mitigation of future disaster impacts, and a total of the two categories. The table then notes what percentage that request is of the overall total sought. Finally the table includes a quick assessment of whether the appropriation is intended to pay for damaged federal government property or provide other disaster assistance. These final categories on potential recipients are not mutually exclusive at the account level. Requests for appropriations of $10 million or less are combined in a single line for the sake of brevity—as the table indicates, these 30 items represent less than 0.2% of the total request. They can be found in the more complete accounting of the request, and the Senate legislative response to date, in Table 1 .

On January 29, 2013, the Disaster Relief Appropriations Act, 2013, a $50.5 billion package of disaster assistance largely focused on responding to Hurricane Sandy, was enacted as P.L. 113-2. In late October 2012, Hurricane Sandy impacted a wide swath of the East Coast of the United States, resulting in more than 120 deaths and the major disaster declarations for 12 states plus the District of Columbia. The Administration submitted a request to Congress on December 7, 2012, for $60.4 billion in supplemental funding and legislative provisions to address both the immediate losses and damages from Hurricane Sandy, as well as to mitigate the damage from future disasters in the impacted region. On January 15, 2013, the House of Representatives passed H.R. 152, the Disaster Relief Appropriations Act, 2013. This bill included $50.5 billion in disaster assistance. This was the third piece of disaster legislation considered by the House in the 113th Congress. H.R. 41, which passed the House and Senate on January 4, 2013 and was signed into law two days later as P.L. 113-1, provided $9.7 billion in additional borrowing authority for the National Flood Insurance Program. On January 14, the House passed H.R. 219, legislation making changes to disaster assistance programs. The rule for consideration of H.R. 152 combined the text of H.R. 219 with H.R. 152 upon its engrossment, to send them to the Senate as a single package. The Senate passed H.R. 152 unchanged on January 28, 2013 by a vote of 62-36, and it was signed into law as P.L. 113-2 the next day. H.R. 152 was not the initial legislative response to the storm. In the 112th Congress, the Senate passed a separate package of disaster assistance totaling $60.4 billion, as well as several legislative provisions reforming federal disaster programs. While appropriations legislation generally originates in the House of Representatives, the Senate chose to act on the Administration's request first by amending an existing piece of House-passed appropriations legislation—H.R. 1. This passed the Senate December 28, 2012, by a vote of 62-32. The House did not act on the legislation before the end of the 112th Congress. This report analyzes the Administration's request, the initial Senate position from the 112th Congress, and H.R. 152, the legislative package developed in the House that was ultimately enacted as Division A of P.L. 113-2. It includes information on legislative provisions as well as funding levels. The report also includes a list of CRS experts available to provide more in-depth analysis of the implications of the legislation. Division B of P.L. 113-2, which amends several disaster assistance programs managed by FEMA, is discussed separately in CRS Report R42991, Analysis of the Sandy Recovery Improvement Act of 2013.

Introduction Child poverty persists as a social and economic concern in the United States. In 2007,12.8 million children were considered poor under the official U.S. Census Bureau definition. The child poverty rate (the percent of all children considered poor) stood at 17.6%—well below the most recent high of 22% in 1993, but still well above its historic low of 13.8% in 1969. In 2007, 1.8 million more children were counted as poor than in 2000, when 15.6% of children were poor. Child poverty reflects both family circumstances in which children reside and economic conditions and opportunities in communities where children live. Family living arrangements, indicated by the presence of just one or both parents, greatly affect the chances that a child is poor. Children who are racial or ethnic minorities are at particular risk of being poor. To avoid poverty, most children need an adult breadwinner. The economic well-being of children usually depends on how well their parent(s) fares in the labor market. Children most at risk of poverty are in families without an earner. However, some are poor despite the work—even the full-time work—of a parent. They are among the working poor. Poverty affects children's life chances, their prospects of realizing their full potential, and their ability to successfully transition into adulthood. By almost any indicator, poor children fare worse than their nonpoor counterparts. Poor children are at greater risk of poor physical health, delayed cognitive development, poor academic achievement, and risky behavior (particularly among children growing up in poor neighborhoods). Poor adolescent girls are more likely to become teenage mothers than their nonpoor counterparts, contributing to a cycle of poverty from one generation to the next. While income poverty is associated with poor child outcomes, lack of income may account for only part of the reason why poor children face poor future prospects. Other factors are arguably as important, if not more so, than income, per se, in affecting children's life chances. Prolonged or deep income poverty among families with children may signal more chronic problems than merely a lack of income. Income support policies may help alleviate economic distress among such families, helping to provide families' basic needs; however, without other social supports or other, more fundamental changes in children's family circumstances, children's prospects may remain limited. Numerous programs operate in the U.S. to aid children without a breadwinner, or with one whose earnings are low. These programs, together, constitute the main threads of this nation's income/social safety net: Social insurance programs (Social Security and Unemployment Insurance-UI) provide payments for children whose parent has paid payroll taxes but is now out of the workforce. Social Security benefits are paid to children whose parent(s) is dead, disabled, or retired. Unemployment insurance benefits are paid temporarily to some workers who have lost a job (most state UI programs do not provide dependents' benefits, however). Neither program imposes an income test. Benefits are an earned entitlement. Refundable tax credits (the federal Earned Income Tax Credit, or EITC, and the child tax credit) supplement low earnings of parents. Cash welfare programs make payments to some needy children and their parents. Major welfare programs for children are Temporary Assistance for Needy Families (TANF) and, for disabled children or children with disabled parents, Supplemental Security Income (SSI). These programs impose an income test (and, usually, an assets test). TANF seeks to move parents into the labor market and requires states to condition eligibility (beyond two months) on parental work. Noncash welfare programs, such as food stamps, subsidized housing, Medicaid and the State Children's Health Insurance Program (SCHIP) provide in-kind benefits. These programs also are means-tested. Government is challenged to maintain family self-support through work-based policies to promote parents' work and family economic self-sufficiency, while at the same time maintaining a safety net that prevents children from falling into abject poverty when parents are unable to work or their efforts are insufficient. Child Poverty in 2007 In 2007, 12.8 million children out of a total of 72.8 million lived in families whose pre-tax money income that year fell short of the poverty threshold. This translates into a child poverty rate of 17.6%. As a group, children are more likely to be poor than are either the aged (persons aged 65 or older) or nonaged adults (persons 18 to 64 years old). Figure 1 compares 2007 poverty rates of children, the aged, and nonaged adults. It shows that children were 80% more likely to be poor than the aged and that the incidence of poverty among nonaged adults was only slightly higher than that of the aged. There are some well-known correlates to child poverty. A child's risk of being poor varies by family structure and size and by race/ethnicity. Further, since children primarily rely on adult workers for income, child poverty also varies by the educational attainment and age (which is related to work experience) of the family's head, and (if present) spouse. This section provides a profile of child poverty in 2007. Shown are child poverty rates by characteristics of the family, child, or family head and spouse. This perspective answers the question, among children, who are most at risk for being in poor families? This section also provides the composition of child poverty by those characteristics, answering the question who are the poor children? Child Poverty by Family Type Living arrangements of U.S. children have undergone a dramatic shift since the 1960 census. In 1960, 88 out of 100 children lived with two parents. The proportion living with two parents averaged 81% during the 1970s, 75% in the 1980s, and 70% in the 1990s. Corresponding increases were registered by children living with mother only (the family type most afflicted with money income poverty): 8% in the 1960 census; 15% during the 1970s; 20% in the 1980s, and 23% in the 1990s. The data for children living with father alone: 1% in the 1960 census, 3% on average during the 1970s and the 1980s, and 4% during the 1990s. Finally, the share of children living with neither parent averaged 3% during the 1970s and 1980s, but rose to 4% in the 1990s. Figure 2 presents data about poverty rates of children who lived in families in 2007. The bar chart presents 2007 child poverty rates by type of family. As it shows, children in married-couple families had a much lower poverty rate (8.5%) than those in single parent families headed by a woman (43.0%) or a man (21.3%). The pie chart shows the composition of the 12.8 million related poor children. Female-headed families held the majority of poor children—58.9%, or 7.5 million. Children in husband-wife families, despite their relatively low risk of poverty, comprised 34.0% of all poor children, or 4.3 million. The remaining 0.9 million poor children (7.1%) were in male-headed families (no wife present). Because of the relatively high poverty rate among children in female-headed families, much of the policy discussion about child poverty centers on this group. Therefore, much of this remaining profile provides information on the poverty rate and composition of poverty for children in single parent families as well as for all children. Among children in female-headed families, poverty rates vary by whether the single mother had ever been married (see Figure 3 ). Children with mothers who never married are about twice as likely to be poor (a 54.8% poverty rate) as children whose mothers divorced (poverty rate of 27.6%). Moreover, the number of all children in families where the single mother never married exceeds the number of children in families where the mother divorced. Thus, children in families with never-married mothers account for a large share of poor children, about half (51.3%) of all poor children in female-headed families. Child Poverty by Race and Ethnicity Children in racial and ethnic minorities tend to have higher poverty rates than white children. Figure 4 shows that in 2007, the poverty rate among African-American (non-Hispanic) children was 34.2%—3.5 times the poverty rate for white (non-Hispanic) children of 9.7%. Hispanic children had lower poverty rates than African-American children, but higher poverty rates than white children. Despite the variance in poverty rates by race and ethnicity, the populations of poor white, African-American, and Hispanic children are of similar size. The larger population of white children, when multiplied by the lower poverty rates of this group, yields a number of poor white children not too different from the number of poor children in each of the two other racial/ethnic groups. Figure 5 shows poverty rates and the composition of poor children by race and ethnicity for children in female-headed families. As in the overall child population, minority children have higher rates of poverty than do white children—the poverty rates for African-American (49.9%) and Hispanic (51.6%) children are both about 1.5 times that of white children in female-headed families (32.4%). However, African-American children comprise the largest group of poor children in female-headed families—accounting for about four out of ten poor children in female-headed families. Additionally, Hispanic children are highly likely to be in married couple families. (Not shown on the figure.) Among children in married-couple families, Hispanic children have a poverty rate (19.3%) higher than that of whites (4.7%) or African-American children (11.0%). Therefore, Hispanics account for the largest share of poor children in married-couple families (45.9%). Thus, Hispanic children in female-headed families have a slightly higher poverty rate than African-American children in female-headed families, and also have a substantially higher poverty rate than African-American children in married-couple families. However, their poverty rates among all children are lower than those for African-Americans. This is because Hispanic children are more likely than African-American children to be in married-couple families, and children in married-couple families have lower poverty rates than children in female-headed families. Child Poverty by Annual Work Experience of the Family Head or Spouse If a family has no earnings, a child is almost certain to be poor. The poverty rate in 2007 for children without a working parent (or spouse of the family head) was 70.0% (bar chart in Figure 7 ). However, millions of children are poor even though the family head (or spouse) works full time, year round. In 2007, about seven out of 100 children with such a worker were poor. The number of these children totaled 4.2 million, and they accounted for 32.4% of all poor children (pie chart in Figure 7 ). Most children (77.4%, not shown on the chart) live in families where either the head or, if present, the spouse is a full-time, full-year worker. Hence, these children account for a relatively large share of all poor children even though their poverty rate is low. The bar chart shows that the incidence of poverty is 35.1% among children in families with a parent who works full-time part-year and 40.0% among those in which a parent works part-time, full-year. The relationships between work experience for family adults over the year and child poverty also hold for children in female-headed families (though these families are without a potential spouse to supplement the work of the family head). Among children in female-headed families where the head works full-time, year-round, 18.7% were poor (bar chart in Figure 8 ). Of children in single, female-headed families without an earner, 76.2% were poor. The pie chart in Figure 8 depicts the composition of all poor children in female-headed families. Of these children, 20.5%—totaling 1.5 million children—lived in families where the mother was a full-time worker, year round. However, the pie chart also shows that 42.9% of all poor children in these families had a mother who did not work during the year. Though work among lone mothers has increased dramatically in recent years (discussed later in this report), 24.2% of all children in female-headed families had a mother who did not work. In comparison, only about 2.6% of all children in married-couple families had neither adult heading the family in the workforce. Child Poverty by Educational Credential of the Family Head or Spouse From 1960 to 2007, the share of the population (at least 25 years old) with a high school diploma (or more) has more than doubled, from 41.1% to 85.7%. In the same period the share with 4 or more years of a college education more than tripled, from 7.7% to 28.7%. The returns to education have also increased over time, as the average wages of those with a college degree have increased relative to the average wages of those without such a degree. Increasingly, job applicants must have postsecondary credentials. By some measures, high school graduates and those who failed to complete high school have seen declining real wages. Thus, child poverty rates depend in part on the educational level of the family head (or spouse). In 2007, almost half (49.6%) of children whose family head had not completed high school were poor. This group made up one-third of all poor children (see Figure 9 ). Children whose family head (or the family head's spouse) had completed high school, but not gone beyond it, had a poverty rate of 27.3% and represented 37.2% of all poor children. If the family head or family head's spouse achieved an associates degree, the child poverty rate was sharply lower (9.7%) than that of one with some postsecondary education, but no degree (16.0%). In 2007, more than two out of three children (68.3%) in families headed by a mother who failed to complete high school were poor (see Figure 10 ). This group represented 33.6% of all poor children in female-headed families. Attainment of a high school diploma reduced the child poverty rate, but it still was almost one-half (49.2%). As with the overall child population, poverty rates were much lower when the female head earned a college degree. Children in families where the female head received an associates degree had a poverty rate of 24.6%, compared with 35.5% for those who had some post-secondary education but no degree. Poverty rates were relatively low (13.9%) for children with female heads who had a bachelors degree or an advanced degree. Child Poverty by the Age of the Head or Spouse Child poverty rates are highest in young families with children. The poverty rate for preschool children (children under the age of six) was 20.8% in 2007, compared with a 16.0% poverty rate for older children. This is because, in part, these children have on average younger parents. Younger parents, who have less job experience in the workforce, tend to earn less than older adults with more experience. Figure 11 shows the child poverty rate by the age of the household head or spouse if present. For married-couple families, the age of the older adult was used to determine the age of the head or spouse. It shows that child poverty rates tend to mirror the "life-cycle" pattern of earnings of adults. That is, earnings tend to be low in the early years, peak in middle age, and decline as adults approach and reach retirement age. This explains some of the pattern shown on the figure. However, children in families with a never-married female head (the group with the highest poverty rate) also tend to be in families where the head was young. Children in families with the head or spouse under age 25 have the highest poverty rates, almost 50%. For children in families with a head or spouse aged 30 to 34, the poverty rate drops to 22.4%. Among poor children, 45% are in families with the head and spouse younger than age 35. Child poverty rates drop below the average rate for all children (17.6%) for age groupings with the head or spouse over 35 and younger than age 64, but are about the same as the overall rate for children in families with a head or spouse age 65 and older. The basic relationships between child poverty and age of the family's adults shown in Figure 11 also tend to hold for children in female-headed families: the highest poverty rates are for children with younger parents. (No figure is shown.) However, poverty rates for children in female-headed families are higher than for all related children for all age categories of the family head. Child Poverty by Immigrant Status of the Family Head or Spouse Figure 12 shows that slightly more than one out of every four poor children is the child of a parent born outside the United States. The poverty rate for these children in 2007 was 26.8%, compared with a rate of 15.7% for children whose family head or spouse was native born. Any children born in the United States are citizens, regardless of their parents' citizenship status. Trends in Child Poverty Children have been more likely than any other age group in the U.S. to be poor since 1974, when their poverty rate first topped that of the aged. In records dating back to 1959, the incidence of poverty among related children in families has ranged from a peak of 26.9% (1959) to a low of 13.8% (1969). (See Figure 13 ). In 2007, the rate was 17.6%. Child poverty rates display both cyclical and longer term trends. Except for the 1961-1962 recession, child poverty rates rose during economic slumps, peaking in the year or two after the end of the recession. During the years covered by Figure 13 , the poverty rate for the aged (not shown) fell from 35.2% in 1959 to 9.7% in 2007. Trends in Child Poverty Rates, by Type of Family Figure 14 shows poverty rates of related children, by family type, from 1959-2007. Poverty rates for children in female-headed families have been higher than those for children in male-present (married couple or families with a male-head but no spouse) since poverty data have been recorded. The figure shows that poverty rates for both female-headed families and male-present families fell in the early period (1960s). Since then, much of the variation in poverty rates among children in male-present families has been cyclical. Poverty rates for children in female-headed families show little cyclical variation in the first three recessions shown (1961, 1970-1971, 1974-1975). However, by the 1982-1983 recession, poverty rates for children in female-headed families do begin to exhibit cyclical increases and decreases, likely attributable to increased labor force participation of women. Poverty rates for children in female-headed families also show pronounced secular (noncyclical) patterns. Rates during the entire economic expansion of the 1980s were higher than in the mid- and late-1970s, coincident with the increase in the number of children of never-married mothers, who have high poverty rates compared to children in other types of female-headed families. From the mid-1990s to 2000, in the wake of the 1996 welfare reform law, the drop in the poverty rate was more pronounced for children in families headed by a lone mother than for children in families with a male present. However, the increase in the poverty rate for children in single parent families from 2000 to 2007 was also more pronounced than the increase in the rate shown for children in families with a male present. Trends in the Number and Composition of Poor Children In 1959, the first year of official poverty data, 17.2 million children were counted as poor (see Figure 15 ). The poor child population declined through most of the 1960s and hovered around 10 million during the 1970s (with an all-time low of 9.5 million in 1973). During the 1980s the peak number was 13.4 million (1983); and during the 1990s, 15 million (1993). It rose in 2004 to 12.5 million. Since 1970, the number of poor children has fluctuated because of both the economy and demographic trends. The number of related children under 18 fell from 70 million in 1968 to 62 million in 1978. The number of related children began to rise again in 1988, reaching 72.8 million in 2007. Figure 15 shows the number of poor children from 1959 to 2007 by family type. It shows both the variation in the number of poor children, and its changing composition. In 1959, most poor children and most children lived in married-couple families. Since 1972, the majority of poor children have been in female-headed families. The historical trend toward an increased prevalence of children living in female-headed families has resulted in higher overall child poverty rates than would have otherwise been the case had children's living arrangements been unchanged over the past several decades. In order to approximate the effects of historical changes in living arrangements on the overall child poverty rate, we estimate overall child poverty rates based on the relative composition of children by family type that existed in 1960, while maintaining historically observed child poverty rates by family type. Effectively, the adjusted poverty rates present a crude approximation of what the overall child poverty rate might have been had family composition remained unchanged from its 1960 level. Figure 16 shows the effects of these adjustments. The top line of the figure shows historical child poverty rates, whereas the bottom line shows the overall adjusted child poverty rate had child family living arrangements been the same as those observed in 1960. The figure shows, for example, that in 2007 the child poverty rate was 17.6%, but had family composition in 2007 been the same as in 1960, the overall adjusted child poverty rate would have been 12.6%; instead of the observed 12.8 million children being counted as poor in 2007 had family composition remained unchanged from 1960, the number of poor children estimated by this method would have been 9.2 million, or 3.6 million fewer than the number observed. Rise in Work by Lone Mothers Dramatic gains have occurred in recent years in work by lone mothers—especially among those with preschool age children. Employment rates of single mothers with infants or toddlers (under age 3) increased markedly from 1993 through 2000, rising from 35.1% to 59.1% over the period (see Figure 17 ). In 2000 their rate of employment overtook that of their married counterparts—in earlier years these single mothers' rate of employment had lagged behind their married counterparts by as much as 18 percentage points. Similarly, single mothers with somewhat older preschool age children (age 3 to 5) also experienced significant employment gains over most of the 1990s. Among these women, their employment rate rose from 54.1% in 1992, to 72.7% in 2000, overtaking their married counterparts in 1999. Employment rates among single mothers have yet to rebound to the peak levels attained prior to the last economic (2001) recession, marked as beginning in March 2001 and ending in November of that year. Factors encouraging work by single mothers include a healthy economy during much of the 1990s, the transformation of the family cash welfare program into a work-conditioned and time-limited operation, increases in the EITC and increases in the federal minimum wage. TANF—and preceding state-waivered programs of Aid to Families with Dependent Children (AFDC)—converted cash assistance from a needs-based entitlement to a program of temporary help aimed at promoting work and personal responsibility. Under the TANF block grant, most states reward work by permitting recipients to add to their benefits some (or all) of their earnings, at least for a time. And most states have increased sanctions for failure to perform required work. Increases in the EITC, passed by Congress in 1993 and phased in between 1994 and 1996, have increased the financial incentive for single mothers to work. Other factors, such as increased funding for child care subsidies, may also have contributed to making work possible for more single mothers. For more details about trends in welfare, work, and the economic well-being of lone-mother families with children, see CRS Report RL30797, Trends in Welfare, Work, and the Economic Well-Being of Female-Headed Families with Children: 1987-2006 , by [author name scrubbed] (pdf). How Many Single Mothers Are Poor Despite Working? Figure 18 shows the trend in the distribution of annual hours worked by poor lone-mothers from 1987 to 2007. The figure shows, for example, that poor lone-mothers increased their job attachment during these years, based on annual hours of work. The picture of hours worked mirrors the employment rate numbers depicted earlier, in Figure 17 . Hours worked among poor lone-mothers increased over the same period in which their employment rates were increasing. Lone-mothers are not only more likely to be working in the later years than in earlier years, but are likely to be working more hours. For example, in 1995, half of all poor lone mothers did not work, as indicated by the median number of hours worked (i.e., estimated hours worked was zero at the 50 th percentile). By 1999 and 2000, half of all poor single mothers (the 50 th percentile) were working nearly 480 hours per year or more, and in 2000 20% (80 th percentile) were working 1,760 or more hours. The figure shows the decline in hours worked from 2000 to 2005, for all but the top 10% of poor working mothers (90 th percentile), probably reflecting the effects of the past (2001) recession on poor mothers' work attachment. Annual hours worked have increased somewhat since 2005 but are still below their 2000 peak. Overall, among all types of families with related children, Census Bureau data show that the incidence of "full-time work poverty" increased somewhat from 1987 to 2007. Full-time full-year workers are considered to have worked 35 or more hours per week for 50 or more weeks during the year. Among all children, the rate at which at least one of their parents were full-time, full-year workers increased from 71.8% in 1987 to 79.8% in 2000, and stood at 77.4% in 2007 (see Table 1 ). The decline since 2000 was due, at least in part, to the 2001 recession and unemployment in its aftermath. Tracking this trend, the percent of poor children in families where one parent was a full-time, year-round worker rose from 19.6% of poor children in 1987 to 35.4% of poor children in 2000, before falling to 30% in 2003. It stood at 32.4% in 2007. The share of children in families with lone mothers who worked full-time year-round also increased fairly sharply, from 8.3% in 1987 to 21.6% in 2000, falling to 16.6% in 2003, before rising again to 20.4% in 2007. Government "Safety Net" Policy The framework for federal cash income support policy can be found in the Social Security Act and the Internal Revenue Code. A two-tier safety net was put into place in the 1935 Act. The first tier, consisting of Old-Age Insurance (usually thought of as social security) (Title II) and unemployment insurance (Title III) aimed to protect families from the economic risks associated with the retirement or unemployment of their workers. Workers earned rights to these social insurance benefits by paying payroll taxes in a covered job. The second tier made grants to states to help make means-tested payments to specified categories of needy persons not expected to work, namely, the aged (Title I), children (with only one able-bodied parent in the home) (Title IV), and the blind (Title X). Added to the social insurance tier over time were Survivors' Insurance (1939 Social Security Act Amendments), Disability Insurance (1956 Amendments), and Medicare (1965 Amendments) health insurance for the elderly. Added to the welfare tier over time was aid for needy persons who were permanently and totally disabled (1952), replaced in 1972 by a 100% federal cash program for the aged, blind, and disabled called SSI. Health insurance for low-income aged, blind, and disabled persons and for needy families with children was added in the form of the Medicaid program (1965 Amendments). Health insurance for low-income children ineligible for Medicaid was added by enactment of the State Children's Health Insurance Program (SCHIP) (Balanced Budget Act of 1997). Also, the cash welfare program for needy children was opened up to some unemployed two-parent families (1961) and, finally (1996) was replaced by a block grant for temporary assistance. The social insurance programs are designed to provide benefits when a family loses earnings because its breadwinner is permanently or temporarily out of the labor market (through death, disability, unemployment). At the outset the welfare programs were restricted to persons not expected to work, but over time, work requirements have been added to the cash welfare program for families with children, and it now emphasizes moving families from welfare to work. In 1975, Congress enacted a program to explicitly support and supplement the income of working poor parents—the EITC. This provision of the tax code makes payments from the Treasury to parents whose credit exceeds any income tax liability. In tax year 2005, the EITC was claimed by 22.8 million tax filers, with credits totaling $42.4 billion. In addition, child care subsidies have been expanded for families receiving cash welfare by the Family Support Act of 1988, the Omnibus Budget Reconciliation Act of 1990, which created child care programs for the working poor, and the 1996 welfare reform law, which consolidated child care funding. FY2008 appropriations for child care totaled $5 billion ($2.9 billion for the mandatory child care block grant and $2.1 billion for the discretionary Child Care and Development Block Grant). Finally, the federal child support enforcement program (begun in 1975) has shifted its role from reimbursing federal and state governments for welfare costs to facilitating income transfers to families with children where one parent (usually the father) is noncustodial. The increased role of child support is particularly important in light of the growth of female-headed families. In FY2006, child support enforcement offices collected $24 billion: $0.9 billion for TANF cash welfare families, $9.5 billion for former TANF cash welfare families, $3.1 billion for families receiving Medicaid (and no TANF), and $11.3 billion for families that never received TANF cash welfare. Social Security As noted above, the Social Security Act established an old-age insurance system for workers; and later, social security was enlarged to cover dependents and survivors of retired or disabled workers. With these additions, social security became a system of comprehensive insurance for all families with a worker who paid social security payroll taxes. If the family breadwinner died or became disabled, social security would provide cash for his dependents and survivors. It was widely hoped that coverage by work-related social insurance eventually would eliminate most need for cash relief to families who lost their breadwinner. In September 2008, there were 50.6 million social security recipients, of which 3.1 million were children. This means the federal government makes social security payments to about 4% of U.S. children. Total benefits to children totaled nearly $1.5 billion in that month, a rate of $17.5 billion per year. In addition, some adult social security beneficiaries are in families with children, so that this program reaches an even greater proportion of the child population. Unemployment Insurance The Social Security Act also established the federal-state unemployment insurance (UI) program. This program provides temporary unemployment benefits to workers who are unemployed through no fault of their own, provided they have earned a state-determined sum of wages during an established base period, usually the first quarter of the last five completed calendar quarters, and are available for work. Historically there has been concern that UI eligibility rules present barriers to low-wage workers with unstable work histories. To what extent might unemployment benefits be available for former welfare recipients who lose a job? Studies of former cash recipients in a number of states conclude that most recipients who leave welfare for work have sufficient earnings to qualify for UI at some point after leaving welfare. However, having sufficient earnings is only one of the qualifying conditions for receiving UI upon losing a job. The job loss must be considered as occurring through no fault of the potential recipient, a definition that varies among the states. A study of welfare leavers in New Jersey, considered a fairly liberal state with respect to UI eligibility rules, found that as many as 60% of those with monetary eligibility might have been disqualified for other reasons—especially the high rates of voluntarily quitting a job. It found that about half of the job quitters did so for a personal reason, such as a health problem, having to care for a child at home, or a transportation issue. Advocates of broadening UI rules to qualify more low-wage workers have recommended that states permit job quits for "good reason." Cash Public Assistance for Children Before passage of the Social Security Act in 1935, some states offered "mothers' pensions" so that needy mothers could stay home to raise their children. This aid was largely restricted to "paternal orphans," children whose father had died. In response to the Great Depression, the Social Security Act provided federal funds to enable states to help certain needy groups, including children whose second parent was dead, incapacitated, or continually absent from home—Aid to Dependent Children (ADC). The original purpose of AFDC was to help states enable needy mothers to be full-time caregivers at home. Thus, it had no expectation of mothers' work and no requirement for it. In fact, the law penalized work by requiring states to reduce benefits by the full amount of any earnings (including those spent on work expenses). However, this changed over the years. Gradually the assumption that AFDC mothers belonged at home faded as more and more nonwelfare mothers went to work and as rising numbers of unwed mothers joined AFDC, altering the character of the caseload. Since the early 1960s, Congress has tried to promote work and self-support of welfare families by means of work requirements, financial incentives, and various services. The first work rule (1961) applied to unemployed fathers (a group that Congress admitted to AFDC—at state option—that year). The rule required states to condition AFDC for Unemployed Fathers (AFDC-UF) on acceptance of work. In 1967, Congress established a Work Incentive Program (WIN) for AFDC families and required states to assign "appropriate" persons to this education and training program. The 1967 law required states to give AFDC parents who went to work a financial reward: disregard of some earnings when calculating benefits. In 1971, Congress removed from states the discretion to decide who must work or train. Instead, it specified that states must assign to WIN all able-bodied custodial parents except those with a preschool child, under age six. In the Family Support Act of 1988, Congress lowered the young child age threshold for work exemption. It required states to assign to a new Jobs and Basic Skills (JOBS) Training program for AFDC families all able-bodied custodial parents except those with a child under age three (under age one, at state option). However, the law required states to "guarantee" child care for children below age six. Finally, in 1996, Congress replaced AFDC with the TANF block grant. TANF law requires states to engage certain percentages of adult recipients in specified "work activities." The law exempts no one from work participation, but it permits states to exempt a single parent caring for a child under age one (and to exclude that parent in calculating the state's work participation rate). In addition, the law bars a state from penalizing a single parent with a child under age six for failure to engage in required work if the person cannot obtain needed child care because appropriate care is unavailable (or available care is unsuitable). States decide individual participation rules. In June 2008, 3.0 million children were in families that received cash benefits from TANF programs or separate state-funded (TANF) programs. This is down from a historic peak of 9.6 million children in families receiving cash benefits from AFDC in 1994. In FY2006, federal and state spending on cash welfare benefits totaled $9.9 billion—a little less than half the amount spent on cash welfare by the federal government and states back in the mid-1990s. Money Income Poverty Rates of Children, by Income Source Although there are numerous government "safety net" programs that aid families with children, the chief component of money income for most families with children is earnings. The first bars in Figures 19 and 20 show what child poverty rates in 2007 would have been if families had no cash income other than earnings. The rates would have been 21.8% for all related children and 52.4% for related children in female-headed families. The last bars show the official money income poverty rates, 17.6% for all related children and 43.0% for children being raised by the mother alone. In succession, the intervening bars show the poverty-reducing contributions of (1) cash from other family effort (property income, private pensions, child support and alimony), and (2) government cash transfers (social insurance, other cash benefits, and cash welfare). In general, the official poverty rates are about 20% lower than market income (earnings only) poverty rates. Figures 19 and 20 show only sources of pre-tax money income (income counted in determining official poverty rates). They exclude noncash aid and tax benefits. Conclusion This report examined both the role of work and the role of government income supports as factors affecting the official child poverty rate. Work is the principal means by which families with children support themselves. Child poverty rates are correlated with factors associated with wage rates, such as parent(s)' educational attainment and work experience; the amount of work done during the year; and family type, which affects the likelihood that a family will have a second earner. Without family earnings, a child is almost certain to be poor. However, earnings alone often fail to overcome poverty. In 2006, one-third of all poor children lived with at least one adult who was a full-time, full-year worker. The economy has many jobs that pay low wages. Parents in such jobs may escape poverty only through job advancement that results in higher wages, possibly only by upgrading skills and education while working. Often, it takes work of both parents to move their children and families out of poverty. This often comes at the cost of arranging child care to permit both parents to work outside of the home. Additionally, work is not always steady, with some parents experiencing spells of joblessness for part of the year. Access to the first tier of the "safety net," social insurance, is restricted to families with a current or previous wage earner. Social insurance benefits are established through work, and are characterized as earned rights. Although these programs are not targeted to the poor per se, these programs—which partially replace earnings because of the death, old age, disability or involuntary unemployment of a worker—have a significant impact on reducing poverty among families with children. Over the past 20 years, the social insurance tier of the safety net has remained relatively static. The protections of its cash benefit programs have generally been maintained. However, the social insurance tier has not been revised to take into account changes in the economy, family structure, and work patterns of parents. In contrast, the second tier of the "safety net," programs targeted to low-income families and persons, has undergone a radical transformation over the past 20 years. Cash welfare for needy families with children has increasingly been tied to a philosophy of mutual obligations—adult recipients have been expected to engage in either work or activities to move them into work. In the wake of welfare reforms made at the federal and state levels in the mid-1990s, the cash welfare rolls plummeted, so that children in families receiving cash assistance represent a small and decreasing share of both the overall and poverty child populations. Need-tested assistance increasingly is paid to families only in the form of noncash benefits (Medicaid and food stamps) whose value is not reflected in the official child poverty statistics. These programs cast an uneven net of basic support to families. Moreover, when parents receiving need-tested benefits go to work, benefits are often significantly reduced as earnings increase, at times creating a perverse disincentive to work. For many families with limited earnings capacity, the route toward self-sufficiency can be a steep climb, yielding only small economic gain for additional work effort. Along with the transformation of need-tested benefits have come expansions of refundable tax credits for families with children, particularly the Earned Income Tax Credit (EITC). As a work support, the EITC helps offset the financial disincentives relating to work that poor families have traditionally faced under welfare programs. For some families with very low earnings, the EITC may supplement up to 40 cents on every dollar a parent earns. EITC payments (either advance payments, tax refunds, or reductions in tax liabilities that would otherwise be owed) are not included in the official poverty statistics. However, for a single parent with two children, who works full-time, all year at the 2006 federal minimum wage, those earnings combined with food stamps and the EITC are sufficient to lift that family to just above the poverty threshold. Thus, recent changes to taxes and benefits targeted to low-income families have sought to increase the rewards to work. However, the world of work does not guarantee steady income. Working parents face risks to financially supporting their children, stemming from job loss associated with either cyclical or structural changes in the economy or interrupted periods of work because of their own or a family members' illness. Moreover, there remain a small but not insignificant group of families with children where no parent has an attachment to the labor force. This creates a series of policy dilemmas which include how to balance protections against economic risk while maintaining a policy that rewards work, and helping children in those families without a worker without undermining the efforts of working parents. Appendix. Support Tables to Selected Figures in This Report

Child poverty persists as a social and economic concern in the United States. In 2007 12.8 million children (17.6% all children) were considered poor under the official U.S. definition. In records dating back to 1959, the incidence of poverty among related children in families has ranged from a peak of 26.9% in 1959 to a low of 13.8% in 1969. Poverty affects a child's life chances; by almost any indicator, poor children fare worse than their nonpoor counterparts. Family living arrangements, indicated by the presence of just one or both parents, greatly affect the chances that a child is poor. In 2007, 43.0% of children in female-headed families were poor, compared to 8.5% of children in married-couple families. In that year, 24% of children were living in female-headed families, more than double the share who lived in such families when the overall child poverty rate was at its historical low (1969). Children who are racial or ethnic minorities are at particular risk of being poor. In 2007, a little more than one-third of black children (34.2%) and almost three out of ten Hispanic children (28.3%) were poor, compared to about one in ten white non-Hispanic children (9.7%). Work is the principal means by which families with children support themselves. Without family earnings, a child is almost certain to be poor. However, earnings often fail to overcome poverty. In 2007, about one-third (32.4%) of all poor children lived with at least one adult who was a full-time, full-year worker; another one-third were in families with a worker who either worked part-year or (less likely) part-time; another third lived in families without an adult who worked during the year. Higher child poverty rates were observed for those whose parents had less, rather than more, education. Children of younger parents, with less potential time and experience in the workforce, were more likely to be poor than children of older parents. Additionally, dramatic gains have occurred in recent years in work by lone mothers—especially among those with preschool children. Employment rates of single mothers with children under age 3 rose from 35.1% in March 1993 to 59.1% in March 2000, but have since remained below their 2000 level, standing at 54.5% in March 2008. Nonetheless, many of these working single mothers (and their children) remained poor. The social safety net for children consists of (1) earnings-based social insurance programs and (2) need-based transfers of cash and noncash benefits. Need-tested benefits have undergone a radical transformation during the past 20 years, capped by the 1996 welfare reform law. Cash welfare caseloads have plummeted since the reforms of the mid-1990s, so that many families receiving need-tested aid only receive noncash benefits (e.g., Medicaid and food stamps) whose value is not reflected in official poverty statistics. Further, the welfare reforms of the mid-1990s were accompanied by expansions of the Earned Income Tax Credit (EITC), which supplements the earnings of low-income families with children. (The value of the EITC is also not considered in official poverty statistics.) The result has been to curtail benefit availability for nonworking families while raising the returns to work. This report will be updated annually, when new Census Bureau data are released.

Background In 1971, Jack Gross began working for FBL Financial Group, Inc. as a claims adjustor. In 2003, after several promotions, Gross was reassigned to a new position, while some of his job responsibilities were transferred to a newly created position that was given to a younger employee. Believing his reassignment to be a demotion, Gross sued his employer, claiming the company had intentionally discriminated against him on the basis of age. Although FBL denied that its decision was based on age, the company argued that even if it had considered age, its reassignment of Gross was based on other reasons that were lawful. At trial, the district court instructed the jury that if Gross proved by a preponderance of the evidence—direct or circumstantial—that age was a "motivating factor" in the company's decision to demote him, then the burden of persuasion would shift to FBL to prove it would have taken the same action even if the company had not considered Gross's age. Finding for Gross, the jury awarded him $46,945 in lost compensation. FBL, however, challenged the district court's jury instruction, and the Court of Appeals for the Eight Circuit reversed. In its decision, the Court of Appeals for the Eighth Circuit held that the jury instructions were flawed and that the precedent established by the Supreme Court's decision in Price Waterhouse v. Hopkins allows "a shift in the burden of persuasion only upon a demonstration by direct evidence that an illegitimate factor played a substantial role in an adverse employment decision." The Supreme Court granted review in order to determine "whether a plaintiff must present direct evidence of discrimination in order to obtain a mixed-motive instruction in a non-Title VII discrimination case," or whether the burden of proof in a mixed-motive ADEA case shifts to the employer regardless of whether the evidence of bias presented by the employee is direct or circumstantial. Disparate Treatment and Mixed-Motive Claims When bringing a civil case alleging employment discrimination, there are two types of claims that a plaintiff can make: disparate treatment and disparate impact. Disparate treatment, which was at issue in Gross , occurs when an employer intentionally discriminates against an employee or enacts a policy with the intent to treat or affect the employee differently from others because of the employee's age. Such disparate treatment claims require proof that the employer intended to discriminate against the complaining party when it took the challenged employment action. Intent, the critical element of a disparate treatment claim, may be shown directly (e.g., by discriminatory statements or behavior of a supervisor towards a subordinate) or, perhaps more likely, by circumstantial evidence. Over the years, the courts have developed a complicated set of rules and procedures that govern how disparate treatment claims are adjudicated. Many of the cases in which these rules have emerged are cases involving Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment "because of ... race, color, religion, sex, or national origin." Since the ADEA is largely patterned on Title VII, the reasoning in these cases frequently applies in the ADEA context as well. In general, plaintiffs may establish their individual disparate treatment claims under the ADEA in one of two ways, sometimes referred to as the indirect method and the direct method. When evidence of discrimination is lacking, plaintiffs generally use an indirect method that involves the burden-shifting framework established by the Supreme Court in McDonnell Douglas v. Green and Texas Dept. of Community Affairs v. Burdine . When the plaintiff can directly present evidence of age discrimination, use of the McDonnell Douglas burden-shifting model is unnecessary, and the plaintiff can usually present either direct or circumstantial evidence that would enable a jury to conclude that discrimination occurred. Much of the confusion regarding the types of evidence plaintiffs are required to produce in mixed-motive cases, which are a variation on disparate treatment cases, can be traced to the Court's opinion in Price Waterhouse v. Hopkins . Prior to the decision, it was unclear whether Title VII prohibited employment actions that were partly based on discriminatory reasons or whether the statute only covered actions that were wholly motivated by discrimination. In Price Waterhouse , the Court addressed these so-called "mixed-motive" cases and held, in part, that once a "plaintiff shows that an impermissible motive played a motivating part in an adverse employment decision," the burden shifts to the employer "to show that it would have made the same decision in the absence of the unlawful motive." This is the framework that currently applies to Title VII mixed-motive claims. However, the Court also held that employers could avoid liability if they made this showing. Subsequently, Congress enacted the Civil Rights Act of 1991, which formally established mixed-motive claims under Title VII by clarifying that "an unlawful employment practice is established when the complaining party demonstrates that race, color, religion, sex, or national origin was a motivating factor for any employment practice, even though other factors also motivated the practice." The 1991 amendments also partially overruled Price Waterhouse by altering the rules regarding employer liability in mixed-motive cases. Despite making these amendments to Title VII, Congress did not add similar language to the ADEA recognizing mixed-motive claims, nor did Congress address another apparent holding of the divided Price Waterhouse Court, as expressed in Justice O'Connor's concurring opinion, that plaintiffs must present "direct evidence" of discrimination in order to pursue a mixed-motive claim. Further adding to the confusion, the Court later held in Desert Palace, Inc. v. Costa that plaintiffs are not required to present direct evidence of discrimination in order to obtain a mixed-motive jury instruction under Title VII. Ultimately, the Court granted review in Gross in order to determine what types of evidence plaintiffs were required to present in order to receive a burden-shifting jury instruction in an ADEA mixed-motive case. Citing Desert Palace , Gross argued that plaintiffs in mixed-motive cases should be entitled to present both circumstantial and direct evidence. Rather than focusing on the question presented, FBL argued that Price Waterhouse should be overruled and that the burden of proof in ADEA mixed-motive cases should fall on the employee. In a highly unusual move, the Court's ruling focused on the issue raised in FBL's merit brief rather than on the question presented, thus meaning that interested parties were not given a full opportunity to address the issue in the briefs they submitted to the Court. The Supreme Court's Decision In Gross , the Court ultimately ruled 5-4 in favor of FBL. According to the Court, the ADEA does not authorize the type of mixed-motive claims that are available under Title VII. As a result, even though an employee may still bring a claim whenever an employer has mixed motives for the adverse employment action, the Court held that an employee must show that "age was the 'but-for' cause of the challenged adverse employment action." Because the Court found that the burden never shifts to an employer in such a case, there was no reason to determine what types of evidence a plaintiff must present in order to receive a burden-shifting jury instruction, thus rendering moot the question presented. In contrast to the Court's decision, the appellate courts that had previously considered the issue had unanimously applied the Price Waterhouse mixed-motive framework to the ADEA. In reaching its decision, the Court focused on the textual differences between Title VII and the ADEA. Unlike Title VII, the ADEA does not contain a provision allowing a plaintiff to establish discrimination by showing that age was a motivating factor. Indeed, the Court found it significant that Congress amended Title VII to add such a provision but did not choose to make a corresponding change to the ADEA. As a result, the Court held that because "Title VII is materially different with respect to the relevant burden of persuasion," the Price Waterhouse burden-shifting framework, in which an employer bears the burden of proof once an employee establishes that his membership in a protected class played a motivating part in an employment decision, does not apply to ADEA claims. Turning to the language of the ADEA, the Court examined the statutory text and determined that the ADEA does not authorize the traditional type of mixed-motive claim available under Title VII. Instead, the ADEA prohibits an employer from taking an adverse employment action against an individual "because of such individual's age." Reasoning that "because of" age must mean that age is the reason behind the employer's action, the Court concluded that an employee seeking to establish a disparate treatment claim under the ADEA must establish that age is the "but-for" cause of the employer's action. Thus, the plaintiff, not the employer, bears the burden of persuasion. According to the Court: Hence, the burden of persuasion necessary to establish employer liability is the same in alleged mixed-motive cases as in any other ADEA disparate-treatment action. A plaintiff must prove by a preponderance of the evidence (which may be direct or circumstantial), that age was the "but-for" cause of the challenged employer decision. In other words, employees can still bring mixed-motive ADEA claims in the sense that they can sue if an employer cites both permissible and impermissible reasons for their actions. However, now the employee has to prove that the impermissible reason—age—was the decisive factor, whereas under traditional Title VII mixed-motive claims, an employee must simply demonstrate that the impermissible reason was only one of several motivating factors, at which point the burden shifts to the employer to prove it would have made the same decision in the absence of the discriminatory motive. Based on its decision, the Court remanded the case for a new trial. Meanwhile, two separate dissents were filed in the Gross case. In the first dissent, Justice Stevens argued that the "because of" age language in the ADEA should be interpreted to prohibit employment actions motivated either in whole or in part by age. Specifically, the dissenting opinion noted that prior to the 1991 amendments that added the "motivating factor" language to Title VII, the Court in Price Waterhouse had interpreted identical "because of" language in that statute to encompass claims based on both permissible and impermissible reasons and should therefore apply the same interpretation to the ADEA. Moreover, Justice Stevens was highly critical of the Court's decision to issue an opinion based on a question that had not been presented or briefed by the parties. Therefore, he would have based his decision on the question presented and would have held that a plaintiff was not required to present direct evidence of age discrimination in order to obtain a mixed-motive jury instruction. In the second dissent, Justice Breyer, who also joined the first dissenting opinion, wrote separately to highlight potential problems with extrapolating a "but-for" causation standard from tort law and applying that standard to the discrimination context. Effect of the Decision Ultimately, the Gross decision makes it harder for an employee to successfully prove an ADEA claim whenever an employer has both legitimate and illegitimate reasons for an employment action. There are two primary reasons for this. First, the new "but-for" causation standard established in Gross means that an employee now has to show that age was the deciding factor in an employment decision, not just one of several motivating factors. Second, after Gross , the employee always retains the burden of persuasion with respect to proving discrimination because the burden no longer shifts to the employer to prove that nondiscriminatory motives led to the employment decision, as it does under the Price Waterhouse burden-shifting mixed-motive framework that exists for Title VII. It is also important to note that the Gross decision could potentially affect claims brought under statutes other than the ADEA. For example, several other employment discrimination statutes are patterned on Title VII, including the Americans with Disabilities Act and the Rehabilitation Act of 1973. Like the ADEA, these two statutes, which, among other things, prohibit employment discrimination on the basis of disability, were not amended as Title VII was to include language authorizing mixed-motive claims. Therefore, these statutes appear to be susceptible to the same interpretation that the Court applied to the ADEA. Although it is unclear how far the logic of Gross may extend, it is also conceivable that such an analysis could be applied to other non-discrimination statutes in which employees may sue employers, such as labor or whistleblower laws. In addition, the Gross decision may spur congressional efforts to overturn the ruling. Since Gross was decided on statutory grounds, several legislators who disagree with the Court's interpretation have introduced legislation that would amend the ADEA to clarify that a plaintiff establishes an unlawful employment practice under the ADEA or any other federal law prohibiting employment discrimination if the plaintiff demonstrates that the employment action was motivated by an impermissible factor. Under this legislation ( H.R. 3721 / S. 1756 ), which would apply retroactively to all claims that were pending on or after the date of the Gross decision, a plaintiff would be able rely on any form of circumstantial or direct evidence to establish such a claim, at which point the burden would shift to the employer to demonstrate that it would have taken the same action in the absence of the impermissible motivating factor. Such congressional action is not uncommon. For example, in the wake of the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc. , Congress enacted the Lilly Ledbetter Fair Pay Act of 2009, which superseded the Ledbetter decision by amending Title VII to clarify that the time limit for suing employers for pay discrimination begins each time they issue a paycheck.

This report discusses Gross v. FBL Financial Services, Inc., a recent case in which the Supreme Court evaluated a mixed-motive claim under the Age Discrimination in Employment Act (ADEA), which prohibits employment discrimination against individuals over the age of 40. In Gross, the plaintiff alleged that his employer's decision to reassign him was motivated at least in part by his age, while the employer claimed that its decision was based on other legitimate factors. The question at trial was what types of evidence the parties must present and who bears the burden of proof in such mixed-motive cases, which generally involve employment actions that are based on both permissible and impermissible reasons. Sidestepping the evidentiary question presented, the Court determined that an employer never bears the burden of persuasion because the traditional mixed-motive burden-shifting framework is not applicable to the ADEA. Instead, based on its conclusion that the ADEA does not authorize the type of mixed-motive claims that are available under a similar employment discrimination law, the Court held that an employee bears the burden of establishing that age is the decisive cause of the challenged employment action. This standard is likely to make it more difficult for plaintiffs to succeed in age discrimination cases in which age is only one of several factors behind the adverse employment decision. Currently, several bills that would supersede the Gross decision by amending the ADEA have been introduced in the 111th Congress, including H.R. 3721 and S. 1756.

The Concept of "Tax Extenders" The tax code presently contains dozens of temporary tax provisions. In the past, legislation to extend some of these expiring provisions has often been referred to as the "tax extender" package. While there is no formal definition of a "tax extender," the term has regularly been used to refer to the package of expiring tax provisions temporarily extended by Congress. Often, these expiring provisions are temporarily extended for a short period of time (e.g., one or two years). Over time, as new temporary provisions were routinely extended and hence added to this package, the number of provisions that might be considered "tax extenders" grew. This trend was broken with the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), which made permanent a number of provisions that had been part of previous "tax extender" packages. As a result, there were fewer "tax extender" provisions that expired in 2016 than in previous years. All of the provisions that expired at the end of 2017 had previously expired at the end of 2016. Evaluating Expiring Tax Provisions There are various reasons Congress may choose to enact temporary (as opposed to permanent) tax provisions. Enacting provisions on a temporary basis, in theory, would provide Congress with an opportunity to evaluate provisions before providing further extension. Temporary tax provisions may also be used to provide relief during times of economic weakness or following a natural disaster. Congress may also choose to enact temporary provisions for budgetary reasons. Examining the reason why a certain provision is temporary rather than permanent may be part of evaluating whether a provision should be extended. Reasons for Temporary Tax Provisions There are several reasons why Congress may choose to enact tax provisions on a temporary basis. As previously noted, enacting provisions on a temporary basis may provide an opportunity to evaluate effectiveness before expiration or extension. However, this rationale is undermined if expiring provisions are regularly extended without systematic review, as is the case in practice. In 2012 testimony before the Senate Committee on Finance, Dr. Rosanne Altshuler noted that an expiration date can be seen as a mechanism to force policymakers to consider the costs and benefits of the special tax treatment and possible changes to increase the effectiveness of the policy. This reasoning is compelling in theory, but has been an absolute failure in practice as no real systematic review ever occurs. Instead of subjecting each provision to careful analysis of whether its benefits outweigh its costs, the extenders are traditionally considered and passed in their entirety as a package of unrelated temporary tax benefits. While most expiring tax provisions have been extended in recent years, there have been some exceptions. For example, tax incentives for alcohol fuels (e.g., ethanol), which can be traced to policies first enacted in 1978, were not extended beyond 2011. The Government Accountability Office (GAO) had previously found that with the renewable fuel standard (RFS) mandate, tax credits for ethanol were duplicative and did not increase consumption. Congress may choose not to extend certain provisions if an evaluation determines that the benefits provided by the provision do not exceed the cost (in terms of forgone tax revenue). In recent years, some "tax extender" packages have included all (or nearly all) expiring provisions, while other packages have left some out, effectively allowing provisions to expire as scheduled. The "tax extender" package in the American Taxpayer Relief Act (ATRA; P.L. 112-240 ) did not include several provisions that had been extended multiple times in the past. Most, but not all, expiring provisions were extended in the one-year, retroactive, "tax extender" bill enacted at the end of 2014, the Tax Increase Prevention Act ( P.L. 113-295 ). The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted as Division Q of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), extended all expiring provisions. Unlike other recent extenders packages, the PATH Act included a permanent extension for many provisions. Other provisions were extended for five years, while most provisions were extended for two years, in more typical "tax extenders" practice. The most recent "tax extender" package, included in the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), retroactively extended tax provisions that had expired at the end of 2016 through the end of 2017. Tax policy may also be used to address temporary circumstances in the form of economic stimulus or disaster relief. Economic stimulus measures might include bonus depreciation or generous expensing allowances. Disaster relief policies might include enhanced casualty loss deductions or additional net operating loss carrybacks. Other recent examples of temporary provisions that have been enacted to address special economic circumstances include the exclusion of forgiven mortgage debt from taxable income during the housing crisis of the late 2000s, the payroll tax cut, and the grants in lieu of tax credits to compensate for weak tax-equity markets during the economic downturn (the Section 1603 grants). It has been argued that provisions that were enacted to address a temporary situation should be allowed to expire once the situation is resolved. Congress may also choose to enact tax policies on a temporary basis for budgetary reasons. If policymakers decide that legislation that reduces revenues must be paid for, it is easier to find resources to offset short-term extensions rather than long-term or permanent extensions. Additionally, the Congressional Budget Office (CBO) assumes, under the current law baseline, that temporary tax cuts expire as scheduled. Thus, the current law baseline does not assume that temporary tax provisions are regularly extended. Hence, if temporary expiring tax provisions are routinely extended in practice, the CBO current law baseline would tend to overstate projected revenues, making the long-term revenue outlook stronger. In other words, by making tax provisions temporary rather than permanent, these provisions have a smaller effect on the long-term fiscal outlook. Extenders as Tax Benefits19 Temporary tax benefits are a form of federal subsidy that treats eligible activities favorably compared to others, and channels economic resources into qualified uses. Extenders influence how economic actors behave and how the economy's resources are employed. Like all tax benefits, extenders can be evaluated by looking at the impact on economic efficiency, equity, and simplicity. Temporary tax provisions may be efficient and effective in accomplishing their intended purpose, though not equitable. Alternatively, an extender may be equitable but not efficient. Policymakers may have to choose the economic objectives that matter most. Economic Efficiency Extenders often provide subsidies to encourage more of an activity than would otherwise be undertaken. According to economic theory, in most cases an economy best satisfies the wants and needs of its participants if markets allocate resources free of distortions from taxes and other factors. Market failures, however, may occur in some instances, and economic efficiency may actually be improved by tax distortions. Thus, the ability of extenders to improve economic welfare depends in part on whether or not the extender is remedying a market failure. According to theory, a "tax extender" reduces economic efficiency if it is not addressing a specific market failure. An extender is also considered relatively effective if it stimulates the desired activity better than a direct subsidy. Direct spending programs, however, can often be more successful at targeting resources than indirect subsidies made through the tax system. Equity A tax is considered to be fair when it contributes to a socially desirable distribution of the tax burden. Tax benefits such as the extenders can result in individuals or businesses with similar incomes and expenses paying differing amounts of tax, depending on whether they engage in tax-subsidized activities. This differential treatment is a deviation from the standard of horizontal equity, which requires that people in equal positions be treated equally. Another component of fairness in taxation is vertical equity, which requires that tax burdens be distributed fairly among people with different abilities to pay. Extenders may be considered inequitable to the extent that they benefit those who have a greater ability to pay taxes. Those individuals with relatively less income and thus a reduced ability to pay taxes may not have the same opportunity to benefit from extenders as those with higher income. The disproportionate benefit of tax expenditures to individuals with higher incomes reduces the progressivity of the tax system, which is often viewed as a reduction in equity. An example of the effect a tax benefit can have on vertical equity can be illustrated by considering two students claiming the above-the-line deduction for higher education expenses. Assume both students are single and have $1,000 in qualifying expenses. If one student has an income of $30,000, and the other student has an income of $60,000, the students would be in different tax brackets. The student with the lower income may fall in the 12% tax bracket, meaning the maximum value of the deduction would be $120 ($1,000 multiplied by 12%). The student with the higher income may fall in the 22% tax bracket, meaning the maximum value of the deduction would be $220 ($1,000 multiplied by 22%). Thus, the higher-income taxpayer, with presumably greater ability to pay taxes, receives a greater benefit than the lower-income taxpayer. Simplicity Extenders contribute to the complexity of the tax code and raise the cost of administering the tax system. Those costs, which can be difficult to isolate and measure, are rarely included in the cost-benefit analysis of temporary tax provisions. In addition to making the tax code more difficult for the government to administer, complexity also increases costs imposed on individual taxpayers. With complex incentives, individuals devote more time to tax preparation and are more likely to hire paid preparers. Tax Provisions That Expired in 2017 Twenty-eight temporary tax provisions expired at the end of 2017. These provisions can be categorized as primarily affecting individuals or businesses, or being energy-related. Individual23 Three individual tax provisions expired at the end of 2017 (see Table 1 ). All three of these provisions have been included in recent "tax extender" packages. The above-the-line deduction for certain higher-education expenses, including qualified tuition and related expenses, was first added as a temporary provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16 ), but has regularly been extended since. The other two individual extender provisions are housing-related. The provision allowing homeowners to deduct mortgage insurance premiums was first enacted in 2006 (effective for 2007). The provision allowing qualified canceled mortgage debt income associated with a primary residence to be excluded from income was first enacted in 2007. Both provisions were temporary when first enacted, but have been extended as part of the "tax extenders" in recent years. The one-year extension of these individual tax provisions, covering the 2017 tax year, is estimated to reduce federal revenue by $3.8 billion between FY2018 and FY2027. Permanently extending the three individual provisions that expired at the end of 2017 would reduce federal revenue by an estimated $31.2 billion between FY2018 and FY2027. Business27 Twelve business tax provisions expired at the end of 2017 (see Table 1 ). All of these provisions have been included in past "tax extender" legislation. The largest of these provisions, as ranked by cost of the most recent one-year extension, are the empowerment zone tax incentives and the credit for railroad track maintenance. The other tax credits for businesses that expired at the end of 2017 are the Indian employment tax credit; the American Samoa economic development credit; and the mine rescue team training credit. Other business tax provisions that expired at the end of 2017 are related to cost recovery. Cost recovery provisions include accelerated depreciation for business property on Indian reservations; seven-year recovery for motorsport racing facilities; expensing of mine-safety equipment; special expensing rules for film, television, and live theatrical production; and three-year depreciation for race horses two years or younger. For provisions that temporarily accelerate cost recovery, the cost over the 10-year budget window is often smaller than the cost in the first year. This is because some of the cost is recovered, as the accelerated cost recovery serves to defer tax liability to a later time. Some of the cost recovery provisions may interact with "bonus depreciation" that was enacted as part of the 2017 tax revision ( P.L. 115-97 ). If property is eligible for bonus depreciation, and therefore does not claim the special cost recovery allowance, the cost of that provision falls. However, if bonus depreciation is claimed and the special tax incentive is not, then the special tax incentive is not having an effect on economic activity. Two tax provisions that expired in 2017 are unlikely to be extended further. The extensions enacted in BBA18 essentially extended provisions that had expired at the end of 2016 through the 2017 tax year, with the revised tax code taking effect in 2018. The 2017 tax revision ( P.L. 115-97 ) repealed the Section 199 production activities deduction and reduced the top corporate tax rate from 35% to 21%. With Section 199 repealed, it seems unlikely that the special provision allowing Puerto Rico to be considered part of the United States for the purposes of the Section 199 deduction would be extended. The provision stating that qualified corporate timber gains would be subject to a maximum rate of 23.8% is also unlikely to be extended, with the top corporate rate now 21%. Most of the business provisions that expired at the end of 2017 have been part of the tax code for close to a decade or longer. Several were first enacted in the 1990s, including the Indian employment tax credit; accelerated depreciation for business property on Indian reservations; and the empowerment zone tax incentives. Several others were first enacted in the mid-2000s, including the American Samoa economic development credit: the credit for railroad track maintenance; seven-year recovery for motorsport racing facilities; the mine rescue team training credit; expensing for mine-safety equipment; and the special expensing rules for film and television production. The one-year extension of the 12 business tax provisions in BBA18, covering the 2017 tax year, is estimated to reduce federal revenue by $0.8 billion between FY2018 and FY2027. Permanently extending the 10 business tax provisions likely to be considered for extension beyond 2017 would reduce federal revenue by an estimated $7.6 billion between FY2018 and FY2027. Energy30 Thirteen energy tax provisions expired at the end of 2017 (see Table 1 ). All of these provisions have been extended as part of past "tax extender" legislation. The largest provisions, as ranked by the cost of the one-year extension, are the provisions for biodiesel and renewable diesel and for alternative fuels and alternative fuels mixtures. Other provisions that expired at the end of 2017 include those related to residential and commercial building energy efficiency; alternative fuels and alternative fuel vehicles; and renewable energy production (nonwind technologies). Certain energy tax provisions that had expired at the end of 2016 were given longer-term extensions in BBA18. Specifically, the Section 48 business energy investment credit and the Section 25D credit for residential energy efficient property were extended through 2021, with reduced rates in 2020 and 2021, for nonsolar technologies. These extensions mirrored the longer-term extension previously enacted for solar in Division P of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). The one-year extension of the 13 energy tax provisions in BBA18, covering the 2017 tax year, is estimated to reduce federal revenue by $5.2 billion between FY2018 and FY2027. Permanently extending these 13 energy tax provisions beyond 2017 would reduce federal revenue by an estimated $53.7 billion between FY2018 and FY2027. The Cost of Extending Expired Tax Provisions As lawmakers consider whether to extend expired tax provisions beyond 2017, cost is one factor. As the number of "tax extenders" has decreased over time, so has the cost of a "tax extender" package. Many provisions were made permanent in the PATH Act, which reduced the number of temporary provisions included in the "tax extenders" portion of BBA18. The number of temporary tax provisions that expired at the end of 2017 was further reduced following a longer-term extension of certain energy provisions and changes made in the 2017 tax revision ( P.L. 115-97 ). The Bipartisan Budget Act of 2018 ( P.L. 115-123 ) extended most provisions that had expired at the end of 2016 for one year, through 2017. As discussed above, several energy-related provisions were extended for a longer period of time, through 2021. Additionally, the act extended the Oil Spill Liability Trust Fund financing rate and modified the tax credit for production from advanced nuclear power facilities. Taken together, these changes were estimated to reduce federal revenue by $15.1 billion between FY2018 and FY2027 (see Table 2 ). Not all of the provisions extended in BBA18 are likely to be considered for extension beyond 2017. BBA18 extended some provisions beyond 2017. Other provisions are not likely to be extended beyond 2017 following changes made in the 2017 tax revision ( P.L. 115-97 ). Looking only at provisions that are likely to be considered for extension beyond 2017, the one-year cost of extending those provisions enacted in BBA18 had an estimated cost of $9.7 billion over the 10-year budget window (see Table 2 ). The cost of extending these provisions beyond 2017 may not necessarily be the same as the cost of past extensions, particularly given the substantial changes to the baseline following the 2017 tax revision ( P.L. 115-97 ). Permanently extending tax provisions that expired at the end of 2017 would reduce federal revenues by an estimated $92.5 billion over the FY2018 to FY2027 budget window (see Table 2 ). More than one-third of this cost ($35.2 billion) is associated with a single provision, the tax incentives for biodiesel and renewable diesel. Federal revenues between FY2019 and FY2028 are projected to be $44.2 trillion under current law. Thus, making permanent "tax extenders" would reduce federal revenues by about 0.2%. Recent "Tax Extender" Legislation As discussed above, "tax extenders" were most recently extended as part of the Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ). This legislation, enacted in February 2018, extended tax provisions that had expired at the end of 2016 through the end of 2017. Before BBA18, "tax extenders" were addressed in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted as Division Q of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). The PATH Act either extended or made permanent all of the 52 temporary tax provisions that had expired at the end of 2014. The PATH Act, unlike other recent "tax extender" legislation, provided long-term extensions (through 2019) for a number of provisions, while making many other temporary tax provisions permanent. In total, the extensions of expiring provisions or "tax extenders" in P.L. 114-113 were estimated to reduce federal revenues by $628.8 billion between FY2016 and FY2025. Of that cost, nearly one-third ($202.1 billion) was attributable to extensions of provisions that were scheduled to expire in 2017 (the reduced earnings threshold for the refundable portion of the child tax credit; the American Opportunity Tax Credit; and modifications to the earned income tax credit) and the two-year moratorium on the medical device excise tax. Thus, the cost of extending the "tax extender" provisions was an estimated $426.8 billion between FY2016 and FY2025. Of the total cost of the "tax extenders" in P.L. 114-113 , $559.5 billion, or 89% of the total cost, was associated with permanent extensions. The estimated cost of permanent extension of "tax extender" provisions (provisions that had expired in 2014 and were made permanent in P.L. 114-113 ) was $361.4 billion. Of the total cost of "tax extenders" in P.L. 114-113 , $17.7 billion (or less than 3%) was for the two-year extension of provisions that had expired in 2014 through 2016. The Tax Increase Prevention Act of 2014 ( P.L. 113-295 ), passed late in the 113 th Congress, made tax provisions that had expired at the end of 2013 available to taxpayers in the 2014 tax year. The act extended most (but not all) expiring tax provisions, and most of the provisions extended in P.L. 114-113 had been included in past "tax extenders" legislation. The cost of the "tax extenders" package enacted as P.L. 113-295 was estimated to be $41.6 billion over the 10-year budget window. Earlier in the 113 th Congress, the Senate Finance Committee had reported a two-year extenders package. The House had also passed legislation that would have made permanent certain expiring provisions. Ultimately, the one-year retroactive extenders legislation is what was passed by the 113 th Congress. The American Taxpayer Relief Act (ATRA; P.L. 112-240 ) extended dozens of temporary provisions that had either expired at the end of 2011 or were set to expire at the end of 2012. The provisions that had expired at the end of 2011 were extended retroactively. The cost of the "tax extenders" package enacted as part of ATRA was estimated to be $73.6 billion over the 10-year budget window. Several provisions that were considered "traditional extenders"—that is, they had been extended multiple times in the past—were not extended under ATRA. Other Issues Regarding Temporary Tax Provisions Tax Provisions Expiring in 2018 Additional tax provisions are scheduled to expire at the end of 2018. First, the increased amount of the excise tax on coal used to finance the Black Lung Disability Trust Fund is set to expire at the end of 2018. For 2018, the tax rates on coal are $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined coal, limited to 4.4% of the sales price. These rates were established in 1986. Starting in 2019, under current law, these tax rates are scheduled to be $0.50 per ton of underground-mined coal or $0.25 per ton of surface-mined coal, limited to 2% of the sales price. These are the rates that were set when the trust fund was established in 1977. A second tax provision scheduled to expire at the end of 2018 allows taxpayers to deduct medical expenses in excess of 7.5% of adjusted gross income (AGI). Starting in 2019, under current law, an itemized deduction for unreimbursed medical expenses will be allowed to the extent that such expenses exceed 10% of AGI. The threshold for the unreimbursed medical expense deduction was increased from 7.5% to 10%, effective in 2013 for most taxpayers, as part of the Patient Protection and Affordable Care Act ( P.L. 111-148 ). However, an exception from the increase for tax years 2013 through 2016 provided that, if either the taxpayer or their spouse was age 65 or older, the 7.5% threshold would apply during this four-year period. The 2017 tax revision ( P.L. 115-97 ) reduced the AGI threshold from 10% to 7.5% for individual taxpayers claiming an itemized deduction for unreimbursed medical and dental expenses in 2017 and 2018. Making this provision permanent would reduce federal revenues by an estimated $24.8 billion between FY2019 and FY2028. A third provision, the $0.09 per barrel excise tax on crude oil received at refineries and petroleum products entering the United States, is also scheduled to expire at the end of 2018. The tax had expired at the end of 2017, but was reinstated on March 1, 2018, as part of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). The tax first took effect at 5 cents per barrel on January 1, 1990. Since that time, at various points, the tax has expired, been reinstated, and the rate adjusted. Disaster-Related Tax Provisions49 In the past, some "tax extenders" legislation has included extensions of disaster-related tax benefits. The 2017 tax revision ( P.L. 115-97 ) included special provisions related to casualty losses arising from presidentially declared disasters occurring in 2016 or 2017. The enhanced deduction provided that disaster-related losses were deductible to the extent they exceeded $500 per casualty. Further, losses were allowed to be claimed in addition to the standard deduction. Before the change, losses were deductible if they exceeded $100 per casualty, and were deductible to the extent aggregate net casualty losses exceeded 10% of AGI. Further, before the temporary changes in P.L. 115-97 , disaster-related casualty losses were part of itemized deductions. Disaster relief for hurricanes Harvey, Maria, and Irma was included in the Disaster Tax Relief and Airport and Airway Extension Act of 2017 ( P.L. 115-63 ). Specifically, for these disaster areas, the law waived the 10% tax on early disaster-related distributions from retirement plans for up to $100,000 in distributions made between August 23, 2017, and December 31, 2018; provided an employee retention tax credit for disaster-affected employers equal to 40% of wages paid between August 23, 2017, and December 31, 2017, up to $6,000 per employee, paid to employees of inoperable businesses, who lived in a qualified hurricane disaster zone when the disaster occurred; suspended income limits on charitable contributions made for hurricane-related disaster relief before December 31, 2017; modified casualty loss deductions for hurricane-related disaster losses, eliminating the requirement that losses must exceed 10% of AGI to qualify and the requirement to itemize deductions, but increasing the threshold amount that per-disaster losses must exceed from $100 to $500; allowed taxpayers in hurricane disaster areas to use prior-year income to determine earned income and child tax credits; and applied disaster-related tax relief to possessions of the United States. The Bipartisan Budget Act of 2018 (BBA18) expanded the scope of the hurricane-related disaster provisions, providing similar relief for the California wildfires of 2017. The tax relief provided for hurricanes Harvey, Irma, and Maria was estimated to reduce federal revenue by $5.6 billion between FY2018 and FY2027. Of this total, $4.0 billion was associated with the enhanced casualty loss deduction. The disaster tax relief expansions included in BBA18 were estimated to reduce federal revenue by an additional $0.5 billion between FY2018 and FY2027. Appendix. List of Previous "Tax Extender" Legislation There is no formal definition of "tax extenders" legislation. Over time, "tax extenders" legislation has come to be considered legislation that temporarily extends a group of expired or expiring provisions. Using this characterization, below is a list of what could be considered "tax extenders" legislation. Using this list, "tax extenders" have been addressed 18 times. The package of provisions that are included in the "tax extenders" has changed over time, as Congress has added new temporary provisions to the code, and as certain provisions are either permanently extended or given temporary extension in other tax legislation. Bipartisan Budget Act of 2018 ( P.L. 115-123 ) Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ) Working Families Tax Relief Act of 2004 ( P.L. 108-311 ) Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ) Ticket to Work and Work Incentives Improvement Act of 1999 ( P.L. 106-170 ) Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 ( P.L. 105-277 ) Taxpayer Relief Act of 1997 ( P.L. 105-34 ) Small Business and Job Protection Act of 1996 ( P.L. 104-188 ) Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) Tax Extension Act of 1991 ( P.L. 102-227 ) Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) Omnibus Budget Reconciliation Act of 1989 ( P.L. 101-239 ) Technical and Miscellaneous Revenue Act of 1988 ( P.L. 100-647 )

Twenty-eight temporary tax provisions expired at the end of 2017. Collectively, temporary tax provisions that are regularly extended as a group by Congress, rather than being allowed to expire as scheduled, are often referred to as "tax extenders." Temporary tax provisions were most recently extended in the Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123). BBA18 extended nearly all of the provisions that had expired at the end of 2016, with most provisions extended through the end of 2017. For most provisions, this extension was purely retroactive. Since the BBA18 was enacted in February 2018, the extensions generally were not made available for the tax year in which the legislation was enacted. The extension of expired provisions enacted in BBA18 was estimated to reduce federal revenue by $15.1 billion between FY2018 and FY2027. All of the temporary tax provisions that expired at the end of 2017 have been included in previous "tax extender" legislation. There are several options for Congress to consider regarding temporary tax provisions. Provisions that expired at the end of 2017 could be extended. The extension could be retroactive. The extension could be short term, long term, or permanent. Another option would be to allow expired provisions to remain expired. Making permanent the temporary tax provisions that expired at the end of 2017 would reduce federal revenue by an estimated $92.5 billion between FY2018 and FY2027. This is equal to about 0.2% of current-law projected federal revenue over this period. The number of "tax extender" provisions has fallen in recent years, as has the cost associated with extending "tax extenders." The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted as Division Q of the Consolidated Appropriations Act, 2016 (P.L. 114-113), made permanent a number of provisions that had been long-standing "tax extenders," and extended several other provisions through 2019. The 2017 tax revision (P.L. 115-97) also made changes that resulted in the elimination of certain "tax extender" provisions. If Congress chooses to consider extending tax provisions that expired at the end of 2017 late in 2018, the option of extending tax provisions that are scheduled to expire at the end of 2018 might be evaluated simultaneously. Tax provisions scheduled to expire at the end of 2018 are (1) increased excise tax rates on coal used to finance the Black Lung Disability Trust Fund; (2) a reduction in the medical expense deduction threshold from 10% of adjusted gross income (AGI) to 7.5% of AGI; and (3) the $0.09 per barrel excise tax on crude oil used to finance the Oil Spill Liability Trust Fund. Certain disaster-related tax provisions were available for 2017 disasters. Extending or expanding these provisions to be available for 2018 disasters is a policy option that could be considered. This report provides a broad overview of "tax extenders." More information on specific tax provisions that expired at the end of 2017 can be found in CRS Report R44925, Recently Expired Individual Tax Provisions ("Tax Extenders"): In Brief, coordinated by Molly F. Sherlock; CRS Report R44930, Business Tax Provisions that Expired in 2017 ("Tax Extenders"), coordinated by Molly F. Sherlock; and CRS Report R44990, Energy Tax Provisions That Expired in 2017 ("Tax Extenders"), by Molly F. Sherlock, Donald J. Marples, and Margot L. Crandall-Hollick.

Introduction Although judicial nominations sometimes do not receive Senate confirmation, they historically have been heavily outnumbered by judicial nominations which the Senate has confirmed. For example, according to the most recent CRS data, of the 2,927 nominees to Article III circuit and district court judgeships between the start of the 79 th Congress in 1945 and the end of the first session of the 113 th Congress on January 3, 2014, only 287 nominees (or approximately 10% of the total number of nominees in this period) failed to be confirmed by the Senate. Even smaller has been the number of lower court nominations which received unfavorable votes by the Senate Judiciary Committee or rejection votes by the full Senate. More often than not, when a circuit or district court nominee lacks key Senate support (such as the support of one or both home state Senators), the Judiciary Committee simply has declined to consider or act on the nomination. Neither the Judiciary Committee nor the full Senate is compelled to act on nominations which come before it, and nominations that receive no action are eventually returned to, or withdrawn by, the President. The vast majority of unconfirmed nominees from 1945 through 2013—approximately 90%—failed to receive a committee vote in the Senate Judiciary Committee. The procedural route for a circuit or district court nomination is as follows: Once the President has submitted such a nomination to the Senate, it is almost invariably referred to the Judiciary Committee. The committee may then hold a hearing on the nomination. After the hearing, the committee has several options: (1) it may report the nomination to the Senate favorably, unfavorably, or without recommendation; (2) it may vote against reporting the nomination; or (3) it may choose to take no action at all. Typically, if the committee votes on a nomination, it votes to report favorably; however, in a very small number of cases, the committee has voted against reporting a nomination, or has voted to report the nomination either unfavorably or without recommendation. If a majority of the committee agrees to any one of the motions to report, the nomination moves to the full Senate. Note that, in the event of a tie vote, the nomination fails to be reported by the committee. Additionally, the nomination remains in committee if the committee votes against reporting, if there is no committee vote on the nomination, or if the committee votes to table the nomination. Once a lower court nomination is reported to the full Senate by the Judiciary Committee, the nomination is listed on the Senate's Executive Calendar, with Senate consideration of the nomination scheduled by the majority leader. If the Senate, when voting on whether to confirm, rejects the nomination (as has happened on rare occasions), it is returned to the President with a resolution of disapproval. If a judicial nomination does not receive a Senate vote, the nomination ultimately will either be withdrawn by the President or returned to the President by the Secretary of the Senate upon a Senate adjournment or recess of more than 30 days. This report identifies, from the 76 th Congress (1939-1941) through the first session of the 113 th Congress (January 3, 2014), 19 U.S. circuit court or district court nominations that received other than a favorable vote from the Senate, the Senate Judiciary Committee, or both. Among these 19 nominations were 18 (or all but one of the nominations) on which the Judiciary Committee voted other than to report favorably. The only nomination that did not receive a vote other than to report favorably was that of Ronnie L. White to the District Court for the Eastern District of Missouri. The White nomination, as Table 2 shows, was reported favorably by the Judiciary Committee, only to be rejected by the full Senate. Table 1 , below, summarizes the final committee and floor dispositions of these 19 nominations. Each row indicates a possible committee outcome ( report favorably, report without recommendation, report unfavorably , and fail to report ), and each column indicates a possible floor outcome ( confirmed, rejected, returned, and withdrawn ). Each cell provides the total number of circuit and district court nominations receiving the final committee and floor actions as indicated by the corresponding row and column. Totals for final committee and floor dispositions are found in the last column and row, respectively. Table 2 lists the nominations to the circuit courts of appeals (7 in all) and district courts (12 in all) in separate sections. Within the two sections, nominations are arranged chronologically. From left to right, columns one, two, and three identify the Congress, nominee, and court of each nominee. Columns four through seven provide the Judiciary Committee vote on each nomination, stating the type of vote, vote breakdown, and date on which the vote occurred. Column eight provides information concerning the final disposition of the nomination in the Senate. Beyond the scope of this report are U.S. circuit and district court nominations which were reported out of the Judiciary Committee and on which the Senate failed to invoke cloture. For the purposes of this report, such nominations are not considered up-or-down Senate votes to reject a nomination. Nominations Receiving Unfavorable Senate or Committee Votes: Empirical Summary Table 1 indicates that all seven circuit court nominations accounted for in the table received a committee vote other than to report favorably. Of the seven nominations, the Senate Judiciary Committee failed to adopt motions to report five, resulting in the return of four nominations to the President and the withdrawal of one. The remaining two nominations were reported without recommendation; one was confirmed and one was returned to the President. During the 1939-2013 period, no circuit court nominations were rejected by a vote of the full Senate. Additionally, Table 1 indicates that, of the 12 district court nominations accounted for in the table, four were never reported out of the Judiciary Committee; one of the four nominations was returned, and three were withdrawn by the President. Two district court nominations were reported to the Senate favorably. One, who was confirmed, had initially failed in a Judiciary Committee vote to have his nomination reported (only to have the committee decide, in a later vote, to report the nomination). The other, although reported favorably by the Judiciary Committee, was rejected by the full Senate. Five district court nominations were reported to the Senate unfavorably (all five were rejected by the Senate). One nomination to a district court, which is the most recent listed in Table 2 , was reported to the Senate without recommendation; that nomination was confirmed by the Senate. Note that, as of this writing, this is the only nomination listed in Table 2 in which a vote on a motion to report unfavorably or without recommendation was not first preceded by a vote to report favorably. Chronological Discussion of Nominations Receiving Unfavorable Votes 1939-1951 Table 2 reveals that, from 1939 through 1951, one circuit and six district court nominees received votes from the Senate Judiciary Committee other than to report favorably. In all but one of these seven cases, the committee declined to report favorably after home state Senators, in opposing the nominations, invoked "senatorial courtesy." Floyd H. Roberts, nominated to be U.S. district court judge for the Western District of Virginia, was the first judicial nominee reported unfavorably by the committee and rejected by the Senate within the 1939-2013 time period. The committee adversely reported Roberts in 1939 on the grounds that his nomination was "personally offensive" to the two Virginia Senators. The Senate, in turn, rejected the Roberts nomination by a 9-72 vote. In another case, in 1943, the Judiciary Committee failed, in a 9-9 tie vote, to report the Fifth Circuit Court nomination of James V. Allred, a former Texas governor, after Texas's junior Senator invoked senatorial courtesy. In doing so, the Senator reportedly notified the committee that "this nomination is obnoxious to me." Additionally, in 1950 and 1951, four district court nominations faced opposition from home state Senators invoking senatorial courtesy. The opposing Senators stated that that the nominations to district judgeships in their states were "personally obnoxious" due to the manner in which they were handled by the Truman Administration. The Senators, in each case, had submitted the names of their preferred judicial nominees to the Administration. The President, however, without consulting with the home state Senators, proceeded to submit the names of other nominees—not of the Senators' choosing—to the Senate for consideration. One of the Senators, in objecting to the two judicial nominations in his state, noted it was not the nominees themselves but rather "the manner and method of their selection that made them personally obnoxious." All four nominations were reported adversely and rejected by voice vote in the Senate. 1952-1977 From 1952 through 1977, as Table 2 shows, there were no instances in which the Senate Judiciary Committee voted against reporting a circuit or district court nomination or voted to report such a nomination without recommendation or unfavorably. In 1976, however, one nomination, that of William B. Poff, to the U.S. District Court for the Western District of Virginia, was laid on the table by a 9-0 vote of the Senate Judiciary Committee reportedly due to senatorial courtesy. 1978-2013 Since 1978, six circuit and five district court nominees have received votes from the Senate Judiciary Committee other than to report favorably. Two of these nominees (one circuit and one district) were ultimately reported without recommendation and confirmed by the Senate in relatively close roll call votes. One district court nominee was ultimately confirmed by a voice vote after his nomination was reported favorably out of the Senate Judiciary Committee. The successful motion to report favorably occurred, though, after a prior motion to report the nomination favorably failed to gain committee approval. One circuit and two district court nominations were ultimately withdrawn by the nominating President. The four remaining circuit court nominations were returned to the President. The Senate Judiciary Committee failed to report all but one of these nominees to the full Senate. One nominee subsequently received a recess appointment while another was renominated and confirmed by the Senate during a later Congress. Finally, during the 106 th Congress, one district court nomination, that of Ronnie L. White to the Eastern District of Missouri, was reported favorably by the Judiciary Committee but rejected on the floor of the Senate by a 45-54 vote. Senators' objections to these 11 nominations since 1978 rested largely on the perceived ideological orientation of judicial nominees, the professional qualifications of the nominees, or both. For example, Daniel Manion, nominated in 1986 by President Reagan to the Seventh Circuit Court of Appeals, was criticized for lacking "the record of distinction and achievement that was expected of appointees to the courts of appeals," while his supporters "argued that opposition to his nomination was based on his conservative views and his activities with his father," who had co-founded the John Birch Society. Likewise, in 2002, objections to President George W. Bush's nomination of Priscilla R. Owen to the Fifth Circuit Court of Appeals appeared primarily concerned with her ideological orientation. In Senate Judiciary Committee debate preceding a vote on her nomination, Democratic members of the committee, it was reported, characterized the nominee "as a judicial 'activist' whose opinions were colored by strong anti-abortion and pro-business views, while Republicans defended her as a fair-minded jurist who was given a top rating by the American Bar Association but ran afoul of liberal interest groups." While Owen's two nominations during the 107 th Congress were returned to the President, she was renominated during the next two Congresses (the 108 th and 109 th ), and ultimately was confirmed by the Senate on May 25, 2005. The most recent nomination listed in Table 2 , that of J. Leon Holmes to the U.S. District Court for the Eastern District of Arkansas, was also opposed by some Senators on ideological grounds. Mr. Holmes had been nominated by President G.W. Bush and had the support of both of Arkansas's Democratic Senators. Concern by opponents of the nomination cited the nominee's past "comments about abortion, women's rights and other topics," while those who supported his nomination emphasized that his comments were made "20-plus years ago" and that regardless of his personal views, the nominee would "abide by the rule of law." Mr. Holmes's nomination was ultimately confirmed by the Senate on July 6, 2004, by a vote of 51-46. Nominations Receiving Unfavorable Votes During Periods of Unified or Divided Government Unlike the nominations listed in Table 2 that were considered between 1939 and 1951 (all of which occurred during periods of unified party government), consideration of nominations listed in Table 2 from 1976 through 2013 occurred primarily during periods of divided government. This was the case for 9 of 12 of the nominations during this period that received other than favorable votes by the Judiciary Committee or the full Senate. In particular, all six circuit court nominees in question were nominated by a Republican President (three by Reagan, one by George H.W. Bush, and two by George W. Bush) while Democrats held a majority in the Senate. Of the six district court nominations during this period receiving other than favorable votes in the Judiciary Committee or the full Senate, three (one Ford nominee, one Reagan nominee, and one Clinton nominee) received such votes during periods of divided government. Note, however, that of the 3 nominations (1 circuit and 2 district) that were confirmed during the 1976 to 2013 period (i.e., the Manion, Collins, and Holmes nominations), all were approved by the Senate during periods of unified government. In other words, in each of those three cases, the same party controlled the presidency as well as held the majority in the Senate.

Once a nomination to a U.S. circuit court of appeals or district court judgeship is submitted to the Senate by the President, the Senate almost invariably refers it to the Senate Judiciary Committee. If the Judiciary Committee schedules a vote on a nominee, it usually will vote on a motion to report the nomination favorably. However, the committee could also vote on a motion to report without recommendation, to report unfavorably, or to table the nomination. If the committee votes to report—whether favorably, without recommendation, or unfavorably—the nomination moves to the full Senate. By contrast, the nomination remains in committee if the committee votes against reporting, if there is no committee vote on the nomination, or if the committee votes to table the nomination. Once a nomination is reported to the Senate by the Judiciary Committee, the nomination is listed on the Senate's Executive Calendar, with Senate consideration of the nomination scheduled by the majority leader. On rare occasions, the Senate, when voting on confirmation, has rejected a circuit or district court nomination. In such cases, the nomination is then returned to the President with a resolution of disapproval. Between 1939 and the adjournment sine die of the first session of the 113th Congress on January 3, 2014, 19 U.S. circuit or district court nominations received other than a favorable vote from the full Senate, the Senate Judiciary Committee, or both. These 19 nominations represent less than 1.0% of the total circuit and district court nominations during this period. Among these 19 nominations were 7 circuit court nominations and 12 district court nominations. This report lists the votes cast by the Judiciary Committee and the full Senate on each of the 19 nominations and identifies senatorial courtesy, ideological disagreement, and concern over nominees' qualifications as among the circumstances that led to committee consideration of actions other than a favorable report (or other than approval by the full Senate). Beyond the scope of this report are U.S. circuit and district court nominations which were reported out of the Judiciary Committee and on which the Senate failed to invoke cloture. Senate and Senate Judiciary Committee actions on judicial nominations are discussed more generally in CRS Report R43369, U.S. Circuit and District Court Nominations During President Obama's First Five Years: Comparative Analysis With Recent Presidents; and CRS Report R42556, Nominations to U.S. Circuit and District Courts by President Obama During the 111th and 112th Congresses.

Background of the Case United States v. Santos involved a challenge to the conviction of the operator of an illegal lottery and one of his collectors for violating a provision of 18 U.S.C. § 1956, a key federal criminal anti-money laundering statute. The defendants were charged with using the "proceeds" of unlawful activity to conduct a financial transaction with intent to promote the illegal gambling business. For a conviction under this particular subsection of the statute, which covers a form of money laundering, referred to as "promotional money laundering," the prosecution must prove: (1) that the defendant engaged in a financial transaction involving the "proceeds" of an unlawful activity; (2) that the unlawful activity had been designated by the statute as a "specified unlawful activity"; (3) that defendant knew that the property involved in the transaction "represents the proceeds of some form of unlawful activity"; and (4) the defendant had the "intent to promote the carrying on of specified unlawful activity." At their trial, the defendants were convicted of operating an illegal gambling business in violation of 18 U.S.C. § 1955. Under 18 U.S.C. § 1955, anyone convicted of conducting or owning an illegal gambling business is subject to a criminal fine and imprisonment for up to five years. Proof of "illegal gambling business" requires a showing that the gambling business violates state law; involves five or more persons; and has been in operation for more than thirty days or has a gross revenue of $2,000 a day. The evidence showed that gambling receipts were used to pay the expenses of the operation—payouts to winners, salaries to employees, costs of betting slips, etc.—as well as to realize profits. The promotional money laundering charge was based on payments to winners and to employees—runners—of the gambling business. These payments were part of the underlying charge of operating an illegal gambling business. The defendant convicted of operating the gambling business received a 60-month sentence for the illegal gambling conviction and 210 months for the money laundering. Supreme Court Decision The issue presented to the Court was a straightforward question of statutory interpretation: as used in 18 U.S.C. § 1956, does "proceeds" mean "profits" or "gross receipts?" For Santos and his co-conspirators, the answer the Court provided is "profits." For others, however, the answer is not clear because there is no majority opinion in the case; there is an opinion for a plurality of four justices which is joined by a concurring opinion by a fifth justice, Justice Stevens, that limits the reach of the holding to a narrower ground. This means that the case may be cited as authority only for the narrow ground. Complicating this, however, are two factors: (1) the plurality opinion includes language seeking to confine the meaning of Justice Stevens's opinion; and (2) all of the other justices disavowed the approach taken by Justice Stevens. Justice Scalia, in the plurality opinion, writing for himself and Justices Souter, Ginsburg, and Thomas, found no way to decipher what Congress intended in using the word "proceeds" in 18 U.S.C. § 1956. He found that (1) there is no definition of "proceeds" in 18 U.S.C. § 1956; (2) the federal criminal code does not provide a consistent definition or use for the term; (3) either "profits" or "gross receipts" would fit everywhere "proceeds' is used in the statute; and (3) dictionaries revealed no overwhelming preference for a primary ordinary meaning of the term. Declaring himself unable to resolve the ambiguity, Justice Scalia resorted to the rule of lenity which requires clarity in criminal statutes and ambiguities resolved in favor of defendants. He reasoned that, because "profits" is harder to prove than "gross receipts," defining "proceeds" as "profits" is more lenient towards defendants, and, therefore, it is the required interpretation in the statute. This means that, under this statute, prosecutors must prove, in addition to the other elements of the offense, that the defendant knew that the property involved in the transaction is " profits " of "some form of unlawful activity" and that the transaction involves " profits " of "specified unlawful activity." In the opinion, Justice Scalia seeks to dispel arguments raised by the Solicitor General that defining "proceeds" as "profits" undermines the purpose of the money laundering statute—punishing concealment and promotion of illegal activities—because it does not capture all the funds generated by the illegal activity. He first asserts that the purpose of the money laundering laws might well have been eliminating the harm caused by pouring criminal profits into expanded criminal activity (i.e., "leveraging" profits). He, then, notes that the "profits" interpretation avoids the merger problem that would occur in many of the predicate offenses named in 18 U.S.C. 1956, including operating an illegal gambling business in violation of 18 U.S.C. § 1955. This is because, if "proceeds" were interpreted to mean "gross receipts," every separate expense of the underlying crime paid after its commission would be subject to prosecution both as the substantive crime and as the money laundering offense. This would raise the double-jeopardy-like situation that the merger doctrine seeks to prevent. In a concurring opinion, Justice Stevens essentially limits the reach of the plurality opinion. He did not focus on the rule of lenity although his rationale is consistent with it to the extent that he would interpret "proceeds" to mean "profits" in the case before the Court. He begins with a premise which no other justice embraces—that courts may choose different interpretations of ambiguous terms in statutes depending on the factual circumstances. He draws a parallel between the scope of judicial interpretation of statutes and the power of Congress to flesh out terms in statutes. He concludes that because Congress could specify separate meanings for a term in a statute, courts having to fill in statutory gaps occasioned by ambiguous language do not have to decide on one meaning for all circumstances. To him, the logic is: if Congress may apply different definitions drafting legislation, courts may also do so. From this premise, he seems to have concluded that Congress intended different meanings for "proceeds" in § 1956. Following this conclusion, Justice Stevens finds that "proceeds" is intended to mean "profits" where, as with the predicate offense of conducting an illegal gambling business, there is no legislative history of congressional intent to the contrary. On the other hand, the opinion seems to assert that legislative history of congressional intent is necessary before courts may extend the meaning of "proceeds" to gross receipts. The opinion also contains language indicating that there is the possibility that there is legislative history to substantiate congressional intent to authorize money laundering prosecutions based on gross receipts transactions for certain offenses. Potential Impact Although Justice Stevens alludes to the possibility that legislative history supports interpreting "proceeds" as "gross receipts" for some types of prosecutions, it is significant that the plurality opinion disputes this and characterizes it as dicta. This may raise uncertainty as to the sustainability of convictions involving the contraband and organized crime offenses of the kind Justice Stevens cited as having legislative history supporting a "gross receipts" definition of "proceeds." Because many of the money laundering cases that have been brought under the subsection of 18 U.S.C. § 1956 at issue have involved payment of expenses of the underlying crime, the Justice Department's ability to shut off the funding of criminal activities may be severely inhibited. An added problem will be the difficulty of sustaining the burden of proof that will be required to show "profits" of criminal activities. In its merits brief, the Solicitor General argued that this burden would be substantial and perhaps insurmountable. In a dissenting opinion, written by Justice Alito, joined by Chief Justice Roberts, and Justices Kennedy and Breyer, there is a further indication of the difficulties that the "profits' definition will present to prosecutors: (1) one of the main purposes of enacting the money laundering laws was to target professional money launderers who are unlikely to know or care whether the property they are dealing with is "profits" or "gross receipts"; (2) a "profits" interpretation would require courts to determine the ordinary expenditures of criminal activities to distinguish them from "profits"; and (3) under the plurality opinion, if the government charges a continuing offense over period of years—as in the case before the Court—the government would have to show that the operation yielded a profit over the course of time charged. Another dissenting opinion, written by Justice Breyer, who also joined Justice Alito's dissent, alludes to possible solutions to what he, agreeing with the Justices Scalia and Stevens, sees as a merger problem—that prosecutors are able to transform one crime into two and add the money laundering punishments for "financial transactions that constitute an essential part of" the predicate offense. One approach he mentions is requiring that the money laundering transaction be "distinct" from the underlying offense. He also suggests that the merger problem could be corrected by relying on the U.S. Sentencing Commission to use its authority to address the unfairness resulting from using the money laundering statute to under 28 U.S.C. § 991(b)(1)(B). Justice Scalia takes issue with each of these suggestions: the first because "it has no basis whatever in the words of the statute" ; the second because it lacks certainty. Legislation S. 386 , the Fraud Enforcement and Recovery Act of 2009, has been passed by both the House and Senate and, as of May 19, 2009, awaits the signature of the President. It was introduced on February 5, 2009, by Senator Leahy to enhance federal enforcement capabilities to counteract mortgage fraud, securities fraud, and fraud with respect to federal financial assistance. In addition to provisions which provide funding for investigation and prosecution of this type of fraud; substantive provisions extending the reach of specific criminal statutes addressing financial fraud; and (in the version passed by the House) the creation of a legislative branch Financial Crisis Inquiry Commission, the bill includes an amendment to the definition of "proceeds" in the anti-money laundering laws to cover "gross receipts" of the underlying criminal activity. This is designed to solve the problems identified in the Santos decision by clarifying the ambiguity found by the Court and making it clear that "proceeds" means "gross receipts." Specifically, as passed by both House and Senate, S. 386 would add the following provision to 18 U.S.C. § 1956(c) and incorporate it into 18 U.S.C.§ 1957(c): "the term 'proceeds' means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity." The House-passed version also includes a provision addressing the merger problem. It sets forth a sense of Congress that prosecutions under the major anti-money laundering statutes, 18 U.S.C. §§ 1956 and 1957, should not be undertaken in combination with the prosecution of any other offense, without prior approval of specified Department of Justice Officials or the relevant United States Attorney if the underlying predicate offense for the money laundering prosecution "is so closely connected with the conduct to be charged as the other offense that there is no clear delineation between the two offenses." This provision also includes a requirement that, for the next five years, the Department of Justice provide the House and Senate Judiciary Committees with annual reports on the prosecutions under such approvals, denied such approvals, and undertaken without such approvals where such approvals would have been relevant. Other measures in the 111 th Congress include: S. 378 , introduced by Senator Bayh, as a stand-alone measure to amend 18 U.S.C. § 1956(c)(8) to specify that "proceeds" includes "gross receipts," and H.R. 1793 , introduced by Representative Lungren, to amend 18 U.S.C. § 1956(c) to define "proceeds" as "any property derived from or obtained, directly or indirectly, through the commission of any specified unlawful activity, including the gross proceeds of that specified unlawful activity."

On June 2, 2008, the U. S. Supreme Court, in United States v. Santos (No. 06-1005), vacated convictions of the operator of an illegal lottery and one of his runners who had been charged with conducting financial transactions involving the "proceeds" of an illegal gaming business in violation of 18 U.S.C. § 1956. The ruling is that "proceeds," as used in this money laundering statute, means "profits" rather than "gross receipts" of the underlying unlawful activity. The decision combines a plurality opinion interpreting the word "proceeds" in the statute to mean "profits" and a concurring opinion, necessary for a majority ruling, that leaves room for interpreting "proceeds" as "gross receipts" in other circumstances. A strong dissenting opinion emphasized the constraints the ruling will place on prosecutors. The interpretation rests on two principles of statutory construction: the rule of lenity and the merger doctrine. Under the rule of lenity, ambiguities in criminal statutes are construed in favor of the defendant. Application of the merger doctrine avoids the prospect that a defendant would receive two punishments under different statutes for what is essentially a single offense. On February 5, 2009, Senator Leahy introduced S. 386, the Fraud Enforcement and Recovery Act of 2009, which was reported favorably by the Senate Committee on the Judiciary on March 23, 2009, S.Rept. 111-10. On April 28, the bill, as amended, was passed by the Senate. On May 7, an amended version of the bill was passed by the House. It was returned to the Senate, amended, and passed; thereafter, on May 18, it was passed by the House for presentation to the President. The bill includes provisions amending the definition of "proceeds" under the anti-money laundering criminal statutes, 18 U.S.C. § 1956(c)(8) and 1957(c), to specify that the term includes the "gross receipts" of the underlying criminal activity. As passed by the House, the bill also includes a provision addressing the possibility of a merger problem in money laundering prosecutions for predicate offenses closely connected with the elements of the money laundering offense. Other legislation with provisions to cover "gross receipts" includes S. 378 and H.R. 1793. This report will be updated on the basis of major legislative activity.

Introduction Economic and trade reforms begun in 1979 have helped transform China into one of the world's biggest and fastest-growing economies. China's economic growth and trade liberalization, including comprehensive trade commitments made upon its entry to the World Trade Organization (WTO) in 2001, have led to a sharp expansion in U.S.-China commercial ties. Yet, bilateral trade relations have become increasingly strained in recent years over a number of issues, including China's mixed record on implementing its WTO obligations; infringement of U.S. intellectual property (such as through cyber-theft of U.S. trade secrets and forced technology requirements placed on foreign firms); increased use of industrial policies to promote and protect domestic Chinese firms; extensive trade and foreign investment restrictions; lack of transparency in trade rules and regulations; distortionary economic policies that have led to overcapacity in several industries; and its large merchandise trade surplus with the United States. China's economic and trade conditions, policies, and acts have a significant impact on the U.S. economy as whole as well as specific U.S. sectors and thus are of concern to Congress. This report provides an overview of U.S.-China commercial ties, identifies major issues of contention, describes the Trump Administration's trade policies toward China, and reviews possible outcomes. Most Recent Developments U.S.-China commercial ties are complex and have become increasingly contentious, due largely to China's incomplete transition to a free market economy. The Trump Administration has indicated its intent to take a harder line on trade policy towards China (and other countries). The most significant action it has taken to date has been the initiation of a Section 301 case against China's policies on intellectual property rights, which could result in several rounds of tit-for-tat trade sanctions and retaliation. A July 25 joint statement by the United States and European Union, said that the two sides would "work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity." (This appears to have been largely aimed at China). On July 6, the Trump Administration raised tariffs by 25% on $34 billion worth of imports from China. On the same day, China announced it would retaliate against a comparable level of U.S. products. In response to China's tariff increases, the United States Trade Representative (USTR) on July 10, threatened to increase tariffs by 10% on $200 billion worth of Chinese products. On March 8, 2018, the Trump Administration announced that it would impose additional imports tariffs on steel (by 25%) and aluminum (10%), based on "national security" justifications under the 1962 Trade Act, as amended. On April 2, China raised duties (by 15% to 25%) on about $3 billion worth of imports frim from the United States, largely targeting agricultural products. U.S. Trade with China3 U.S.-China trade rose rapidly after the two nations reestablished diplomatic relations in January 1979, signed a bilateral trade agreement in July 1979, and provided mutual most-favored-nation (MFN) treatment, beginning in 1980. In that year (which was shortly after China's economic reforms began), total U.S.-China trade (exports plus imports) was approximately $4 billion. China ranked as the United States' 24 th -largest trading partner, 16 th -largest export market, and 36 th -largest source of imports. In 2017, total U.S. merchandise trade with China was $636 billion, making China the United States' largest trading partner (see Table 1 ). U.S. Merchandise Exports to China U.S. merchandise exports to China in 2017 were $115.6 billion, up 12.8% from the previous year. China was the third-largest U.S. merchandise export market after Canada and Mexico (see Figure 1 ). China was the second-largest U.S. agricultural export market in 2017, at $19.6 billion, 63% of which consisted of soybeans. From 2000 to 2017, the share of total U.S. merchandise exports going to China rose from 2.1% to 8.4%. As indicated in Table 2 , the top five U.S. goods exports to China in 2017 were (1) aerospace products (mainly civilian aircraft and parts); (2) oil seeds and grains (mainly soybeans); (3) motor vehicles; (4) semiconductors and electronic components; and (5) waste and scrap. From 2002 to 2017, U.S. exports to China rose by 491%, faster than the growth rate for U.S. exports to any of its top 10 export markets in 2017 (see Table 3 ). During the first five months of 2018, U.S. merchandise exports to China rose by 7.8% year-on-year. Many trade analysts argue that China could prove to be a much more significant market for U.S. exports in the future. China is one of the world's fastest-growing economies, and healthy economic growth is projected to continue in the years ahead, provided that it implements new comprehensive economic reforms. China's goals of modernizing its infrastructure, rebalancing the economy, upgrading industries, boosting the services sector, and enhancing the social safety net could generate substantial new demand for foreign goods and services. Economic growth has improved the purchasing power of Chinese citizens considerably, especially those living in urban areas along the east coast of China. In addition, China's large foreign exchange reserves (at $3.1 trillion as of May 2018) and its huge population (at 1.39 billion) make it a potentially enormous market. To illustrate A January 2017 study prepared by Oxford Economics for the U.S.-China Business Council estimated that in 2015 U.S. exports of goods and services to China plus bilateral FDI flows directly and indirectly supported 2.6 million U.S. jobs and contributed $216 billion to U.S GDP. The study further predicted that U.S. exports of goods and services to China would grow from $165 billion in 2015 to over $520 billion by 2030. In 2016, Chinese visitors to the United States totaled 3.0 million (up 15.4% over the previous year), ranking China as the fifth-largest source of foreign visitors to the United States. Chinese visitors spent $33 billion in the United States in 2016 (including on education), which was the largest source of visitor spending in the United States. The U.S. Department of Commerce projects that by 2021, Chinese visitors to the United States will total 5.7 million. China has the world's largest mobile phone network with 1.48 billion mobile phone subscribers as of April 2018, and the largest number of internet users at 753 million, as of December June 2017. China's online sales in 2016 totaled $752 billion (more than double the U.S. level at $369 billion). Boeing Corporation delivered 202 planes to China in 2017 (26% of total global deliveries), making it Boeing's largest market outside the United States. Boeing predicts that over the next 20 years (2017-2036), China will need 7,240 new airplanes valued at nearly $1.1 trillion and will be Boeing's largest commercial airplane customer outside the United States. General Motors (GM) reported that it sold more cars and trucks in China than in the United States each year from 2010 to 2017. GM's China sales in 2017 were 4.0 million vehicles, compared to 3.0 million in the United States. Equity income from GM's joint venture operations in China was $2.0 billion in 2017. GM vehicle unit sales to China accounted for 42.1% of its global total. GM expects China's vehicle market to increase by 5 million units or more by 2020. In addition, U.S. motor vehicle exports to China were $9.9 billion in 2017, making it the second-largest U.S. motor vehicle export market after Canada. According to estimates by Credit Suisse (a global financial services company), China overtook the United States in 2015 to become the country with the largest middle class at 109 million adults (with wealth between $50,000 and $500,000); the U.S. level was estimated at 92 million. A study by the Brookings Institute predicts that spending by China's middle class (using 2011 purchasing power parity measurements) will rise from $4.2 trillion in 2015 (12% of global total) to $14.3 trillion (22% of global total) in 2030. China's 2030 middle class consumption levels are predicted to be more than three times U.S. levels. From 2007 to 2016, China's private consumption grew at an average annual rate of 8.9%, compared to 1.6% growth in the United States. Major U.S. Merchandise Imports from China China was the largest source of U.S. merchandise imports in 2017, at $506 billion, up 9.3% over the previous year. China's share of total U.S. merchandise imports rose from 8.2% in 2000 to 21.6% in 2017. The importance (ranking) of China as a source of U.S. imports has risen sharply, from eighth largest in 1990, to fourth in 2000, to second in 2004-2006, and to first in 2007-present (see Figure 2 ). The top five U.S. imports from China in 2017 were (1) communications equipment; (2) computer equipment; (3) miscellaneous manufactured commodities (such as toys and games); (4) apparel; and (5) semiconductors and other electronic components (see Table 4 ). China was also the fourth-largest source of U.S. agricultural imports in 2017 at $4.5 billion. Throughout the 1980s and 1990s, nearly all U.S. imports from China were low-value, labor-intensive products, such as toys and games, consumer electronic products, footwear, and textiles and apparel. However, over the past few years, an increasing proportion of U.S. imports from China are more technologically advanced products (see text box below). Trade in Services China is a major U.S. trading partner in services. In 2017, China was the 4 th -largest services trading partner at $75 billion, the 3 rd -largest services export market at $57.6 billion, and the 8 th -largest source of services imports at $17.4 billion (see Figure 3 ). The United States ran a $40.2 billion services trade surplus with China, which was the largest services surplus of any U.S. trading partner. The U.S. Merchandise Trade Deficit with China A major concern among some U.S. policymakers is the size of the U.S. merchandise trade deficit with China, which rose from $10 billion in 1990 to $367 billion in 2015 (see Figure 4 ). The deficit fell to $347 billion in 2016, but rose to $375 billion in 2017. For the past several years, the U.S. merchandise trade deficit with China has been significantly larger than with any other U.S. trading partner (see Figure 5 ). Some analysts contend that the large U.S. merchandise trade deficits with China indicate that the trade relationship is somehow unbalanced, unfair, and damaging to the U.S. economy. Others argue that such deficits are largely a reflection of shifts in global production and the emergence of extensive and complex supply chains, where China is often the final point of assembly for export-oriented multinational firms that source goods from multiple countries. The Transfer of Pacific Rim Production to China by Multinational Firms Many analysts contend that the sharp increase in U.S. imports from China (and hence the growing bilateral trade imbalance) is largely the result of movement in production facilities from other (primarily Asian) countries to China. That is, various products that used to be made in such places as Japan, Taiwan, Hong Kong, etc., and then exported to the United States, are now made in China (in many cases, by foreign firms). To illustrate, in 1990, the share of U.S. manufactured imports from Pacific Rim countries (including China) was 47.1%, and in 2017, that share remained relatively constant at 47.1% (see Figure 6 ). What changed was the country source of those imports. In 1990, China accounted for 7.6% of the share of U.S. manufactured imports from the Pacific Rim, but by 2017, that share increased to 55.4%. In other words, between 1990 and 2016, the role of China as a supplier of U.S. manufactured products among Pacific Rim countries increased sharply, while the relative importance of the rest of the Pacific Rim (excluding China) for these products sharply decreased. This was partly due to many multinational firms shifting their export-oriented manufacturing facilities from other countries to China. A significant amount of the shift in production appears to have involved Japan. In 1990, Japan was the source of 23.8% of U.S. manufactured imports, but by 2017 this level had dropped to 7.0%. Conversely, China's share of U.S. manufactured imports rose from 3.8% to 26.2% (see Figure 7 ). Japan accounted for the single largest U.S. bilateral merchandise trade deficit for many years until it was overtaken by China in 2000. China as a Major Center for Global Supply Chains A joint study by the Organisation for Economic Co-operation and Development (OECD) and the WTO has sought to estimate trade flows according to the value that was added in each country. For example, the OECD/WTO study estimated that in 2011, 32.2% of the overall value of China's gross exports was comprised of foreign imports. This level increased to 40.2% for China's total manufactured exports, and for electrical and optical equipment, it was 53.8% (see Figure 8 ). The study estimated that if bilateral trade imbalances were measured according to the value of trade that occurred domestically in each country, the U.S. trade deficit in goods and services with China in 2011 (the most recent year available) would decline by 35% (from $278.6 billion to $181.1 billion) (see Figure 9 ). This is largely because of the role of trade in intermediate goods (parts and materials imported to make products). For example, the World Bank estimates that U.S. intermediate exports and imports to and from China in 2016 were $19.3 billion and $33.5 billion, respectively. Thus, many Chinese products contain U.S.-made inputs and some U.S. products contain Chinese-made inputs. According to Apple Corporation, it used over 200 corporate suppliers with nearly 900 facilities located around the world. The top five largest country sources of these facilities in 2017 were China (358), Japan (137), the United States (64), Taiwan (55), and South Korea (34) (see Figure 10 ). Some U.S. corporate suppliers to Apple have facilities located in many countries. For example, Intel Corporation has 10 facilities that supply products to Apple, three of which are located in the United States, two in China, two in Malaysia, and one each in Ireland, Israel, Malaysia, and Vietnam. Apple iPhones are mainly assembled in China by Taiwanese companies (Foxconn and Pegatron) using a number of intermediate goods imported from abroad (or in many cases, intermediates made by foreign firms in China). Many analysts have estimated that the value-added that occurs in China in the production of the iPhone is small relative to the total value of the product because it mainly involves assembling foreign-made or foreign-owned components. Apple Corporation, on the other hand, is thought to be the single largest beneficiary (in terms of gross profit) on the sale of the iPhone. However, conventional trade data does not accurately attribute the value-added that occurs in each stage of making the iPhone. Rather, when the United States imports iPhones from China, U.S. trade data attributes nearly the full value of the product as originating in China, which some argue artificially inflates the size of the U.S. trade deficit with China. One 2010 study estimated that in 2009, China exported 11.3 million iPhones to the United States, with a shipping price of $179 per unit and total export value at $2.0 billion. The study estimated that 96.4% of the value of the iPhone was attributed to foreign suppliers and producers of components and parts, including the United States (at $122 million). Standard trade data would put China's trade surplus in iPhone trade with the United States at $1.9 billion, but that level would fall to $73.5 million if that trade was measured according to the value-added that occurred in each country. Several analysts have concluded that Apple's innovation in developing and engineering its products, along with its ability to source most of its production in low-cost countries, such as China, has helped enable the company to become a highly competitive and profitable firm (as well as a source for high-paying jobs in the United States). Apple products illustrate that the rapidly changing nature of global supply chains has made it increasingly difficult to interpret the implications of U.S. trade data because, while they may show where products are being imported from, they often fail to reflect who benefits from that trade. China Trade and U.S. Jobs Measuring and assessing the benefits and costs of growing U.S.-China economic ties are often hotly debated among U.S. policymakers and economists, particularly in regard to its impact on various manufacturing sectors and workers. The impact on U.S. employment (especially in various manufacturing sectors) resulting from imports from China (particularly after it joined the WTO in 2001) has been a major point of contention. Some critics of U.S. trade policy toward China attempt to link U.S. job losses to the growth and size of U.S. imports from China and/or the bilateral trade imbalance. For example, a study by the Economic Policy Institute (EPI) in December 2014 claims that growth in the U.S. goods trade deficit with China between 2001 and 2013 "eliminated or displaced" 3.2 million U.S. jobs (three-fourths of which were in manufacturing). The authors stated that they used an input-output model that "estimated the amount of labor, or number of jobs, that is required to produce a given volume of exports and the labor displaced when a given volume of imports is substituted for domestic output." The difference between the two numbers is thus the estimated jobs displaced by the trade deficit. Critics of the EPI study argue that the methodology used is flawed. First, the study essentially takes the Department of Commerce's estimates of the number of jobs "supported" by each $1 billion in exports (5,744 in 2016) and makes the assumption that each $1 billion in imports must displace the same level of jobs, a notion that most economists would disagree with. For example, not all imports from China compete directly with U.S. producers. Many are products that used to be made in other countries, and thus an increase in imports from China alone did not necessarily displace U.S. domestic producers. In addition, some imports from China contain U.S.-made intermediate parts (such as semiconductors) made in the United States. Many imports from China are final assembled products (such as Apple iPhones) with a relatively small share of value-added from China, and the jobs generated or supported by innovating the products are not accounted for in the trade data. Finally, factors other than trade, such as technological innovation, may also affect job levels in some sectors. Similarly, while China is the largest source of U.S. merchandise imports, the overall impact on the U.S. economy is relatively small. A Federal Reserve Bank of San Francisco study examined U.S. consumer spending and estimated that, in 2010, U.S. personal consumption expenditures (PCE) of domestically sourced goods and services goods was 88.5% of total U.S. PCE (total imports accounted for 11.5%). Imports from China accounted for 2.7% of U.S. PCE, but less than half of this amount was attributed to the actual cost (price) of Chinese imports—the rest went to U.S. businesses and workers transporting, selling, and marketing the Chinese-made products, which, the study estimated, would reduce China's share of U.S. PCE to 1.9%. Economists generally argue that trade has an overall positive impact on the economy. Low-cost imports boost consumer welfare, increase consumer choices, and help lower inflation. However, some economists contend that the benefits of trade are not equally spread. Some sectors can be negatively impacted, affecting employment and wages, and such negative effects can be concentrated in certain regions or industries, and adjusting to such shocks can be challenging. A 2014 study by the National Bureau of Economic Research (NBER) concluded that increased import penetration from China from 1999 to 2011 directly and indirectly resulted in net U.S. job losses of 2.0 million to 2.4 million U.S. jobs, and accounted for 10% of the decline in U.S. manufacturing jobs during this period. Another NBER study asserted that China's rise as an economic power has "induced an epochal shift in patterns of world trade" and has "challenged much of the received empirical wisdom about how labor markets adjust to trade shocks." The study said that for workers in import-competing firms, "adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income," in part because workers that may lose their jobs due to imports often remain in highly exposed industries or regions, which are subject to further trade shocks. The study claimed that there is little evidence for substantial off-setting employment gains in local industries not exposed to the trade shock. Critics of the two NBER studies contend that while trade may impact the composition of jobs in the U.S. economy, it has little long-term effect on the number of jobs, which they argue is largely a function of aggregate demand. They also point out that between 2010 and 2015, the number of U.S. manufacturing jobs rose by 6.8% even though U.S. imports from China increased by 32.4%. In addition, U.S. manufacturing output during this period rose by 15.3%. Some economists contend that U.S. productivity has been a major cause of job losses in manufacturing. A study by Ball State University attributed 88% of U.S. manufacturing job losses from 2000 to 2010 to productivity gains, noting that had the United States "kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million." Similarly, while China is the largest source of U.S. merchandise imports, the overall impact on the U.S. economy is relatively small. A Federal Reserve Bank of San Francisco study examined U.S. consumer spending and estimated that, in 2010, U.S. personal consumption expenditures (PCE) of domestically sourced goods and services goods was 88.5% of total U.S. PCE (total imports accounted for 11.5%). Imports from China accounted for 2.7% of U.S. PCE, but less than half of this amount was attributed to the actual cost (price) of Chinese imports—the rest went to U.S. businesses and workers transporting, selling, and marketing the Chinese-made products, which, the study estimated, would reduce China's share of U.S. PCE to 1.9%. U.S.-China Investment Ties: Overview Investment plays a large and growing role in U.S.-China commercial ties. China's investment in U.S. assets can be broken down into several categories, including holdings of U.S. securities, foreign direct investment (FDI), and other non-bond investments. The Department of the Treasury defines foreign holdings of U.S. securities as "U.S. securities owned by foreign residents (including banks and other institutions), except where the owner has a direct investment relationship with the U.S. issuer of the securities." U.S. statutes define FDI as "the ownership or control, directly or indirectly, by one foreign resident of 10% or more of the voting securities of an incorporated U.S. business enterprise or the equivalent interest in an unincorporated U.S. business enterprise, including a branch." The Bureau of Economic Analysis (BEA) is the main U.S. government agency that collects and reports data on FDI flows to and from the United States, which is done on a balance of payment basis. China has also invested in a number of U.S. companies, projects, and various ventures that do not meet the U.S. definition of FDI, and thus, are not reflected in BEA's data. For many years, the accumulation of foreign exchange reserves (FERs) has been a major driver of China's overseas investment. China's FERs result from: (1) large annual trade surpluses and FDI inflows; (2) intervention by the Chinese government to halt or slow the value of its currency, the renminbi (RMB); and (3) restrictions on capital outflows by private Chinese citizens. Rather than holding foreign currencies, such as U.S. dollars which would earn no interest, the Chinese government has invested much of those reserves abroad. For many years, much of that investment has gone into U.S. Treasury securities. Although they generate low returns, such securities are generally viewed globally as a relatively safe investment because they are backed by the full faith and credit of the U.S. government and are liquid (e.g., easily sold), albeit generating relatively small rates of returns. More recently, the Chinese government has diversified its investments in order to obtain higher returns, such as by encouraging its firms (especially SOEs) to invest overseas to become more globally competitive, as well as to help China gain access to raw materials (such as oil), food, and technology. As a result, Chinese annual FDI outflows have grown significantly in recent years, rising from $21 billion in 2006 to $183 billion in 2016, making China the second-largest source of annual global FDI outflows. U.S. investment in China has largely been in the form of FDI flows (due in part to Chinese restrictions on portfolio investment). Initially, most U.S. FDI flows (especially after China began to open up its economy in 1979) likely went toward export-oriented manufacturing to take advantage of China's relatively low wages. In more recent years, as China's economy has rapidly grown, a larger share of U.S. FDI in China has gone to tap into the country's booming domestic demand for goods and services. However, many U.S. firms raise concerns that Chinese investment restrictions and requirements (such as technology sharing) often hamper their efforts. China's Holdings of U.S. Public and Private Securities42 China's holdings of U.S. public and private securities are significant and by far constitute the largest category of Chinese investment in the United States. These securities include U.S. Treasury securities, U.S. government agency (such as Freddie Mac and Fannie Mae) securities, corporate securities, and equities (such as stocks). China's investment in public and private U.S. securities totaled $1.54 trillion as of June 2017, making it the fourth-largest holder after Japan, the Cayman Islands, and the United Kingdom. U.S. Treasury securities, which help the federal government finance its budget deficits, are the largest category of U.S. securities held by China. As indicated in Table 6 and Figure 11 (which show end-year data), China's holdings of U.S. Treasury securities increased from $118 billion in 2002 to $1.24 trillion in 2014, but fell to $1.06 trillion in 2016. They rose to nearly $1.19 trillion in 2017, making China the largest foreign holder of U.S. Treasury securities. China's holdings of U.S. Treasury securities as a share of total foreign holdings rose from 9.6% in 2002 to a historical high of 26.1% in 2010. That level fell to 17.6% in 2016, but rose to 18.8% in 2017. China's holdings of U.S. Treasury securities as of April 2018 were $1.18 trillion and constituted 19.2% of total foreign holdings. Some analysts and Members of Congress have sometimes raised concerns that China's large holdings of U.S. debt securities could give it leverage over U.S. foreign policy, including trade policy. They argue, for example, that China might attempt to sell (or threaten to sell) a large share of its U.S. debt securities over a policy dispute, which could damage the U.S. economy. Others counter that China's holdings of U.S. debt give it very little practical leverage over the United States. They argue that, given China's economic dependency on a stable and growing U.S. economy, and its substantial holdings of U.S. securities, any attempt to try to sell a large share of those holdings would likely damage both the U.S. and Chinese economies. It could also cause the U.S. dollar to sharply depreciate against global currencies, which could reduce the value of China's remaining holdings of U.S. dollar assets. In the 112 th Congress, the conference report accompanying the National Defense Authorization Act of FY2012 ( H.R. 1540 , P.L. 112-81 ) included a provision requiring the Secretary of Defense to conduct a national security risk assessment of U.S. federal debt held by China. The Secretary of Defense issued a report in July 2012, stating that "attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States. As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options, whether in the diplomatic, military, or economic realms, and this would remain true both in peacetime and in scenarios of crisis or war." U.S. Residential Real Estate Over the past few years, Chinese purchases of U.S. residential real estate have risen sharply, from $11.2 billion in 2010 to $31.7 billion in 2017. Chinese investors were the largest foreign purchases of U.S. residential restate buyers each year from 2015 to 2017. In 2017, Chinese investors purchased 40,572 properties. Bilateral Foreign Direct Investment Flows50 The level of foreign direct investment (FDI) flows between China and the United States is relatively small given the large volume of trade between the two countries. Many analysts contend that an expansion of bilateral FDI flows could greatly expand commercial ties. BEA data on U.S.-China FDI (see Table 7 ) indicate that in 2016 U.S. FDI flows to China were $9.5 billion (up 28.2% over 2015 flows), making China the ninth-largest destination of U.S. FDI outflows. The stock of U.S. FDI in China on a historical-cost basis (i.e., the book value) was $92.5 billion (up 9.4% over the previous year), making China the 12 th -largest overall destination of U.S. FDI through 2016. Chinese FDI flows to the United States were $10.3 billion (up 74.7% over 2015 levels), making China the 11 th -largest source of U.S. FDI inflows in 2016. At the end of 2016, the stock of Chinese FDI in the United States on a historical-cost basis, was $27.5 billion (up 63.7% over the previous year), making China the 16 th -largest overall source of U.S. FDI through 2016. BEA also collects various financial data of foreign-invested multilateral firms. Data for 2015 (the most recent year available) indicate that sales by foreign affiliates of U.S. firms in China totaled $481 billion, which was the third-largest market for U.S.-affiliated firms overseas, after the United Kingdom ($697 billion) and Canada ($625 billion) (see Figure 12 ). In addition, U.S. affiliates in China employed 2.1 million workers, paid $35 billion in employment compensation, and spent $3.4 billion on R&D. Alternative Measurements of Bilateral FDI Flows The Rhodium Group (RG), a private consulting firm, estimates that Chinese FDI in the United States is significantly higher than BEA estimates. RG notes that "official data often exhibit a 1-2 year time lag and do not capture major trends, due to problems such as significant round tripping and trans-shipping of investments." The Rhodium Group's approach is to calculate the full value of a Chinese acquisition in the year it was made, attributing it to China if a Chinese entity is the investor, regardless of where the financing of the deal originated (such as through oft-used Hong Kong and Caribbean offshore centers). RG's data on U.S.-China FDI are significantly higher than BEA's data (see Figure 13 , Figure 14 , and Figure 15 ). To illustrate RG's data on the stock of Chinese FDI in the United States through 2016 ($110.1 billion), is 300.4% higher than BEA's data (at $27.5 billion). RG's estimate of the stock of U.S. FDI in China, at $242.6 billion, is 162.3% higher than BEA's estimate (at $92.5 billion). RG puts Chinese FDI flows to the United States in 2016 at $46.2 billion, which was 348.5% higher than BEA's data ($10.3 billion). RG's estimate of U.S. FDI flows to China in 2016, at $13.8 billion, was 45.3% higher than BEA's data ($9.5 billion). Both BEA and RG data indicate a sharp increase in Chinese FDI flows to the United States in 2016 over the previous year. BEA's data show a 28.2% rise while RG's data indicate a 201.9% surge. The Chinese government reports in 2017 that its global overseas nonfinancial FDI dropped by 29.4% over the same period in 2016. The RG's data of 2017 indicate that Chinese FDI flows to the United States in 2017 were $29.4 billion, a 36.4% decline over the previous year, RG estimates that during the first half of 2018, Chinese FDI in the United States totaled $1.8 billion, a 90% drop over the first half of 2017 and the lowest level in seven years. Some of the decline in China's overseas FDI appears to be largely driven by new Chinese policies to seek to increase scrutiny of proposed overseas investments to ensure that they are not "irrational or illegal." In February 2018, the Chinese government announced that it would take over Anbang Insurance Company (which owns the Waldorf Astoria in New York City and other U.S. properties) for a year because of illegal business practices that allegedly threatened the solvency of the company. Falling Chinese FDI in the United States may also be the result of closer scrutiny to proposed Chinese acquisitions of U.S. assets by U.S. officials. The American Enterprise Institute (AEI) and the Heritage Foundation jointly maintain the China Global Investment Tracker database, which lists Chinese global investments of $100 million or more since 2005. Table 8 lists the 10 largest Chinese investments in the United States through 2017, which include HNA's purchase of CIT Group's aircraft leasing business for $10.4 billion; Shuanghui's (now called WH Group) purchase of Smithfield Foods for $7.1 billion; HNA's $6.5 billion investment in Hilton from Blackstone; HNA's purchase of Ingram Micro for $6 billion; and Anbang's $5.7 billion acquisition of hotel properties from Blackstone. Chinese Restrictions on U.S. FDI in China U.S. trade officials have urged China to liberalize its FDI regime in order to boost U.S. business opportunities in, and expand U.S. exports to, China. Although China is one of the world's top recipients of FDI, the Chinese central government imposes numerous restrictions on the level and types of FDI allowed in China. According to the U.S.-China Business Council (USCBC), China imposes ownership barriers on nearly 100 industries. The OECD's 2016 FDI Regulatory Restrictiveness Index, which measures statutory restrictions on FDI in 62 countries, ranked China's FDI regime as the fourth most restrictive. Some recent surveys by U.S. and European business groups suggest that foreign firms in China may be less optimistic about the Chinese market than in the past, due in part to perceived growing protectionism. To illustrate: A 2017 American Chamber of Commerce in China (AmCham China) business climate survey of 500 member companies found that while a majority of respondents felt optimistic about their investments in China, 81% said that foreign businesses in China were less welcome in China than before, compared to 41% who asserted that in 2013. The survey found that 55% of respondents said that foreign firms are treated less favorably treated by the Chinese government than domestic Chinese firms. A 2016 European Union Chamber of Commerce in China business confidence survey stated that the business environment in China was becoming "increasingly hostile" and "perpetually tilted in favor of domestic enterprises." For example, among respondents, 56% said doing business in China was becoming more difficult and 57% claimed foreign companies tend to receive unfavorable treatment in China compared to domestic Chinese firms. Negotiations for a Bilateral Investment Treaty (BIT)64 The United States and China initiated negotiations on reaching a bilateral investment treaty (BIT) in 2008, with the goal of expanding bilateral investment opportunities. U.S. negotiators hoped such a treaty, if implemented, would improve the investment climate for U.S. firms in China by enhancing legal protections and dispute resolution procedures, and by obtaining a commitment from the Chinese government that it would treat U.S. investors no less favorably than Chinese investors. In April 2012, the Obama Administration released a "Model Bilateral Investment Treaty" that was developed to enhance U.S. objectives in the negotiation of new BITs. The new model BIT addressed six core principles or issues for investors, including national treatment and most-favored nation (MFN) treatment at all stages of investment, rules on expropriations and compensation if this occurs, ability to transfer funds in and out of the country, limits on performance requirements (such as domestic content targets or mandated technology transfer), neutral arbitration of disputes, and freedom by investors to appoint their own senior officials. During the July 10-11, 2013 session of the U.S.-China Strategic and Economic Dialogue (S&ED), China indicated its intention to negotiate a high-standard BIT with the United States that would include all stages of investment and all sectors, a commitment a U.S. official described as "a significant breakthrough, and the first time China has agreed to do so with another country." A press release by the Chinese Ministry of Commerce stated that China was willing to negotiate a BIT on the basis of nondiscrimination and a negative list, meaning the agreement would identify only those sectors not open to foreign investment on a nondiscriminatory basis (as opposed to a BIT with a positive list which would only list sectors open to foreign investment). During the July 9-10, 2014 S&ED session, the two sides agreed to a broad timetable for reaching agreement on core issues and major articles of the treaty text, and committed to initiate the "negative list" negotiation early in 2015. During BIT negotiations held in June 2015, each side submitted their first negative list proposals, and later agreed to submit a revised list in September 2015 right before President Xi's summit visit to the United States, which they did, but a breakthrough was not achieved. New negative lists were submitted in June 2016 and August 2016, and the BIT was discussed at the September 2016 G-20 Summit held in Hangzhou, China, but no breakthrough was announced. Many analysts contend that a U.S.-China BIT could have significant implications for bilateral commercial relations and the Chinese economy. According to then-USTR Michael Froman, such an agreement "offers a major opportunity to engage on China's domestic economic reforms and to pursue greater market access, a more level playing field, and a substantially improved investment environment for U.S. firms in China." For China, a high-standard BIT could help facilitate greater competition in China and result in a more efficient use of resources, factors which economists contend could boost economic growth. Some observers contend that China's pursuit of a BIT with the United States represents a strategy that is being used by reformers in China to jumpstart widespread economic reforms (which appear to have stalled in recent years). This strategy, it is argued, is similar to that used by Chinese reformers in their efforts to get China into the WTO in 2001. Such international agreements may give political cover to economic reformers because they can argue that the agreements build on China's efforts to become a leader in global affairs. This may make it harder for vested interests in China who benefit from the status quo to resist change. Some critics raise concerns that even if a high standard BIT is reached, ensuring China's full compliance may prove difficult, given China's extensive use of industrial policies. Others have raised questions as to the effect of such an agreement in boosting FDI flows and how that might impact U.S. jobs in affected industries. A BIT would have to be approved in the U.S. Senate by a two-thirds majority. The BIT was not concluded by the end of the Obama Administration's term (the original goal of completion). While the Chinese government has indicated that it supports continuing BIT negotiations, the Trump Administration has been less clear on its position. U.S. Secretary of Treasury Steven Mnuchin was quoted by Inside Trade in June 2017 as saying: It's on our agenda; I wouldn't say it's at the very top of our agenda. I think what we're looking for is, opposed to just negotiating a large agreement, we're looking to negotiate very specific issues that deal with market issues today, deal with market fairness today, deal with opening their markets to the same extent that our markets are open, and that's really our focus.... Once we can make progress in that we can turn to the bilateral investment treaty. The U.S.-China Economic and Security Review Commission's (USCC's) November 2015 annual report recommended that the Administration provide a comprehensive, publicly available assessment of Chinese FDI in the United States prior to completion of BIT negotiations that includes an identification of the nature of investments, whether investments received support of any kind from the Chinese government and at any level, and the sector in which the investment was made. The USCC's 2016 annual report recommended that Congress should "amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies." Concerns About Chinese FDI in the United States Chinese FDI in the United States has come under increasing scrutiny by U.S. policymakers. Some have expressed concerns over Chinese investments (especially by SOEs or government-backed entities) that appear to target industries and technologies that the Chinese government has identified as critical to China's future economic development. Some have called for reforms to the process in which the Federal government evaluates certain FDI, such as the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews the national security aspects of certain foreign acquisitions, seek to modify the terms of the proposed acquisition, and makes recommendations to the President, who can block the transaction. The USCC's 2017 Annual Report identified three trends that may impact the ability of CFIUS to review Chinese investment in the United States, including China's targeting investments in industries it deems as strategic, the use of private entities as fronts by the Chinese government SOEs to obtain assets in strategic sectors; and attempting to bypass U.S. regulatory procedures (such as investing through shell companies outside China) and using cyber-espionage to financially undermine the targeted firm before acquiring it. The commission made a number of recommendations to Congress on Chinese investment in the United States, including a ban on acquisition of U.S. assets by Chinese state-owned or state-controlled entities, including sovereign wealth funds. In September 2017, President Trump, citing national security concerns, blocked the acquisition of the U.S. firm Lattice Semiconductor by China Venture Capital Fund Corporation Limited for $1.3 billion. In March 2018, national security concerns were also used by President Trump when he blocked a bid to purchase Qualcomm Incorporated (a U.S. high-technology firm) to Broadcom Limited (a semiconductor firm headquartered in Singapore). The decision to block the sale appears to have been motivated in part by concerns it would weaken Qualcomm's position and enable China to, according to CFIIUS, dominate 5G technology and the standards setting process. Some Members of Congress argue that the structure and scope of CFIUS needs to modernized and strengthened in order to close loopholes that may exist in the current system for certain types of foreign investments. Several CFIUS bills have been introduced in Congress, many of which be appear to be largely aimed at Chinese FDI activities. For example, a press release by Representative Pittenger for his introduction of H.R. 4311 (the Foreign Investment Risk Review Modernization Act of 2017) stated China is buying American companies at a breathtaking pace. While some are legitimate business investments, many others are part of a backdoor effort to compromise U.S. national security.... For example, China recently attempted to purchase a U.S. missile defense supplier using a shell company to evade detection. The global economy presents new security risks, and so our bipartisan legislation provides Washington the necessary tools to better track and evaluate Chinese investment. Some CFIUS reform bills have been taken up by Congress, including H.R. 5841 (the Foreign Investment Risk Review Modernization Act of 2018, introduced by Representative Pittenger), which passed the House on June 26, 2018); and S. 2098 (the Foreign Investment Risk Review Modernization Act of 2018, introduced by Senator Cornyn), which was added as an amendment by the Senate to H.R. 5515 (the National Defense Authorization Act for Fiscal Year 2019) and passed by the Senate on June 18. There is also support by some in Congress to modernize and reform U.S. export control laws, such as H.R. 5040 (the Export Control Reform Act of 2018). The Trump Administration had indicated under its Section 301 investigation of China's IPR policies that it would to impose new FDI restrictions and tighter export controls against China. However, on June 27, President Trump announced that legislation currently under consideration in Congress to reform CFIUS and export control laws would, if enacted, meet the Administration's goals on these issues. Major U.S.-China Trade Issues China's economic reforms and rapid economic growth, along with the effects of globalization, have caused the economies of the United States and China to become increasingly integrated. Although growing U.S.-China economic ties are considered by most analysts to be mutually beneficial overall, tensions have risen over a number of Chinese economic and trade policies that many U.S. critics charge are protectionist, economically distortive, and damaging to U.S. economic interests. According to the USTR, most U.S. trade disputes with China stem from the consequences of its incomplete transition to a free market economy. Major areas of concern for U.S. stakeholders include China's Extensive network of industrial policies (including widespread use of trade and investment barriers, financial support, and indigenous innovation policies) that seek to promote and protect domestic sectors and firms, especially SOEs, deemed by the government to be critical to the country's future economic growth; Failure to provide adequate protection of U.S. intellectual property rights (IPR) and (alleged) widespread government-directed cyber-theft of U.S. trade secrets security to help Chinese firms; Mixed record on implementing its WTO obligations; and Government-directed financial policies that promote high savings (but reduce private consumption), encourage high fixed investment levels (but may contribute to overcapacity in many industries), and a managed exchange rate policy that may distort trade flows. Chinese "State Capitalism" Currently, a significant share of China's economy is thought to be driven by market forces. A 2010 WTO report estimated that the private sector now accounted for more than 60% of China's gross domestic product (GDP). A 2016 WTO study estimated that the private sector accounted for 41.8% of China's exports. However, the Chinese government continues to play a major role in economic decision-making. For example, at the macroeconomic level, the Chinese government maintains policies that induce households to save a high level of their income, much of which is deposited in state-controlled Chinese banks. This enables the government to provide low-cost financing to Chinese firms, especially SOEs. At the microeconomic level, the Chinese government (at the central and local government level) seeks to promote the development of industries deemed critical to the country's future economic development by using various policies, such as subsidies, tax breaks, preferential loans, trade barriers, FDI restrictions, discriminatory regulations and standards, export restrictions on raw materials (including rare earths), technology transfer requirements imposed on foreign firms, public procurement rules that give preferences to domestic firms, and weak enforcement of IPR laws. Many analysts argue that the Chinese government's intervention in various sectors through industrial policies has intensified in recent years. The December 2013 USTR report on China's WTO trade compliance stated During most of the past decade, the Chinese government emphasized the state's role in the economy, diverging from the path of economic reform that had driven China's accession to the WTO. With the state leading China's economic development, the Chinese government pursued new and more expansive industrial policies, often designed to limit market access for imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government guidance, resources and regulatory support to Chinese industries, particularly ones dominated by state-owned enterprises. This heavy state role in the economy, reinforced by unchecked discretionary actions of Chinese government regulators, generated serious trade frictions with China's many trade partners, including the United States. The extent of SOE involvement in the Chinese economy is difficult to measure , due to the opaque nature of the corporate sector in China and the relative lack of transparency regarding the relationship between state actors (includi ng those at the central and non central government levels) and Chinese firms. According to one study by the USCC The state sector in China consists of three main components. First, there are enterprises fully owned by the state through the State-owned Assets and Supervision and Administration Commission (SASAC) of the State Council and by SASACs of provincial, municipal, and county governments. Second, there are SOEs that are majority owners of enterprises that are not officially considered SOEs but are effectively controlled by their SOE owners. Finally, there is a group of entities, owned and controlled indirectly through SOE subsidiaries based inside and outside of China. The actual size of this third group is unknown. Urban collective enterprises and Government-owned Township and village enterprises (TVEs) also belong to the state sector but are not considered SOEs. The state-owned and controlled portion of the Chinese economy is large. Based on reasonable assumptions, it appears that the visible state sector—SOEs and entities directly controlled by SOEs, accounted for more than 40 percent of China's nonagricultural GDP. If the contributions of indirectly controlled entities, urban collectives, and public TVEs are considered, the share of GDP owned and controlled by the state is approximately 50 percent. According to the Chinese government, there are 150,000 state-owned or state-controlled enterprises at the central and local government excluding financial institutions, with total assets worth $15.2 trillion, and 30 million workers. Chinese SOEs have undergone significant restructuring over the years. The government contends that 68% of all SOE-funded firms in 2016 were mixed-ownership. The Chinese government has identified a number of industries where the state should have full control or where the state should dominate. These include autos, aviation, banking, coal, construction, environmental technology, information technology, insurance, media, metals (such as steel), oil and gas, power, railways, shipping, telecommunications, and tobacco. Many SOEs are owned or controlled by local governments. According to one analyst The typical large industrial Chinese company is ...wholly or majority-owned by a local government which appoints senior management and provides free or low-cost land and utilities, tax breaks, and where possible, guarantees that locally made products will be favored by local governments, consumers, and other businesses. In return, the enterprise provides the local state with a source of jobs for local workers, tax revenues, and dividends. China's banking system is largely dominated by state-owned or state-controlled banks. In 2011, the top five largest banks in China, all of which were shareholding companies with significant state ownership, accounted for 57.5% of Chinese banking assets. The Chinese government also has four banks that are 100% state-owned and holds shares in a number of joint stock commercial banks. SOEs are believed to receive preferential credit treatment by government banks, while private firms must often pay higher interest rates or obtain credit elsewhere. According to one estimate, SOEs accounted for 85% ($1.4 trillion) of all bank loans in 2009 . Not only are SOEs dominant players in China's economy , many are quite large by global standards. Fortune's 201 8 list of the world's 500 largest companies include s 111 Chinese firms (compared to 29 listed firms in 2007), the top 20 of which are listed in Table 9 . Out of the top 20 Chinese firms listed in the Fortune Global 50 0 , 17 (85%) are majority - owned (50% or more ) by Chinese government , and for the entire list, 78 or (70%) are primarily owned by the government . Some of the 1 11 Chinese firms on the Fortune 500 list , while not majority-owned by the government , may be partially state-controlled or favored by the government. Fo r example Several of the listed firms are banks where the Chinese government owns a large or controlling share, including 26.5% of the Bank of Communications, 15.7% of China Minsheng Banking Corp., 21% of China Industrial Bank, 17.9% of China Merchant Bank, and 20% of Shanghai Pudong Development Bank.Lenovo, a major global computer producer, was started by the Chinese National Academy of Social Sciences , which started Legend Holdings in 1984. Lenovo was spun off from Legend in 2001, but Legend still owns 31% of Lenovo's shares. Huawei (a major telecommunications company) describes itself as an employee-owned firm. However, many U.S. analysts contend that Huawei has strong links with the Chinese government, including the Chinese People's Liberation Army (PLA), and has not published a full breakdown of its ownership structure. In addition, in the past, the Chinese government reported ly ordered state banks to extend loans to the company early in its development so that it could compete against foreign firms in the domestic telecommunications market.Ping An Insurance is the largest non state company on the 201 7 Global 500 list. In 2012, T he New York Times published an article that reported that in 2004 a networ k of family and friends of then- Chinese Premier Wen Jiabao owned 1 35 million shares of Ping An Insurance through a series of investment companies. A March 2016 Times article described Ping An as a " labyrinthine shareholding structure made up of 37 interlocking holding companies. " China's Plan to Modernize the Economy and Promote Indigenous Innovation Many of the industrial policies China has implemented or formulated since 2006 appear to stem largely from a comprehensive document issued by China's State Council (the highest executive organ of state power) in 2006 titled the National Medium-and Long-Term Program for Science and Technology Development (2006-2020) , often referred to as the MLP. The MLP appears to represent an ambitious plan to modernize the structure of China's economy by transforming it from a global center of low-tech manufacturing to a major center of innovation (by the year 2020) and a global innovation leader by 2050. It also seeks to sharply reduce the country's dependence on foreign technology. The MLP includes the stated goals of "indigenous innovation, leapfrogging in priority fields, enabling development, and leading the future." Some of the broad goals of the MLP state that by 2020 The progress of science and technology will contribute 60% or above to China's development. The country's reliance on foreign technology will decline to 30% or below (from an estimated current level of 50%). Gross expenditures for research and development (R&D) would rise to 2.5% of gross domestic product (from 1.3% in 2005). Priority areas for increased R&D include space programs, aerospace development and manufacturing, renewable energy, computer science, and life sciences. The document states that "China must place the strengthening of indigenous innovative capability at the core of economic restructuring, growth model change, and national competitiveness enhancement. Building an innovation-oriented country is therefore a major strategic choice for China's future development." This goal, according to the document, is to be achieved by formulating and implementing regulations in the country's government procurement law to "encourage and protect indigenous innovation," establishing a coordination mechanism for government procurement of indigenous innovative products, requiring a first-buy policy for major domestically made high-tech equipment and products that possess proprietary intellectual property rights, providing policy support to enterprises in procuring domestic high-tech equipment, and developing "relevant technology standards" through government procurement. Reaction by U.S. Stakeholders Beginning in 2009, several U.S. companies began to raise concerns over a number of Chinese government circulars that would establish an "Indigenous Innovation Product Accreditation" system. For example, in November 2009, the Chinese government released a "Circular on Launching the 2009 National Indigenous Innovation Product Accreditation Work," requiring companies to file applications by December 2009 for their products to be considered for accreditation as "indigenous innovation products." Similar proposed circulars were issued at the provincial and local government levels. U.S. business representatives expressed deep concern over the circulars, arguing that they were protectionist in nature because they extended preferential treatment for Chinese government procurement to domestic Chinese firms that developed and owned intellectual property (IP), and thus, largely excluded foreign firms. AmCham China described China's attempt to link IP ownership with market access as "unprecedented worldwide." A letter written by the U.S. Chamber of Commerce and 33 business associations to the Chinese government on December 10, 2009, stated that the indigenous innovations circulars would "make it virtually impossible for any non-Chinese company to participate in China's government procurement market—even those that have made substantial and long-term investments in China, employ Chinese citizens, and pay taxes to the Chinese government." Such groups contend that a large share of their technology is developed globally, and thus, it would be difficult to attribute the share of technology developed in China needed to obtain accreditation. A 2011 AmCham China survey found that 40% of respondents believed that China's indigenous innovation policies would hurt their businesses and 26% said their businesses were already being hurt by such policies. At a November 2011 WTO review of China's IPR policies, the U.S. WTO representative stated that China's policies of adopting indigenous innovation had "created a troubling trend toward increased discriminatory policies which were aimed at coercing technology transfer." He stated that "Chinese regulations, rules and other regulatory measures frequently called for technology transfer, and in certain cases, conditioned, or proposed to condition, the eligibility for government benefits or preferences on intellectual property being owned or developed in China, or being licensed, in some cases exclusively, to a Chinese party." China's Response to U.S. Concerns The Chinese government responded to U.S. concerns over its indigenous innovation policies by arguing that they did not discriminate against foreign firms or violate global trade rules. However, during the visit of (then) Chinese President Hu Jintao to the United States in January 2011, the Chinese government stated that it would not link its innovation policies to the provision of government procurement preferences. During the May 2011 session of the U.S.-China Strategic and Economic Dialogue (S&ED), China pledged that it would eliminate all of its indigenous innovation products catalogs. During the November 2011 talks held under the U.S.-China Joint Commission on Commerce and Trade (JCCT), the Chinese government announced that the State Council had issued a measure requiring governments of provinces, municipalities, and autonomous regions to eliminate by December 1, 2011, any catalogues or other measures linking innovation policies to government procurement preferences. This occurred after foreign business groups raised concerns that discriminatory indigenous innovation policies might continue to be implemented at the local level even after Hu Jintao's commitment. For example, the USCBC reported in February 2011 that it had identified 22 municipal and provincial governments that had issued at least 61 indigenous innovation catalogues. U.S. business representatives sought to ensure that Beijing's pledge on indigenous innovation would apply at all levels of government in China. In May 2013, the USCBC reported that, although the central government had largely been successful in ensuring that sub-national governments complied with Hu Jintao's January 2011 commitments, 13 provinces had not yet issued any measures to comply. In addition, an October 2012 USCBC survey found that 85% of respondents said they had seen little impact on their businesses resulting from China's commitments delinking indigenous innovation with government procurement. Remaining U.S. Concerns While many U.S. business leaders have applauded China's pledge to delink indigenous innovation from government procurement, some remain wary that China will implement new policies that attempt to provide preferences to local Chinese firms over foreign firms. According to Adam Segal with the Council on Foreign Relations: "Even if China reverses certain policies under U.S. pressure, it will remain dedicated to those goals. U.S. policy is likely to become a game of Whac-a-Mole, beating down one Chinese initiative on indigenous innovation only to see another pop up." U.S. business groups are also concerned with how the MLP blueprint will affect China's commitment to enforcing foreign IPR. They note, for example, that the MLP states: "Indigenous innovation refers to enhancing original innovation, integrated innovation, and re-innovation based on assimilation and absorption of imported technology, in order to improve our national innovation capability." To some, this seems to indicate that China intends to take existing technology, make some changes and improvements on it, and then claim it as its own without acknowledging or compensating the original IPR holders. A 2011 report by the U.S. Chamber of Commerce stated that China's indigenous innovation policies led many international technology companies to conclude that the MLP is a "blueprint for technology theft on a scale the world has never seen before." U.S. officials have attempted to convince Beijing that, while its desire to increase innovation in China is a commendable goal, its efforts to limit the participation of foreign firms in such efforts, or attempting to condition market access in China to the development of IPR by foreign firms in China will hinder, not promote, the advancement of innovation in China. The direction China takes on this issue could have a significant impact on U.S. economic interests, as noted by USITC To the extent that China's policies succeed in accelerating technological progress, productivity, and innovation in the Chinese economy, they could provide spillover benefits for other countries. But if indigenous innovation policies act as a form of technological import substitution, systematically favoring Chinese domestic firms over foreign firms in relevant industries, they would be expected to have a negative effect on foreign firms and economies roughly analogous to what would occur if China simply imposed a protective tariff on imports of goods in the relevant sectors or levied a discriminatory excise tax on the sales of FIEs in the Chinese market. New Restrictions on Information and Communications Technology According to the USTR's 2015 report on China's WTO accession, while progress has been made to delink China's efforts to link indigenous innovation goals with procurement at the central and local efforts, such policies have continued in other areas. Many foreign business groups have expressed increasing concerns over a number of recently proposed or enacted laws and regulations on information and communications technology (ICT) products and services that could limit foreign access to ICT markets in China on so-called national security grounds. Several proposals include language stating that critical information infrastructure should be "secure and controllable," an ambiguous term that has not been precisely defined by Chinese authorities. Other proposals lay out policies to promote indigenous ICT industries or would require foreign firms to hand over proprietary information. According to the U.S. Department of Commerce The policies set forth in these measures could cause long-term damage to U.S. businesses trying to sell ICT products into China, a market estimated to be worth about $465 billion this year. They also could add significant costs to foreign ICT companies operating in China and could prevent them from supplying the China market with the most technologically advanced and reliable products. Such restrictions could have a significant impact on U.S. ICT firms. According to BEA, U.S. exports of ICT services and potentially ICT-enabled services (i.e., services that are delivered remotely over ICT networks) to China totaled $12.8 billion in 2015. Examples of recently passed or proposed measures of concern to foreign ICT firms include the following: In 2014, the China Banking Regulatory Commission issued guidelines for IT security equipment used in banks (such as cash machines and smartcard chips), which included provisions on encryption and the disclosure of source code. It emphasized the importance of developing local technology and stated that the need for "secure and controllable technologies" in the banking sector, with the goal of 15% in 2015, growing to no less than 75% in 2019. China suspended some of the guidelines in April 2015. At the June 2015 S&ED session, China agreed to ensure that bank ICT regulations "will be nondiscriminatory, are not to impose nationality-based requirements, and are to be developed in a transparent manner." China's national security law (enacted in July 2015) includes a provision (Article 24) that says "the State strengthens the establishment of capacity for independent innovation, accelerating the development of autonomously controlled strategic advanced technologies and key technologies in core fields, strengthens the use of intellectual property rights, protects capacity building in protection of technological secrets, and ensures security in technology and engineering." Article 59 says that "the State establishes national security review and oversight management systems and mechanisms, conducting national security review of foreign commercial investment, special items and technologies, internet information technology products and services, projects involving national security matters, as well as other major matters and activities, that impact or might impact national security." In October 2015, the China Insurance Regulatory Commission issued new draft rules on cyber-security in the insurance industry. The draft rules called for the adoption of "secure and controllable" technology by insurance companies, data localization requirements, and the use of products and systems employing domestic encryption methods. On June 1, 2016, 28 business groups sent a letter to the chairman of the China Insurance Regulatory Commission, arguing that the draft rules "would create unnecessary obstacles to international trade and likely to constitute a means of arbitrary or unjustifiable discrimination against providers in countries where the same conditions prevail." On June 2, 2016, the United States raised concerns about the draft regulations with the WTO Committee on Trade-Related Measures, arguing that such language appears to require that Chinese insurance firms give preferences to Chinese domestic providers of hardware equipment and software over foreign firms. In December 2015, China enacted a new counterterrorism law. It requires telecommunications operators and internet service providers to "provide technical interfaces, decryption and other technical support assistance to public security organs and state security organs conducting prevention and investigation of terrorist activities." Originally, the Chinese government sought to require providers to provide it encryption codes (i.e., security back-door access) and to store local user data on servers within China, but these provisions were later dropped from the final draft of the law, in part because of sharp criticism by President Obama, who contended that such rules "would essentially force all foreign companies, including U.S. companies, to turn over to the Chinese government mechanisms where they can snoop and keep track of all the users of those services." China passed a new cyber-security law on November 7, 2016, which appears to promote the development of indigenous technologies and impose restrictions on foreign firms. Article 15 directs government entities to "support key network security technology industries and programs; support network security technology research and development, application and popularization; spread safe and trustworthy network products and services; protect the intellectual property rights for network technologies; and support research and development institutions, schools of higher learning, and so forth to participate in State network security technology innovation programs." Article 23 states that "Critical network equipment and specialized network security products shall follow the national standards and mandatory requirements, and be safety certified by a qualified establishment or meet the requirements of a safety inspection, before being sold or provided. The state network information departments, together with the relevant departments of the State Council, formulate and release a catalog of critical network equipment and specialized network security products, and promote reciprocal recognition of safety certifications and security inspection results to avoid duplicative certifications and inspections." Article 37 states that personal information and other important data gathered or produced by critical information infrastructure operators during operations within China must store it in China. A statement issued by Amcham on November 7 said the new law would not "do much to improve security," but rather would "create barriers to trade and investment." Other critics contend that provisions of the law are too broad or vague as to the level of cooperation internet firms are required to give to government authorities and would impose new internet restrictions. China's 13 th five-year plans and other government policy pronouncements have laid out a number of plans to boost innovation and promote the development of indigenous ICT and other high tech sectors, including semiconductors (see Appendix ). A U.S. Chamber of Commerce report estimated that a decision by China to "purge foreign ICTs" would reduce China's annual GDP by 1.77% up to 3.44%, or at least $200 billion (based on 2015 GDP), and would cost the Chinese economy at a minimum nearly $3 trillion overall by 2025. Intellectual Property Rights (IPR) Issues129 U.S. business and government representatives voice growing concern over economic losses suffered by U.S. firms as a result of IPR infringement in China (and elsewhere), including those from cyber-attacks. U.S. innovation and the intellectual property (IP) that it generates have been cited by various economists as a critical source of U.S. economic growth and global competitiveness. For example, according to the Department of Commerce, in 2014, U.S. IP-intensive industries, either directly or indirectly, supported 45.5 million jobs and contributed $6.6 trillion in value added to the economy (up 30% from 2010), equal to 48.2% of U.S. GDP. In addition, total merchandise exports of IP-intensive industries totaled $842 billion. According to the U.S. Bureau of Economic Analysis, in 2017, foreign entities paid U.S. IP holders $128.4 billion ($8.8 billion was paid by Chinese entities) for use of their IPR and $42.2 billion for telecommunications, computer, and information services. A study by NDP Consulting estimated that in 2008, U.S. workers in IP-intensive production earned 60% more than workers at similar levels in non-IP industries. A study on the Apple iPod concluded that Apple's innovation in developing and engineering the iPod and its ability to source most of its production to low-cost countries, such as China, have enabled it to become a highly competitive and profitable firm, as well as a creator of high-paying jobs (such as engineers engaged in the design of Apple products) in the United States. IPR piracy and infringement is a significant global problem. Lack of effective and consistent protection of IPR has been cited by U.S. firms as one of the most significant problems they face in doing business in China. Other U.S. firms have expressed concern over pressures they often face from Chinese government entities to share technology and IPR with a Chinese partner. Although China has significantly improved its IPR protection regime over the past few years, U.S. IP industries complain that piracy rates in China remain unacceptably high and economic losses are significant, as illustrated by studies and estimates made by several stakeholders. An April 3, 2018 USTR press release estimated annual U.S. economic losses from China's "unfair" IPR policies at $50 billion. A May 2013 study by the Commission on the Theft of American Intellectual Property estimated that global IPR theft costs the U.S. economy $300 billion, of which China accounted for 50% ($150 billion) to 80% ($240 billion) of those losses. The U.S. Department of Homeland Security reported that in FY2017, goods from China and Hong Kong together accounted for 78% of seized counterfeit goods with a total value of $941 million (based on their estimated manufacturer's retail price). Business surveys reveal mixed reactions to China's IPR enforcement efforts. For example, a majority of respondents in a 2016 AmCham China survey said IPR enforcement was effective for patents (54%) and trademarks or brand protection (51%), but less than a majority found copyrights (48%) and trade secrets (40%) enforcement to be effective. At the same time, 91% of respondents agreed that IPR enforcement over the last five years had improved. The European Chamber's 2016 China business survey found that although 59% of its members said China's IPR enforcement was "inadequate," this was an improvement from the 95% rate reported for 2009. The USCBC's 2017 member survey found that IPR enforcement and cyber-security ranked as the fifth and sixth, respectively, biggest challenges among its member firms. Among respondents, 94% stated they concerned about IPR enforcement in China and 82% expressed concerns about data flow restrictions and cyber-security. Major cyber-related areas of greatest concern include restrictions on cross-border data flows in Chinese regulations (cited by 65% of respondents), inability to use global IT solutions or non-Chinese cloud-based applications in China (55%), consumer or company data theft (53%), Internet access and performance issues (53%), and IPR theft (51%). The USTR's 2016 report on foreign trade barriers stated that over the past decade, China's internet restrictions have "posed a significant burden to foreign suppliers," and that 8 out of the top 25 most globally visited sites (such as Yahoo, Facebook, YouTube, eBay, Twitter, and Amazon) are blocked in China. Freedom House's 2015 Freedom on the Net report ranked China's internet regime as the most restrictive out of 65 countries surveyed. The U.S. International Trade Commission (USITC) in 2001 estimated that U.S. intellectual property-intensive firms that conducted business in China lost $48.2 billion in sales, royalties, and license fees in 2009 because of IPR violations. It also estimated that an effective IPR enforcement regime in China that was comparable to U.S. levels could increase employment by IP-intensive firms in the United States by 923,000 jobs. The Business Software Alliance (BSA) estimated the commercial value of illegally used software in China at $8.7 billion in 2015 (up from $7.6 billion in 2009), and that the software piracy rate in China was 70% (down from 79% in 2007). BSA further estimated that legitimate software sales in China were only $3.7 billion, compared to legal sales of $41.0 billion in the United States. The Organization for Economic Development and Cooperation (OECD) estimates that counterfeit products accounted for 2.5% of global trade in 2013 (or $461 billion). Chinese officials contend that they have significantly improved their IPR protection regime, but argue that the country lacks the resources and a sophisticated legal system to effectively deal with IPR violations. They also contend that IPR infringement is a serious problem for domestic Chinese firms as well. A survey by the Chinese State Administration for Industry and Commerce found that 58.7% of products sold online in China were genuine in 2014. Many analysts contend that China's goals of becoming a global leader in innovation will induce the government to strengthen IPR laws and enforcement. However, some analysts contend that China's relatively poor record on IPR enforcement can be partially explained by the fact that Chinese leaders want to make China a major producer of capital-intensive and high-technology products, and thus, they are tolerant of IPR piracy if it helps Chinese firms become more technologically advanced. According to an official at the U.S. Chamber of Commerce The newer and emerging challenge to U.S. IPR is not a function of China's lack of political will to crackdown on infringers. Rather, it is a manifestation of a coherent, and government-directed, or at least government-motivated, strategy to lessen China's perceived reliance on foreign innovations and IP. China is actively working to create a legal environment that enables it to intervene in the market for IP, help its own companies to "re-innovate" competing IPR as a substitute to American and other foreign technologies, and potentially misappropriate U.S. and other foreign IP as components of its industrial policies and internal market regulation.... The common themes throughout these policies are: 1) undermine and displace foreign IP; 2) leverage China's large domestic market to develop national champions and promote its own IP, displacing foreign competitors in China; and 3) building on China's domestic successes by displacing competitors in foreign markets. An illustration of alleged IPR theft in China involves American Superconductor Corporation (AMSC). On September 14, 2011, AMSC announced that it was filing criminal and civil complaints in China against Sinovel Wind Group Co., Ltd. (Sinovel), China's largest wind turbine producer, and other parties, alleging the illegal use of AMSC's intellectual property. According to AMSC, Sinovel illegally (by bribing an AMSC employee) obtained and used AMSC's wind turbine control software code to upgrade its 1.5 megawatt wind turbines in the field to meet proposed Chinese grid codes and to potentially allow for the use of core electrical components from other manufacturers. In addition, AMSC claimed that Sinovel refused to pay for past shipments from AMSC as well as honoring for future shipments of components and spare parts as well. AMSC has brought several civil cases against Sinovel, seeking to recover more than $1.2 billion for contracted shipments and damages caused by Sinovel's contract breaches. In 2013, the U.S. Justice Department issued indictments against Sinovel and two of its employees, along with a former AMSC employee, with trade secrets theft, describing the action as "nothing short of attempted corporate homicide." According to AMSC, it lost about half of its market capitalization after Sinovel refused to honor its contracts, and that as of 2017 AMSC's stock valued had dropped by 96% and its workforce by 70%. One AMSC official said that it possessed emails that "include the actual transfer and Skype messages indicating that senior level Sinovel officials ordered the theft of AMSC IP and understood the devastating impact it would have on AMSC," and it estimated that 8,000 windmills in China (20% of the country's total) were operating on AMSC's stolen technology. According to a specialist in intellectual property at Tufts University, "Chinese companies, once they acquire the needed technology, will often abandon their Western partners on the pretext that the technology or product failed to meet Chinese governmental regulations. This is yet another example of a Chinese industrial policy aimed at procuring, by virtually any means, technology in order to provide Chinese domestic industries with a competitive advantage." to pursue trade secret and copyright infringement litigation in China and the United States. Market access in China remains a significant problem for many U.S. IP industries (such as music and films), and is considered a significant cause of high IPR piracy rates. For example, China's growing middle class has resulted in a surge in movie box office sales in recent years, which hit $6.8 billion in 2015 (up 49% over the previous year), making China the largest market outside the United States and Canada. When China joined the WTO in 2001 it agreed to allow 20 imported foreign films per year. During the visit to the United States by then-Chinese Vice President Xi Jinping in February 2012, China agreed that it would allow in more American exports of 3D, IMAX, and similarly enhanced format movies on favorable commercial terms; strengthen the opportunities to distribute films through private enterprises rather than the state film monopoly; and ensure fairer compensation levels for U.S. blockbuster films distributed by Chinese SOEs. This extended China's foreign movie quota to 34, based on a revenue-sharing agreement (foreign studios receive 25% of the box office receipts) with a Chinese SOE. Some business groups complain that China has failed to allow competition in the distribution of movies, noting that no private firms have been given a license to distribute movies nationally. Two Chinese government entities determine which foreign films will enter the market, set opening dates, and determine the number of screens on which films can be shown, which some argue, is mainly based on the goal of protecting and promoting Chinese films. The share of Hollywood movies in box office sales in China dropped from 45.5% in 2014 to 38.4% in 2015. Technology Transfer Issues When China entered the WTO in 2001, it agreed that foreign firms would not be pressured by government entities to transfer technology to a Chinese partner as part of the cost of doing business in China. However, many U.S. firms argue that this is a common Chinese practice, although this is difficult to quantify because, oftentimes, U.S. business representatives appear to try to avoid negative publicity regarding the difficulties they encounter doing business in China out of concern over retaliation by the Chinese government. In addition, Chinese officials reportedly pressure foreign firms through oral communications to transfer technology (for example as a condition to invest in China), so as to avoid putting such requirements in writing in order to evade accusations of violating WTO rules. A 2010 study by the U.S. Chamber of Commerce stated that growing pressure on foreign firms to share technology in exchange for market access in China was forcing such firms to "anguish over balancing today's profits with tomorrow's survival." In 2011, then-U.S. Treasury Secretary Timothy Geithner charged that "we're seeing China continue to be very, very aggressive in a strategy they started several decades ago, which goes like this: you want to sell to our country, we want you to come produce here. If you want to come produce here, you need to transfer your technology to us." A 2012 AmCham China survey reported that 33% of its respondents stated that technology transfer requirements were negatively affecting their businesses. U.S. officials continue to press China on this issue. A U.S. Commerce Department fact sheet from the December 2014 U.S.-China Joint Commission on Commerce and Trade (JCCT) meeting stated China clarified and underscored that it will treat IPR owned or developed in other countries the same as domestically owned or developed IPR, and it further agreed that enterprises are free to base technology transfer decisions on business and market considerations, and are free to independently negotiate and decide whether and under what circumstances to assign or license intellectual property rights to affiliated or unaffiliated enterprises. Following President Obama's meeting with President Xi in September 2016, the White House issued a fact sheet that said that the two sides committed "not to advance generally applicable policies or practices that require the transfer of intellectual property rights or technology as a condition of doing business in their respective markets." Technology transfer issues have also been raised over a number of new Chinese laws and regulations that advance "secure and controllable technology" (discussed below). Cyber-security Issues Cyber-attacks against U.S. firms have raised concerns over the potential large-scale theft of U.S. IPR and its economic implications for the United States. A 2011 report by McAfee ( a U.S. g lobal security technology company ) stated that its investigation had identified targeted intrusions into more than 70 global companies and warned that "every conceivable industry with significant size and valuable intellectual property has been compromised (or will be shortly), with the great majority of the victims rarely discovering the intrusion or its impact." Many U.S. analysts and policymakers contend that the Chinese government is a major source of cyber economic espionage against U.S. firms. For example, Representative Mike Rogers, chairman of the House Permanent Select Committee on Intelligence, stated at an October 4, 2011, hearing that Attributing this espionage isn't easy, but talk to any private sector cyber analyst, and they will tell you there is little doubt that this is a massive campaign being conducted by the Chinese government. I don't believe that there is a precedent in history for such a massive and sustained intelligence effort by a government to blatantly steal commercial data and intellectual property. China's economic espionage has reached an intolerable level and I believe that the United States and our allies in Europe and Asia have an obligation to confront Beijing and demand that they put a stop to this piracy. A 2011 report by the U.S. Office of the Director of National Intelligence (DNI) stated, "Chinese actors are the world's most active and persistent perpetrators of economic espionage. U.S. private sector firms and cyber-security specialists have reported an onslaught of computer network intrusions that have originated in China, but the IC (Intelligence Community) cannot confirm who was responsible." The report goes on to warn that China will continue to be driven by its longstanding policy of "catching up fast and surpassing" Western powers. The growing interrelationships between Chinese and U.S. companies—such as the employment of Chinese-national technical experts at U.S. facilities and the off-shoring of U.S. production and R&D to facilities in China—will offer Chinese government agencies and businesses increasing opportunities to collect sensitive US economic information. On February 19, 2013, Mandiant, a U.S. information security company, issued a report documenting extensive economic cyber-espionage by a Chinese unit (which it designated as APT1) with alleged links to the Chinese People's Liberation Army (PLA) against 141 firms, covering 20 industries, since 2006. The report stated Our analysis has led us to conclude that APT1 is likely government-sponsored and one of the most persistent of China's cyber threat actors. We believe that APT1 is able to wage such a long-running and extensive cyber espionage campaign in large part because it receives direct government support. In seeking to identify the organization behind this activity, our research found that People's Liberation Army (PLA's) Unit 61398 is similar to APT1 in its mission, capabilities, and resources. PLA Unit 61398 is also located in precisely the same area from which APT1 activity appears to originate. On March 11, 2013, Tom Donilon, then-National Security Advisor to President Obama, stated in a speech that the United States and China should engage in a constructive dialogue to establish acceptable norms of behavior in cyberspace; that China should recognize the urgency and scope of the problem and the risks it poses to U.S. trade relations and the reputation to Chinese industry; and that China should take serious steps to investigate and stop cyber-espionage. Following a meeting with Chinese President Xi Jinping in June 2013, President Obama warned that if cyber-security issues are not addressed, and if there continues to be direct theft of United States property, then "this was going to be a very difficult problem in the economic relationship and was going to be an inhibitor to the relationship really reaching its full potential." On May 19, 2014, the U.S. Department of Justice issued a 31-count indictment against five members of the Chinese People's Liberation Army (PLA) for cyber-espionage and other offenses that allegedly targeted five U.S. firms and a labor union for commercial advantage, the first time the Federal government has initiated such action against state actors. The named U.S. victims were Westinghouse Electric Co. (Westinghouse); U.S. subsidiaries of SolarWorld AG (SolarWorld); United States Steel Corp. (U.S. Steel); Allegheny Technologies Inc. (ATI); the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW); and Alcoa Inc. The indictment appears to indicate a high level of U.S. government concern about the extent of Chinese state-sponsored cyber commercial theft against U.S. firms. China strongly condemned the U.S. indictment and announced that it would suspend its participation in the U.S.-China Cyber Working Group, established in 2013. Some Members of Congress have called on the USTR to initiate a case against China in the World Trade Organization (WTO). Others have called for new measures to identify foreign governments that engage in cyber-espionage and to impose sanctions against entities that benefit from that theft. For example, in the 114 th Congress H.R. 3039 would have authorized the President to impose certain penalties on state-sponsors of cyber-attacks. Some analysts warn that growing U.S.-China disputes over cyber-theft could significantly impact commercial ties. The Obama Administration sought ways to enhance U.S. commercial cyber-security at home, develop bilateral and global rules governing cyber-theft of commercial trade secrets, strengthen U.S. trade policy tools, and promote greater cooperation with trading partners that share U.S. concerns. On April 1, 2015, President Obama issued Executive Order 13964, authorizing certain sanctions against "persons engaging in significant malicious cyber-enabled activities." Shortly before Chinese President Xi's state visit to the United States in September 2015, some press reports indicated that the Obama Administration was considering the imposition of sanctions against Chinese entities over cyber-theft, even possibly before the arrival of President Xi, which some analysts speculated might have caused Xi to cancel his visit. This appears to have prompted China to send a high-level delegation (headed by Meng Jianzhu, Secretary of the Central Political and Legal Affairs Commission of the Chinese Communist Party) to Washington, DC, to hold four days of talks (September 9-12) with U.S. officials over cyber issues. On September 25, 2015, Chinese President Xi and President Obama announced that they had reached an agreement on cyber-security. The agreement stated that neither country's government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors. They also agreed to set up a high-level dialogue mechanism (which would meet twice a year) to address cybercrime and to improve two-way communication when cyber-related concerns arise (including the creation of a hotline). The first meeting of the U.S.-China High-Level Joint Dialogue on Cybercrime and Related Issues was held in December 2015 in Washington, DC. The two sides reached agreement on a document establishing guidelines for requesting assistance on cybercrime or other malicious cyber-activities and for responding to such requests. They decided to conduct a tabletop exercise in the spring of 2016 (held in April 2016) on agreed-upon cybercrime, malicious cyber-activity and network protection scenarios; pledged to develop the scope, goals, and procedures for use of the hotline for the next dialogue; and agreed to further develop case cooperation on combatting cyber-enabled crimes (including child exploitation, theft of trade secrets, fraud and misuse of technology, and communications for terrorist activities). The second Cyber Dialogue was held in Beijing in June 2016. The two sides agreed to begin implementation of a cyber-hotline mechanism (which reportedly became operational in August 2016); continue to strengthen cooperation in network protection; enhance case investigations and information exchanges; prioritize cooperation on combatting cyber-enabled IP theft for commercial gain and cooperate in law enforcement operations; and agreed to create an action plan to address the threat posed from business email compromise scams. The first session of the U.S.-China Law Enforcement and Cybersecurity Dialogue (established by President Trump and President Xi in April 2017 as part of the U.S.-China Comprehensive Economic Dialogue) was held in October 2017. On cyber issues, the two sides pledged to continue cooperation based on the 2015 agreement, including based on five main commitments to give timely responses should be provided to requests for information and assistance concerning malicious cyber activities; ensure that neither country's government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors; make efforts to further identify and promote appropriate norms of state behavior in cyberspace within the international community; maintain a high-level joint dialogue mechanism on fighting cybercrime and related issues; and enhance law enforcement communication on cyber security incidents and to mutually provide timely responses. On April 27, 2016, the United States Steel Corporation (USS) filed a Section 337 case with the USITC against several major Chinese steel producers and their distributors in regard to certain carbon and alloy steel products. USS contends that in January 2011, the Chinese government hacked U.S. Steel's research computers and equipment, stealing proprietary methods for manufacturing these products, and that soon thereafter, Baosteel (a Chinese SOE and largest Chinese steel firm), and possibly other Chinese steel firms, began producing and exporting "the very highest grades of advanced high-strength steel, even though they had previously been unable to do so." USS charged that imports of such products into the United States using USS's stolen trade secrets competed against and undercut USS's own products. This is the first Section 337 case that has involved alleged cyber-theft of U.S. trade secrets. Analysts differ on how the U.S.-China cyber agreement will address bilateral cyber-theft issues. Some have called it a good first start to developing rules governing cyber-theft of commercial IPR. Others are more skeptical; noting that the Chinese government denies engaging in cyber-theft of trade secrets for gaining a competitive advantage, and instead, claims China is the "biggest victim" of such activity. In addition, critics contend, it is often extremely difficult to identify hackers, let alone trace it back to a government entity. According to CrowdStrike (a U.S. cyber-security firm), cyber-attacks against U.S. firms continued shortly after the agreement was reached. It detected 11 breaches of its customers from September 26, 2015 to October 16, 2016. A report by cyber-security firm Fireeye stated that while Chinese cyber-attacks against U.S., European, and Japanese firms continued after the U.S.-China cyber agreement was reached, the overall level of cyber-intrusions have declined since mid-2014. Fireeye attributed the decline to military reforms in China, widespread exposure of Chinese cyber-activity, and actions by the U.S. government. However, CrowdStrike contends that the economic slowdown in China and the innovation goals of the 13 th Five-Year Plan would likely continue to drive China's state-sponsored cyber-espionage activities. China's Obligations in the World Trade Organization Negotiations for China's accession to the General Agreement on Tariffs and Trade (GATT) and its successor organization, the WTO, began in 1986 and took over 15 years to complete. During the WTO negotiations, Chinese officials insisted that China was a developing country and should be allowed to enter under fairly lenient terms. The United States insisted that China could enter the WTO only if it substantially liberalized its trade regime. In the end, a compromise was reached that required China to make immediate and extensive reductions in various trade and investment barriers, while allowing it to maintain some level of protection (or a transitional period of protection) for certain sensitive sectors. China's WTO membership was formally approved at the WTO Ministerial Conference in Doha, Qatar, on November 10, 2001. On November 11, 2001, China notified the WTO that it had formally ratified the WTO agreements, and on December 11, 2001, it formally joined the WTO. Under the WTO accession agreement, China agreed to do the following: Reduce the average tariff for industrial goods from 17% to 8.9%, and average tariffs on U.S. priority agricultural products from 31% to 14%. Limit subsidies for agricultural production to 8.5% of the value of farm output, eliminate export subsidies on agricultural exports, and notify the WTO of all government subsidies on a regular basis. Within three years of accession, grant full trade and distribution rights to foreign enterprises (with some exceptions, such as for certain agricultural products, minerals, and fuels). Provide nondiscriminatory treatment to all WTO members, such as treating foreign firms in China no less favorably than Chinese firms for trade purposes. End discriminatory trade policies against foreign invested firms in China, such as domestic content rules and technology transfer requirements. Implement the WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement (which sets basic standards on IPR protection and rules for enforcement) upon accession. Fully open the banking system to foreign financial institutions within five years (by the end of 2006). Allow joint ventures in insurance and telecommunication (with various degrees of foreign ownership allowed). China's implementation of its tariff concessions was largely on time. Its simple average tariff fell from 15.9% in 2001 to its current average level of 9.9%. Some tariff cuts were significant. China's 2001 tariff rates of 80-100% on autos were reduced to 25% by 2006. Despite these cuts, China's simple average tariff rate is three times the U.S. level (see Figure 16 ). China's tariff on autos is 10 times the U.S. level of 2.5%. China also levies a value-added tax on most imports. WTO Implementation Issues Getting China into the WTO under a comprehensive trade liberalization agreement was a major U.S. trade objective during the late 1990s. Many U.S. policymakers at the time maintained that China's WTO membership would encourage the Chinese government to deepen market reforms, promote the rule of law, reduce the government's role in the economy, further integrate China into the world economy, and enable the United States to use the WTO's dispute resolution mechanism to address major trade issues. As a result, it was hoped, China would become a more reliable and stable U.S. trading partner. U.S. trade officials contend that in the first few years after it joined the WTO, China made noteworthy progress in adopting economic reforms that facilitated its transition toward a market economy and increased its openness to trade and FDI. However, beginning in 2006, progress toward further market liberalization appeared to slow. By 2008, U.S. government and business officials noted evidence of trends toward a more restrictive trade regime. The USTR's 2015 report on China's WTO compliance summarized U.S. concerns over China's trade regime as follows: Many of the problems that arise in the U.S.-China trade and investment relationship can be traced to the Chinese government's interventionist policies and practices and the large role of state-owned enterprises and other national champions in China's economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions. The 2016 report identified several priority areas of U.S. concern: Intellectual property rights and market access, including trade secrets, pharmaceutical patents, software piracy, online piracy, and counterfeit goods; Industrial policies , including "secure and controllable" ICT policies, indigenous innovation policies, technology transfer requirements, export restraints on raw materials, export subsidies, excess capacity in certain industries (e.g., steel and aluminum), value-added taxes on exports, support of "strategic emerging industries, import bans on remanufactured products, discriminatory standards and technology policies, failure to join the WTO's GPA, investment restrictions, and use of trade remedy measures for retaliatory purposes; Restrictions on services , including electronic payments, theatrical films and audio-visual services, banking telecommunications, insurance, commercial internet activities, express delivery, and legal services; Restriction on agricultural products , including sanitary and phytosanitary (SPS) measures on beef, pork and poultry, biotechnology approvals, and domestic support subsidies; Inadequate transparency , including in regard to p ublication of t rade-related l aws, r egulations , n otice and comment p rocedures (e.g., publishing draft laws for comment), and translation of all trade-related laws, regulations and other measures at all levels of government in one or more of the WTO languages ; and Restrictive aspects of the legal framework , especially in regard to administrative licenses and China's competition policy . The United States has used the WTO dispute settlement mechanism on a number of occasions to address China's alleged noncompliance with its WTO commitments. To date, it has brought 23 dispute settlement cases against China (or 55% of the total number of cases brought by all WTO members against China through July 2018). These are summarized in Table 10 . China in turn has brought 12 dispute settlement cases against the United States, including over U.S. Section 232 and Section 301 tariffs on Chinese products. Another significant WTO case China has brought involves the United States' continued treatment of China as a nonmarket economy for the purpose of calculating and imposing antidumping measures. China contends that the terms of its WTO accession agreement in 2001 required all WTO members to treat it as a market economy by December 2017, while the United States argues China must first demonstrate that it is a market economy before it can obtain that status. China's Currency Policy Unlike most advanced economies, China does not maintain a market-based floating exchange rate. For several years, China pegged its currency directly to the U.S. dollar. Each day China's central bank announced a central rate of exchange between the renminbi (RMB) and the dollar and would buy and sell as much currency as needed to reach a targeted exchange rate within a specific band. In order to maintain the targeted exchange rate with the dollar (and other currencies), the Chinese government imposed restrictions and controls over capital flows in and out of China. Currency intervention by the Chinese government in the past contributed to a sharp rise in Chinese foreign exchange reserves, some of which were invested in U.S. dollar assets, such as U.S. Treasury securities. Starting around 1998, the Chinese government set the central target exchange rate at around 8.28 yuan (the base unit of the RMB) per dollar, and this rate was generally maintained consistently through June 2005. Many Members of Congress around this time argued that China's currency intervention constituted a de facto subsidy that contributed to a sharp rise in U.S. imports from China (hence spiking the U.S. trade deficit with China) and negatively affected some U.S. industrial sectors, and many Members called on the U.S. Department of the Treasury to designate China as a "currency manipulator" in its biannual report to Congress on exchange rates. Due in part to pressure from its trading partners, including the United States, the Chinese government in July 2005 announced reforms to its currency policy. China immediately appreciated the RMB to the dollar by 2.1% and moved to a "managed float" exchange rate system, based on a basket of major foreign currencies that included the U.S. dollar and other major currencies (although the composition of that basket has not been made public). From July 2005 to July 2008, the official exchange rate went from 8.27 to 6.83 yuan per dollar. However, once the effects of the global financial crisis became apparent, the Chinese government halted its appreciation of the RMB and subsequently kept the yuan/dollar exchange rate relatively constant at 6.83 from July 2008 to June 2010 in order to help limit the impact of the sharp decline in global demand for Chinese products. Currency appreciation resumed in June 2010, although at a slower pace than in previous years. From June 2005 through July 2015, the RMB appreciated by 35.3% on a nominal basis against the dollar. On August 11, 2015, China's central bank announced that it was taking new measures to improve the market-orientation of its daily central parity rate of the RMB. However, over the next three days, the RMB depreciated against the dollar by 4.4% (it went from 6.12 yuan to 6.40 yuan). From July 2015 to mid-December 2016, the RMB depreciated by 13.6% against the U.S. dollar, and from 2015 to 2017 it depreciated by 7.6%. From January 2017 to December 2017, the RMB appreciated by 4.4% (see Figure 17 ). However, the RMB experienced a 7% depreciation against the dollar from April 26, 2018 to July 26, 2018. The RMB's decline over this period may in part reflect concerns in the market over recent tariff increases by the United States and China on each other's products stemming the U.S. Section 301 dispute ( See " The Administration's Section 301 Case on China's IPR Policies "), although some have suggested that China's government may be attempting to push down the RMB's value in order to boost its exports to other markets. In February 2016, the Trade Facilitation and Enforcement Act of 2015 ( P.L. 114-125 ) went into effect. It included several new provisions on monitoring and addressing foreign exchange rates and listed new enhanced factors for the Department of the Treasury to consider when determining if any country should be listed as currency manipulators in its semi-annual report. Treasury established certain benchmarks to determine which countries would be subject to enhanced analysis (and subject to a monitoring list), including those with a bilateral trade surplus larger than $20 billion, a current account surplus of more than 3% of GDP, and engagement in persistent one-sided intervention in foreign exchange markets that resulted in net purchases equal to 2% or more of GDP over the past year. The law also established new remedies in regard to countries that do not adopt appropriate policies to correct the identified undervaluation and surpluses, prohibitions of financing by the Overseas Private Investment Corporation (OPIC) in that country, restrictions on U.S. government procurement, additional efforts by U.S. officials to urge IMF action, and taking into account such currency policies before initiating or entering into any bilateral or regional trade agreement negotiations. China met two out of the three criteria (large trade surplus and current account surplus at over 3% of GDP) for enhanced analysis in Treasury's April 2016 report. The report urged China to continue to rebalance the economy by boosting private consumption and said that "the RMB should continue to experience real appreciation over the medium-term." Treasury's October 2016 report stated that China had met only one of the criteria (large trade surplus), but went on to say that "despite the recent downward pressure on the RMB, the Chinese currency is still 21 percent stronger than the dollar since December 2005, and 38 percent stronger on a real, trade-weighted basis." The first Treasury report on exchange rates under the Trump Administration, issued on April 14, 2017, did not conclude that China (or any country) had manipulated its currency, noting that the Chinese government over the past year or so had intervened heavily to prevent rapid RMB depreciation (as opposed to trying to prevent RMB appreciation, which often occurred in the past). Although the report indicated that China had met only one of the criteria (trade surplus), Treasury stated that China's currency policy would be "closely monitored," noting that China's trade surplus "accounts for a disproportionate share of the overall U.S. trade deficit." Treasury said that it would also monitor the currency policies of Japan, Korea, Taiwan, Germany, and Switzerland. The October 2017 Department of the Treasury report noted that China had intervened in 2017 to prevent RMB depreciation and that its current account surplus in the first half of the year as a percent of GDP was 1.4%. However, Treasury complained that China's trade surplus with the United States remained high and urged China to deepen economic reforms. Treasury's April 2018 report on exchange rates emphasized China's commitments not to engage in competitive devaluations and to improve the transparency of its foreign exchange regime. The Trump Administration's Approach to Commercial Relations with China The Trump Administration has taken a number of steps in regard to U.S-China commercial relations. At their first official meeting as heads of state in April 2017, President Trump and Chinese President Xi Jinping announced the establishment of a "100-day plan on trade" as well as a new high-level forum called the "U.S.-China Comprehensive Dialogue." Following the meeting then-U.S. Secretary of State Rex Tillerson stated that "President Trump noted the challenges caused by Chinese government intervention in its economy and raised serious concerns about the impact of China's industrial, agricultural, technology, and cyber policies on U.S. jobs and exports. The President underscored the need for China to take concrete steps to level the playing field for American workers, stressing repeatedly the need for reciprocal market access." The Trump Administration's December 2017 National Security Strategy Report took aim at a number of Chinese economic policies of concern to the United States (see Text Box ). On May 11, 2017, the two sides announced that China would open its markets to U.S. beef, biotechnology products, credit rating services, electronic payment services, and bond underwriting and settlement. The United States agreed to open its markets to Chinese cooked poultry and welcomed Chinese purchases of U.S. liquefied gas. Chinese officials also indicated their support for continuing negotiations for continuing the BIT negotiations, although the Trump Administration did not indicate its position on this proposal. Following the meeting, President Trump in a series of tweets appeared to indicate that he would link U.S. trade policy toward China with China's willingness to pressure North Korea to curb its nuclear and missile programs. On July 19, 2017, the two sides held the first session of the CED in Washington, DC, which sought to build on the 100-day action plan through a new one-year action plan on trade and investment, seeking to achieve "a more balanced economic relationship." The outcome of the meeting is unclear as, unlike past high-level meetings, no joint fact sheet was released. The U.S. side issued a short statement that said that "China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve." This led some U.S. observers to claim that the CED was marred with high tensions and disagreements, and failed to produce any meaningful results. They noted, for example, that China's CED representative, Vice Premier Wang Yang, stated that "[d]ialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both." Politico reported that China's excess steel capacity was a contentious issue and may have stalemated the talks. The United States and China have not indicated if and when the CED talks will resume. The Trump Administration has taken a number of trade actions that have raised tensions with China in recent months and could result in a series of tit-for-tat retaliation. These include using Section 301 trade action against China's IPR policies and Section 232 tariffs on U.S. steel and aluminum imports. The Administration's Section 301 Case on China's IPR Policies On August 14, 2017, President Trump issued a Presidential Memorandum directing the USTR to determine whether it should launch a Section 301 investigation into China's protection of U.S. intellectual property rights (IPR) and forced technology transfer polices to determine their impact on U.S. economic interests. On August 18, 2017, the USTR announced it had launched a Section 301 case against China, the first use of Section 301 since 2010. On March 22, 2018, President Trump signed a Memorandum on Actions by the United States Related to the Section 301 Investigation. Described by the White House as a targeting of China's "economic aggression," the memorandum identified four broad IPR-related policies that justified U.S. action under Section 301. It said China (1) uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from American companies; (2) uses discriminatory licensing processes to transfer technologies from U.S. companies to Chinese companies; (3) directs and facilitates investments and acquisitions which generate large-scale technology transfer; and (4) conducts and supports cyberintrusions into U.S. computer networks to gain access to valuable business information. The USTR, which released a 215-page study of China's IPR policies that negatively impact U.S. stakeholders, estimated losses to the U.S. economy of at least $50 billion per year. Under the Section 301 action, the Administration proposed to (1) implement 25% ad valorem tariffs on certain Chinese imports (which in sum are comparable to U.S. trade losses), including color TVs, machinery parts, electrical parts, and motor vehicles, (2) initiate a WTO dispute settlement case against China's "discriminatory" technology licensing (which it did on March 23); and (3) propose new investment restrictions on Chinese efforts to acquire sensitive U.S. technology. At his March 22 announcement on Section 301 and China, President Trump stated the following: "We have a tremendous intellectual property theft situation going on, which likewise is hundreds of billions of dollars. And that's on a yearly basis. I've spoken to the President. I've spoken to representatives of China. We've been dealing with it very seriously." However, he went on to mention other non-IPR issues. He said that the United States had a trade deficit with China of either $504 billion or $375 billion, which he called "the largest deficit of any country in the history of our world." He also stated that he had spoken to Chinese officials, including President Xi to "reduce the trade deficit immediately by $100 billion." He further emphasized that trade should be "reciprocal," claiming that the United States assessed a 2% import tariff on Chinese cars while China charged a 25% tariff. Finally, Trump noted that the two sides were "in the midst of a very large negotiation" on trade. China has sharply criticized the proposed U.S. Section 301 actions. On March 24, a spokesperson for China's Ministry of Commerce (MOFCOM) stated the following: The U.S acts in disregard of China's efforts to strengthen the protection of intellectual property rights and the voices of the broad masses of the industry, ignoring WTO rules. It is a typical unilateralism and trade protectionism, to which China firmly opposes. This move by the U.S. is neither conducive to the interests of China, nor those of the United States. It also goes against the global interests, a very bad precedent. China will not sit idly in the event of damages to own legitimate rights and interests. We are fully prepared to defend our legitimate interests. With regard to the 301 investigation, China has clearly stated its position on many occasions. China does not want to fight a trade war, but it is absolutely not afraid of that. We are confident and capable of meeting any challenge. It is hoped that the U.S. will pull back before it is too late and not drag bilateral economic and trade relations into danger. According to a March 26 Reuters article, China's WTO Ambassador Zhang Xiangchen said that the U.S. use of Section 301 sanctions violated its WTO commitments, and warned that "the WTO is under siege and all of us should lock arms to defend it." He asserted that "WTO members should jointly ... lock this beast back into the cage of the WTO rules." However, A U.S. representative at the WTO countered China's contention by stating the following: More broadly, the WTO system is not threatened—as China claims—where a Member takes steps to address harmful, trade distorting policies not directly covered by WTO rules. To the contrary, what does threaten the WTO is where a Member, such as China, asserts that the mere existence of the WTO prevents any action by any Member to address unfair, trade-distorting policies—unless those policies are currently subject to WTO dispute settlement.... If the WTO is seen instead as protecting those Members that choose to adopt policies that can be shown to undermine the fairness and balance of the international trading system, then the WTO and the international trading system will lose all credibility and support among our citizens. On April 3, the USTR released a list of proposed 25% ad valorem tariffs on about $50 billion worth of Chinese products. The USTR stated that the proposed tariffs targeted Chinese products in sectors related to China's high technology industrial policies, such as "Made in China 2025." The USTR identified aerospace, information and communication technology, robotics, and machinery as sectors targeted by the Section 301 list. China responded on April 4 with a list targeting various U.S. products, including soybeans, aircraft, and motor vehicles and parts, that would be subject to 25% ad valorem tariffs if U.S. Section 301 tariffs went into effect. On the same day, China initiated a WTO dispute settlement case against the United States over the Section 301 action. On April 5, President Trump asked the USTR to propose additional tariffs on $100 billion worth of Chinese products. On the same day USTR Robert Lighthizer issued a statement about President Trump's request, saying the following: President Trump is proposing an appropriate response to China's recent threat of new tariffs. After a detailed investigation, USTR found overwhelming evidence that China's unreasonable actions are harming the U.S. economy. In the light of such evidence, the appropriate response from China should be to change its behavior, as China's government has pledged to do many times. Economies around the world – including China's own – would benefit if China would implement policies that truly reward hard work and innovation, rather than continuing its policies that distort the vital high-tech sector. Unfortunately, China has chosen to respond thus far with threats to impose unjustified tariffs on billions of dollars in U.S. exports, including our agricultural products. Such measures would undoubtedly cause further harm to American workers, farmers, and businesses. Under these circumstances, the President is right to ask for additional appropriate action to obtain the elimination of the unfair acts, policies, and practices identified in USTR's report. On May 3-4, the two sides held high-level talks in Beijing. The U.S. side released a draft Framework for Discussion. It included calls for China to reduce the bilateral trade imbalance by $200 billion over two years; address each of the four IPR practices identified in the Section 301 findings; halt subsidies for the Made in China 2025 initiative; remove foreign investment restrictions, make China's tariff levels comparable to U.S. tariff rates and remove certain nontariff barriers; improve market access for U.S. service providers and agricultural products; and agree not to oppose, challenge, or take any other action against the United States' action, including in the WTO, if China failed to live up to a framework agreement. On May 19, the United States and China released a joint statement outlining progress on a number of trade issues. China agreed that it would "significantly increase purchases of United States goods and services," including U.S. agricultural and energy products. China also said it would strengthen its IPR laws and regulations, including on patents. On May 21, U.S. Secretary of the Treasury Steven Mnuchin stated that a framework agreement had been reached with China and that both sides had suspended threatened trade sanctions. He estimated that U.S. exports of agricultural products to China could increase by 35-40% in 2018 and that U.S. energy exports to China could double. However, on May 29, the White House announced that it planned to move ahead with the proposed Section 301 sanctions against China by imposing 25% ad valorem tariffs on $50 billion worth of imports from China, including those related to the Made in China 2025 initiative (final list of imports to be issued by June 15); (2) implementing new investment restrictions and enhanced export controls on Chinese entities and persons in regards to the acquisition of "industrially significant technology" for national security purposes (details to be released by June 30); and (3) continuing to pursue the WTO case against China's licensing policies (initiated on March 23). The White House further stated that it would request China to remove "all of its many trade barriers" and make taxes and tariffs between the two countries "reciprocal in nature and value." A May 29 statement from the Chinese government said that the White House actions were "clearly contrary to the recent agreement between the two sides." Following a visit by a U.S. trade delegation to China on June 3, the Chinese government warned that "all economic and trade outcomes of the talks will not take effect if the U.S. side imposes any trade sanctions, including raising tariffs." On June 15, the USTR announced a two-stage plan to impose 25% ad valorem tariffs on $50 billion worth of Chinese imports. Under the first stage, U.S. tariffs would be increased on 818 tariff lines on roughly $34 billion worth of Chinese products on July 6. For the second stage, the USTR proposed increasing tariffs on 228 tariff lines on $16 billion worth of Chinese imports, mainly targeting China's industrial policies. China on June 16 issued its own two-stage retaliation plan against the United States. In response to China's actions, President Trump directed the USTR on June 18 to come up with a new list of that would increase tariffs by 10% tariffs on $200 billion worth of Chinese products, which would be imposed if China retaliated against U.S. tariffs, and he further warned that if China raised its tariffs yet again, the United States would pursue tariffs on another $200 billion worth of Chinese products. On July 6, the Trump Administration implemented the first round of tariff increases on $34 billion worth of Chinese products. China said it had taken measures to increase its import tariffs of U.S. products. On the same day, the USTR announced procedures that it would use to consider requests for exclusions from the increased tariffs. China announced it would implement countermeasures. On July 10, the USTR announced plans to retaliate against China for implementing countersanctions against the United States on July 6 by raising tariffs on over 6,000 tariff lines by 10% on $200 billion worth of Chinese products. On July 24-25, the USTR held public hearings on its proposed $16 billion worth of imports from China. To date, the United States implemented increased tariffs on $34 billion worth of Chinese products under Section 301, has released proposed lists that would raise tariffs on $16 billion and $200 billion, respectively, worth of Chinese products, and has threatened increased tariffs on another $200 billion worth of Chinese products. Together, these tariff increases could impact $450 billion in imports (or 89% percent of U.S. imports from China). U.S. and Chinese Products that Have Been or Could Be Subject to Increased Tariffs Resulting from the Section 301 Dispute The U.S. International Trade Commission (USITC) is responsible for publishing the Harmonized Tariff Schedule of the United States Annotated (HTSA), which is the basis for applying applicable tariff rates on various categories for all merchandise imported into the United States. The HTS classification is used globally. The HTSA is arranged according to chapters at two-digit level descriptions, which are further expanded in greater and greater detail at 4-digit, 6-digit, 8-digit, and 10-digit levels. The USTR's Section 301 tariff lists have been issued on an 8-digit level. On way of putting these tariffs in perspective and to estimate their impact is to look at the largest U.S. imports from China on an HTS 2-digit level and identify which of these categories could be impacted by the Section 301 tariff lists. Table 11 lists the top U.S. 15 merchandise from China in 2017. Of these, USTR tariffs apply (or would apply) to 10 of the 15 import categories. The largest U.S. import on a two digit level is HTS 85 (electrical machinery and equipment and parts thereof; sound recorders and reproducers, television recorders and reproducers, parts and accessories), which is also the category most impacted (in terms of total trade) by the USTR's tariff list. HTS 84 (nuclear reactors, boilers, machinery and mechanical appliances; parts thereof) were the second largest U.S. HTS 2-digit level U.S. import from China and is the second biggest category impacted by the USTR's tariff lists. Several consumer products have not been included on the Section 301 lists, including toys and games, apparel and textiles, and footwear. A breakdown of some of the commodities that could be the most impacted by U.S. and Chinese tariff increases related to U.S. action on Section 301 and Chinese reactions based on each country's 2017 imports. Table 12 lists the top 15 U.S. imports from China in 2017 affected by the first round of U.S. Section 301 which imposed 25% ad valorem tariffs on 818 tariffs lines under the U.S. Harmonized Tariff Schedule (HTS) on an 8-digit level covering $34 billion worth of Chinese products, which went into effect on July 6. The largest import affected by the tariffs on an 8-digit are certain motor vehicles (at $1.4 billion), computer storage drives, pump parts, and printer parts. U.S. dependency on China as an import supplier for the covered products varies, but range from 1.4% for certain motor vehicles to 44.8% for light-emitting diodes. Looking at the categories on a HTS 2-dgit level indicates that: The largest category impacted is HTS 84 : machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers, television mage and sound recorders and reproducers, and parts and accessories of such articles . U.S. imports from China in 2017 of the commodities affected by the tariff increases were estimated at $15.9 billion. The second category is HTS 85: Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles. The impacted items in this category totaled $9.7 billion. The largest 8-digit commodity impacted by the tariffs is radio navigational aid apparatus, other than radar, was the largest impacted item at $671 million. The third largest category is HTS 90: Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof. The impacted HTS 90 items total $4.4 billion. The largest 8-digit item impacted are automatic thermostats at $418 million. Table 13 lists top 15 commodities imported from China that would be covered by the USTR's second proposed list ($16 billion worth of products) that would be subject to additional 25% tariffs. According to the USTR, these sanctions attempt to target the Made in China 2025 initiative. The USTR held hearings on July 24-25 on its proposed list and will later issue a final list. The top three broad HTS 2-digit commodities on the proposed list are HTS 85 (at $7.4 billion, HTS 84 ($2.1 billion) and HTS 39, plastics and articles, thereof (at $1.6 billion). One major Chinese sector targeted by the USTR is the semiconductor industry. Increased U.S. tariffs would impact $3.5 billion worth of U.S. semiconductor and semiconductor manufacturing equipment imports from China. Table 14 lists China's top imported commodities from the United States that would likely be impacted by China's first round of retaliatory 25% tariffs (on $34 billion worth of U.S. products) which were implemented by China on July 6 in retaliation to U.S. implemented Section 301 tariffs. Agricultural products accounted for $20.8 billion (about 62% of total) of the targeted products, of which, $14 billion were soybeans. The other major category was HTS 97, non-railway vehicles and parts ($9.7 billion). China's proposed second list (see Table 15 ) indicates China's second stage retaliation list that could go into effect if the U.S. proposed 25% ad valorem tariffs on an additional $16 billion worth of imported Chinese products are implemented. Broad U.S. commodities targeted include HTS 39 plastics ($7.8 billion), HTS 27 mineral fuels (at $6.6 billion) and HTS 38 miscellaneous chemical products ($4.7 billion). On an 8-digit level, the largest products targeted were petroleum oils ($3.1 billion), liquefied propone ($1.8 billion), and chemical products and preparations ($775 million). Table 16 indicates the top 15 imports from China that would be impacted by the Trump Administration's proposed 10% increased tariff on 6,000 8-digit tariff codes covering about $200 billion worth of imports from China. Major broad 2-digit HTS categories that could be affected include HTS 85 ($48.8 billion); HTS 84 ($38.4 billion); and HTS 94 (furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated sign illuminated nameplates and the like; prefabricated buildings) ($29.2 billion). China has not issued a counter-retaliation list. Economic Effects of Section 301 Tariff Increases It is difficult to measure the possible economic impact that increased tariffs could have on the U.S., Chinese, and global economy, in part because it is unclear how extensive such tariffs will be employed by both sides and whether other commercial restrictions will be used as well. For example, in addition to raising tariffs on imported U.S. products, China could Encourage its citizens to boycott American products and services; Impose new restrictions on the commercial activities of U.S. firms in China (such as limiting U.S. FDI in China or halting production of iPhones and other major consumer goods); Selectively increase "enforcement" of its laws and regulations against U.S. entities (e.g., boosting health and safety inspections of imported U.S. commodities or delaying customs clearance); Reduce its holdings of U.S. Treasury securities; Urge Chinese firms to seek non-U.S. suppliers of goods as services, such as buying more planes from Airbus and fewer from Boeing; and Ban the export of certain critical minerals to the United States where China is a major producer and global supplier, such as rare earth elements. Table 17 provides a listing of various U.S. firms with business ties to China in terms of sales in 2017. Apple, Inc.'s sales in China totaled $44.8 billion or 19.6% of its global total sales. U.S. firms that depended on China for more than half their total 2017 sales included Skyworks Solutions Inc. (at 82.7%), Qualcomm Inc. (65.4%), Broadcom Ltd. (53.7%) and Micron Technology Inc. (51.1%)—all of which are semiconductor firms. Various studies have been released that attempt to quantify the impact that a set amount of increased tariffs could have on the U.S. economy. For example, an April 2018 report prepared by Trade Partnership Worldwide for the Consumer Technology Association and National Retail Federation estimated the economic and unemployment effects tariff increases (stemming from U.S. Section 301 action) could have based on three scenarios: (1) the United States increases tariffs on $50 billion worth of Chinese imports and China does not respond; (2) the United States increases tariffs on $50 worth of Chinese imports and China retaliates in kind; and (3): both the United States and China impose tariffs on $150 billion worth of imports from each other. The report estimated that under the third scenario, the U.S. economy could be impacted as follows: U.S. GDP could fall by 0.26% or $49.2 billion (2016 dollars); farm property income could fall by 15.01%; U.S. exports and imports could drop by $105.5 billion and $341.2 billion, respectively (2016 dollars); U.S. net employment could fall by 457,796 jobs (including 123,362 higher skilled workers and 331,434 lower skilled workers); and in terms of the distribution of job gains and losses, the manufacturing sector would gain 132,475 jobs, but net losses would occur in other sectors, including energy (at -13,305 jobs), agriculture (-180,904 jobs), and services (-393,063 jobs) (see Figure 18 ). An analysis by the U.S. Chamber of Commerce of the possible trade effects from Chinese retaliation of U.S. Section 301 action (based on the two lists China has issued) estimated that total U.S. exports could fall by $30.6 billion. The states estimated to experience the largest export decline include Louisiana (at $5.7 billion), Washington State ($5.2 billion), California ($4.0 billion), South Carolina ($2.6 billion), and Alabama ($2.4 billion) (see Figure 19 ). Section 232 Tariffs on Steel and Aluminum On March 8, 2018, the Trump Administration announced that it would impose additional imports tariffs on steel (by 25%) and aluminum (10%), based on national security justifications under the 1962 Trade Act, as amended. China appears to have been a major target of the action since it accounts for half of global production of both commodities. Yet, in terms of import quantity, China was the 10 th -largest supplier of steel and 4 th -largest for aluminum. On March 26, China requested consultations with the United States over the Section 232 action on steel and aluminum, arguing that they were safeguard measures and not justifiable on national security grounds. On April 1, 2018, China announced that it had raised duties (by 15% to 25%) on 128 tariff lines covering imports from the United States, including pork products, aluminum waste and scrap, and fruits and nuts, which together totaled about $3 billion in 2017. On April 9, China initiated a WTO dispute settlement case against the U.S. use of Section 232 tariffs, arguing that the measure were in fact safeguards measures. Table 18 lists the top 10 U.S. commodities impacted by the increased tariffs. These include pork, aluminum waste and scrap, and various fruits and nuts. Implications of Recent Trade Action against China China's economic rise has had both positive and negative effects on the United States. On the one hand, China's past economic and trade reforms have made China an increasingly significant market for U.S. exporters, a central factor in U.S. global supply chains, and a major source of low-cost goods for U.S. consumers. On the other hand, China has not fully transitioned to a free-market economy. The Chinese government continues to intervene in many parts of the economy (such as through the use of subsidies and trade and investment barriers), which often distort markets (prices) domestically and globally. China accounts for 37% of U.S. antidumping and countervailing orders currently in place as of June 2018. Many analysts argue that China has been the largest factor in global overcapacity in a number of industries, including steel and aluminum. China has indicated a number of objectives and plans to boost innovation and the competitiveness of a number of Chinese industries in order to maintain relatively healthy economic growth. Yet, a number of those initiatives appear to include industrial policies that subsidize and protect domestic Chinese firms, aimed in part to reduce China's reliance of foreign technology, such as the Made in China 2025 initiative. Some see China as a free rider in the global trading system. While China made significant concessions to enter the WTO in 2001, it was allowed to continue to maintain significant barriers on various sectors of the economy (especially in regard to FDI and services). Many U.S. policymakers charge that China's implementation of its WTO commitments has been fair at best and has failed to meet the expectations of significantly expanded market access in China. This has increasingly led U.S. policymakers to seek options to press China to move away from distortive economic policies and to liberalize its trade and investment regimes. The Obama Administration sought to negotiate a high standard BIT with China to address many of its concerns over China's FDI restrictions, although an agreement was not reached by the end of President Obama's term. The Trump Administration has not expressed interest in resuming the BIT talks even though China has. President Trump's January 2017 decision to withdraw the United States from the Trans-Pacific Partnership (TPP) free trade agreement (FTA) has been viewed by many analysts as a blow to U.S. efforts to induce economic and trade liberalization in China. Prior to the U.S. pull-out of TPP, Chinese officials had expressed interest in eventually joining the agreement, in part to avoid being economically marginalized by an FTA of countries constituting 40% global GDP. The TPP agreement signed by the United States was described as a "high standard agreement." It included enhanced IPR protection, liberalized provisions on digital trade, and new rules governing SOEs. The remaining 11 TPP members on March 8, 2018, concluded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Many analysts contend that the U.S. withdrawal from TPP weakened U.S. economic leverage with China and damaged U.S. credibility in Asia. The Trump Administration and some Members of Congress have advocated taking a harder line against China in regard to its economic and trade policies. A number of goals and justifications have been offered. Some argue that greater efforts should be made to require China to afford U.S. firms the same market access Chinese companies enjoy in the United States. Others contend that WTO agreements do not cover (or adequately cover) many of the policies and practices that China employs to protect and support its industries and therefore argue that the United States should act unilaterally (including the threat of sanctions) when U.S. economic interests are at stake. Others argue that U.S. trade remedy laws should be more aggressively used to stop imports of Chinese products that have been dumped in the United States or subsidized by the Chinese government, in order to afford greater protection to U.S. firms and workers from China's unfair trade practices. Finally, some policymakers have advocated for a more forceful response to Chinese industrial policies that seek to force foreign firms to transfer technology or lock U.S. technology firms out of China's markets through domestic content requirements. A number of congressional Members have expressed concerns over the efforts of Chinese to acquire U.S. high technology firms or assets, and many have called for reforms to the CFIUS review process to flag Chinese mergers that may impact the global competitiveness of U.S. economic sectors. Others support a more balanced approach to dealing with China that seeks to use the multilateral process in the WTO to resolve major trade disputes, high-level forums to address complex and long-term economic and trade issues, and negotiated trade agreements to boost market access in China. Supporters of this view contend that the imposition of unilateral trade sanctions by the United States (outside the WTO process) against China could result in rounds of economically damaging retaliation and counter-retaliation. Some critics of the Trump Administration's approach to trade policy contend that focusing too much on bilateral trade imbalances to judge the benefits or fairness of U.S. trade relations with various countries contradicts basic economic theory that only the overall trade balance matters and is the result of macroeconomic forces, not unfair trade policies. In addition, U.S. trade data is a poor measurement of who benefits from trade because it fails to reflect the value that was added in each country before it was shipped to its final destination. Many U.S. products imported from China (such as iPhones) contain inputs from numerous countries, which are not reflected in U.S. trade data. Therefore, some contend, it makes little sense to make reducing trade imbalances the top priority in trade negotiations with China (and other countries). Rather, the central focus of trade negotiations, they argue, should be the reduction of trade and investment barriers that are deemed by the United States as having the most significant impact in limiting U.S. trade flows, measuring the impact from a reduction of those barriers, but refraining from using trade balance data to measure the success or failure of such actions. President Trump's comments about his request to President Xi to reduce the U.S. trade deficit with China, while announcing Section 301 action against China's IPR policies, made it appear to some observers that deficit reduction, not improvements to China's IPR regime, was the Administration's real motive for using Section 301.The Trump Administration's demand that tariff levels between China and the United States be reciprocal is also puzzling to some observers. While China's average tariff levels are about three times higher than U.S. tariffs, they are largely what China agreed to when it joined the WTO in 2001. Observers contend that China's tariff levels are rarely cited as a major trade barrier by U.S. firms doing business in China, especially compared to the numerous nontariff barriers and FDI restrictions they face there. Many analysts have raised concern that unilateral trade action by the United States against China (and other countries under Section 232) could undermine the multilateral trading system and negatively impact global economic growth. For example, on March 23, 2018, WTO Director-General Roberto Azevêdo stated the following: I encourage members to continue working through the WTO's many forums and mechanisms to deal with their concerns and explore potential solutions. Actions taken outside these collective processes greatly increase the risk of escalation in a confrontation that will have no winners, and which could quickly lead to a less stable trading system. Disrupting trade flows will jeopardize the global economy at a time when economic recovery, though fragile, has been increasingly evident around the world. I again call for restraint and urgent dialogue as the best path forward to resolve these problems. Appendix. Chinese Policies to Boost Innovation235 Made in China 2025 On May 19, 2015, the Leading Group for Creating a Strong Manufacturing Country, a task force created by China's State Council, released the Made in China 2025 initiative. Made in China 2025 is a comprehensive plan to upgrade the Chinese manufacturing sector, focused largely on making intelligent information and communications technology (ICT)-based machines, systems, and networks manage the industrial process, otherwise known as "smart production." China's slowing economy and the unsustainability of its "growth at any costs" model have led the government to focus on new sources of growth, such as promoting innovation. Although it is the largest manufacturing sector in the world, China is still a relatively weak manufacturer when it comes to core technology and innovation. The innovation gap, desire to avoid the middle-income trap, and the slowing economy have all reportedly pushed the Chinese government to pursue the Made in China 2025 plan to move the manufacturing sector up the value chain, shifting from "Made in China" to "Made by China." Priorities The Made in China 2025 plan was the first of a "three step" strategy involving 10-year national plans to transform China into a leading high-value manufacturing economy by 2049, which will mark the 100 th anniversary of the founding of the People's Republic of China (PRC). According to the Minister of Industry and Information Technology, Miao Wei, "By 2025, China will basically realize industrialization nearly equal to the manufacturing abilities of Germany and Japan at their early stages of industrialization." The goals of Made in China 2025 are split into four key categories: innovation, quality efficiency, smart manufacturing, and green development. There are 9 priority tasks, 10 sectors, and 5 definitive projects with timelines that can be sorted into those four categories. The nine priority tasks laid out in Made in China 2025 include improving manufacturing innovation, integrating technology and industry, strengthening green manufacturing, promoting breakthroughs in 10 key sectors, advancing restructuring of the manufacturing sector, promoting manufacturing-related service industries, and internationalizing manufacturing. The 10 key sectors identified include new information technology, numerical control tools and robotics, aerospace equipment, ocean engineering equipment and high-end vessels, high-end rail transportation equipment, energy saving and new energy vehicles, electrical equipment, and agricultural machinery. Within Made in China 2025, there are also five projects with definitive goals and timelines: Construction of 15 manufacturing innovation centers by 2020, with 40 by 2025. Creation of 1,000 green demonstration factories and 100 green demonstration zones by 2020 and reduced primary pollution emissions by 20%. Decreased operating costs for smart manufacturing pilot projects by 30%, shortened production timelines by 30%, and lower rates of defective products by 30%, with decreased costs, timelines, and defects by another 20% by 2025. Increased self-sufficiency in development infrastructure by 40% of infrastructure components and key infrastructure materials by Chinese sources by 2020, with an increase to 80% by 2025. New indigenous research and development (R&D) in key sectors by 2020 with the goal of achieving significant market share growth in indigenous IP for high-value equipment by 2025. Made in China 2025 also references strengthened security reviews for investment, mergers and acquisitions, and procurement in manufacturing sectors that are related to national economy and national security; promoting indigenous or domestic innovation; enlarging tax policies for smart manufacturing, and enhancing cooperation with foreign companies in areas such as health care, aviation, and basic manufacturing. The plan calls for Chinese firms to invest abroad, become familiar with overseas cultures and markets, and strengthen investment and operation risk management before investing. According to a report by CSIS, if China genuinely decides to embrace intelligent manufacturing, it could become easier for Chinese companies and multinational corporations (MNCs) to collaborate both in China and abroad and possibly "reduce the zero-sum elements of the business relationship." In addition, if China successfully upgrades its manufacturing capacities, there is also a likely chance of improved overall economic governance, including financial and fiscal systems, a strengthened educational system, and increased access to varied sources of information. The Made in China 2025 is one component of China's plan to become a center and leader of innovation. Deputy Head of the Ministry of Industry and Information Technology Li Beiguang said that the key to a country becoming a manufacturing power is innovation, and "to promote manufacturing and national competitiveness, it is important to mobilize every conceivable element to stimulate innovation rather than simply support a single industry." Issues Made in China 2025 has faced criticisms on its viability. Some analysts say that China will succeed with its more modest goals, such as the immediate aims to improve the quality, productivity, digitization, and expansion of numerically controlled machines, which are all already used by manufacturers in developed countries. However, they contend that other goals, such as encouraging companies to use 3D printing and adopting robotics are or may be unrealistic. Trade Implications The ambiguity surrounding the language of Made in China 2025 objectives may impact foreign MNCs that operate within China and interact with Chinese companies globally. Made in China 2025 mentions "strengthened security reviews" for investments, mergers and acquisitions, and procurement in manufacturing areas related to the national economy and national security, which are not clearly defined. Language in the Made in China 2025 plan also seeks to boost indigenous innovation. For example, it lists the goal of ensuring that domestic Chinese firms will handle the majority of local infrastructure development with specific timetables. For example, the plan states that 40% of core infrastructure components and key infrastructure materials should come from Chinese sources by 2020 and to increase further to 80% by 2025. This has led to concerns that such goals will discriminate against foreign firms. Internet Plus The Internet Plus plan was announced to the National People's Congress on March 5, 2015 by Premier Li Keqiang, as part of the Report on the Work of the Government (2015), with a follow-up implementation plan issued by the State Council on July 4, 2015. With 721 million users as of 2016, China has the largest absolute number of people in the world using the internet. The plan reportedly came out of an effort to push for more innovation, as many Chinese leaders view innovation as the key to avoiding the middle-income trap. Additionally, there is still the prevailing idea in China, especially in the rural regions, that enterprises in the traditional sectors do not know how to link their businesses to the internet. According to the United States Information Technology Office, launched in cooperation with the Department of Commerce's International Trade Administration, China's Internet Plus seeks to "drive economic growth by integration of internet technologies with manufacturing and business." Goals In his speech on the Internet Plus plan during the 2015 Report on the Work of the Government, Premier Li Keqiang described the plan as such: "We will develop the 'Internet Plus' action plan to integrate the mobile internet, cloud computing, big data, and the Internet of Things with modern manufacturing to encourage the healthy development of e-commerce, industrial networks, and internet banking, as well as guide internet-based companies to increase their presence in the international market. In addition to the 40 billion yuan government fund already in place for investment in China's emerging industries, more funds need to be raised for promoting business development and innovation." Premier Li reiterated these points in the 2016 Report on the Work of the Government, but also highlighted the need to improve the efficiency of communication between governmental departments to cut down on "red tape." Internet Plus has four primary goals: (1) upgrade and strengthen the security of the internet infrastructure, (2) expand access to the internet and related technologies, (3) make social services more convenient and effective, and (4) increase both the quality and effectiveness of economic development. The plan also maps development targets and supportive measures for key sectors, such as mass entrepreneurship and innovation, manufacturing, agriculture, energy, finance, public services, logistics, e-commerce, traffic, biology, and artificial intelligence. In order to achieve these goals, the Chinese government will reportedly clear barriers and lower limits for the market entry of Internet Plus-related products, optimize the credit system, and draft a big data strategy and promote legal services for companies that pursue the Internet Plus system. The government has also expressed interest in training and making better use of local and foreign talent, providing financial support and tax preferences to key projects, launching more pilot zones as well as encouraging innovation demonstration zones and local governments to come up with their own plans aligned to Internet Plus. Chinese authorities have also promised that families in large cities will have access to 100 megabyte-per-second internet, and that broadband services will reach 98% of the population living in incorporated villages. According to the Seconded European Standardization Expert in China (SESEC), a project co-financed by the European Union, the Chinese government has created a new investment fund worth 40 billion RMB, or approximately $6 billion, to further promote new industry innovation and entrepreneurship under Internet Plus. Internet Plus is intertwined with other economic plans outlined by the Chinese government. For example, a goal of Internet Plus, which is restated in the 13 th Five-Year Plan, is to increase the percentage of research and development spending as part of GDP from 2.1 to 2.5. The Chinese government has also tied Internet Plus to the "One Belt One Road" Initiative, an effort to boost development and economic connectivity across three continents, encouraging Chinese internet companies to increase their efforts in the global market. Issues The release of Internet Plus and Made in China 2025, and the notable mention of both plans in the 13 th Five-Year Plan, are all efforts by the Chinese government to increase the growth rate of the economy. Within Internet Plus, there is an emphasis on innovation that the government believes will result from the integration of the internet with economic and social sectors and that an increasing trend of innovation will benefit from government intervention. Some experts raise concerns about a "helping hand," contending that government intervention could slow the beneficial effect start-ups have on the economy. Gordon Chang in a Forbes Magazine article, for example, contends that "perhaps the worst thing for tech companies is direct government support, which means meddling by central, provincial, and local officials." Chang also pointed out that new e-commerce companies, like the ones that Internet Plus aims to create, may be net job-destroyers by contributing to the closing of "brick-and-mortar" shops, and that many of these new companies may be "zombie shops." Press reports point out the lack of reference to "freedom of the Internet" in Internet Plus, leading them to question how strict internet censorship would be, especially with the trend of increased censorship since Xi Jinping became president in 2012. They also mention that if Beijing continues to censor access to information, Internet Plus may increase consumer shopping, instead of having any significant and long-term impact on the economy. Analysts have also criticized the implementation of Internet Plus. Internet Plus places a large emphasis on modernizing the agricultural sector of the economy, but agencies tasked with overseeing the implementation of Internet Plus for agriculture include the Ministry of Agriculture; National Development and Reform Commission; Ministry of Science and Technology; Ministry of Commerce; General Administration of Quality Supervision, Inspection, and Quarantine; China Food and Drug Administration; and the State Forestry Administration. A lack of coordination could lead to problems with Internet Plus, including the misallocation of state resources, redundant or contradictory policies, and opportunities for local officials to exploit policy overlaps for their own profits. Implications There are both positive and negative implications for the United States if Internet Plus is implemented as the Chinese government intends it. Seconded European Standardization Expert in China (SESEC) notes that transforming and upgrading key sectors could open up new sectors, highlighting the example of how mobile internet reforms promoted the development of taxi-hailing apps in a previously closed vehicle transportation and operation market. If Internet Plus is successful, an example of a possible sector that could open up is the agricultural industry, as there has been some emphasis on modernizing the sector, specifically moving from network sale sectors like e-commerce to the production sector. Some analysts speculate that Internet Plus could increase censorship, further closing off high-tech sectors from China and halting innovation. During the announcement of Internet Plus, Premier Li Keqiang mentioned more precise web management to "clean up illegal and bad information" to "strengthen the struggle against enemies in online sovereign space and increase control of online public sentiment." In its 2016 U.S.-China Business Council (USCBC) Recommendations for the U.S.-Joint Commission on Commerce and Trade (JCCT), USCBC recommended ensuring "that regulations calling for 'secure and controllable,' 'secure and reliable,' and similarly worded standards included in existing policy documents do not discriminate against foreign companies or procurement of foreign IT equipment and do not create unnecessary requirements that will not enhance the security of networks." National Informatization Development Strategy On August 31, 2015, China released its "National Informatization Development Strategy," or big data development plan. In July 2016, China released its Outline of the National Informatization Development Strategy, a guiding document that explains the regulations and direction of information-based development in China over the next 10 years. According to the United States Information Technology Office, the outline calls for core information technology, such as integrated circuits and basic software to create a core technology system; strengthened IPR and standards; improved protection regulations for IPR; implementation of a multi-level classification information management system; accelerated lawmaking process for relevant policies; emphasis on the importance of international cyberspace development and administration cooperation; implementation of network identity administration regulations; and tightened control over all internet news services and platforms. The outline also emphasizes the leadership of the Central Network Security and Informatization Leading Group, led by President Xi Jinping. The outline sets targeted goals for the next 10 years that will be reached by both 2020 and 2025. By 2020, China wants to strengthen its domestic industry by specifically focusing on certain core technologies, providing internet access to an additional 350 million people by expanding 3G and 4G services, and achieving breakthroughs in 5G technology. By 2025, China wants to further improve household fixed-broadband connectivity rates, build a leading mobile telecommunications network, and increase information consumption values to 12 trillion RMB (U.S. $1.79 trillion) and e-commerce trading values to 67 trillion RMB (U.S. $10 trillion). Implications The National Informatization Development Strategy builds upon the ICT and big data goals set in the 13 th Five-Year Plan, Internet Plus, and Made in China 2025. However, as some have noted, the outline differentiates itself from the other goals set in these other plans in that it is bolder with a nationalistic frame. The strategy further emphasizes the need for China to strengthen its domestic industry, easing its dependence off of foreign sectors. Efforts to Promote an Indigenous Semiconductor Industry In June 2014, the Chinese government released a plan called "Guidelines to Promote National Integrated Circuit Industry Development." A year later, the government announced an investment of 1 trillion RMB, or 161 billion USD, in the domestic semiconductor industry to be developed over the next 10 years. The guidelines to improve the semiconductor industry are split into three main strategies: mergers and acquisitions (M&A), market power, and regulation. According to the U.S. International Trade Administration, "the Chinese government appears to be driven by a desire to acquire know-how in all segments of the semiconductor supply chain," resulting in heavy recruitment of foreign talent by the Chinese government. China wants to "catch up technologically" with other leading semiconductor firms by 2030 and produce 70% of the chips consumed by the Chinese industry. China purchases over half of all semiconductors produced each year globally, but lacks the capabilities in its domestic semiconductor industry to back up its consumption. In 2014, China accounted for 56.6% of the global consumption of semiconductors, and its demand grew at an 18.8% compounded annual growth rate between 2003 and 2014. In order to build up domestic industries and promote indigenous innovation, China wants to lessen its dependency on U.S. technology, especially in the semiconductor industry. Chinese consumption of semiconductors in 2015 was 9% domestically produced and 91% foreign, of which 56.2% was made in the United States, while domestic Chinese chips accounted for less than one-tenth of local demand. Globally, China makes up 4% of global semiconductor sales, and views its reliance on foreign companies as a national security concern. Issues Analysts have compared the Chinese ambitions to the rise of the Taiwanese semiconductor industry, but point out differences between the two situations. According to The Economist , Taiwan was able to succeed because they entered the market during an industry shift to a model that separated the design and fabrication of the chip. However, when Taiwan tried to enter the market for memory chips, it failed due to the lack of a transitional period in the industry. Currently, the global semiconductor industry is facing a period of relatively slow growth. This, in combination with the maturing of the global semiconductor industry, or the increased complexity of semiconductor chips and their associated software, could, some argue, make it more difficult for Chinese firms to succeed. Other criticisms include the methods and goals that China has undertaken to develop its semiconductor industry. As of March 2016, China, through its Integrated Circuit (IC) Industry Investment Fund, has invested 43 billion RMB (6.61 billion USD) to expand its semiconductor industry, with much of the money going toward mergers and acquisitions. Analysts note that simply acquiring the technology will not help improve China's competitiveness in the long run, but will only increase the profit margin for China temporarily. Intel alone spends four times as much on research and development on its semiconductors as the entire Chinese chip industry. The emphasis on increasing domestic demand for domestically made chips is also a concern. Some analysts note that the emphasis on domestically made chips assumes that Chinese firms will buy Chinese-produced microchips because they are made in China, disregarding the idea that the same firms might buy foreign microchips because they are of better quality. If Chinese-produced microchips are of lesser quality, but the Chinese government guides companies toward buying domestically made products, China could end up with a domestic industry that lacks global competitiveness. A government mandate for Chinese high tech firms to use Chinese-made chips could also undermine their global competitiveness as well. Implications The United States is a leading actor in the global semiconductor industry, and has great interest in Asia, with U.S. semiconductor exports to the broader Asia-Pacific region representing 85% of total U.S. semiconductor goods exported in 2014 at $36.5 billion. Between 2014 and 2015, semiconductor exports grew from $8.03 billion to $8.45 billion, a growth of 5.2%; 82% of all semiconductor products produced in the United States are sold to customers overseas, supporting 250,000 U.S. jobs and an additional 1 million jobs in related sectors. In 2015, U.S. companies accounted for 50% of total semiconductor sales. The Department of Commerce's International Trade Administration views policies promoting Chinese domestic industries as "potentially discriminatory" and posing "real long-term threats to not only U.S. firms, but the entire semiconductor ecosystem." In the short term, some note that there will be larger investment in both U.S. and foreign companies that develop semiconductors, but in the long term, it is possible that once Chinese companies have the intellectual property, there could be less reliance on U.S. companies. In January 2016, the Chinese provincial government of Guizhou and U.S. firm Qualcomm signed an agreement to form a new joint venture (with an initial registered capital of $280 million), focusing on the "design, development and sale of advanced server chipset technology in China." The Guizhou provincial government investment arm will have a 55% controlling share. Qualcomm will provide investment capital, license its server technology to the joint venture, and assist with R&D process and implementation expertise. If China successfully develops its semiconductor industry, it may enjoy a bigger share of the global electronics industry's profits, as profit margins for successful semiconductor firms are around 40% or more. Analysts say that there will be a continuation of strong, but slowing growth in demand for semiconductors by China and a large increase in their demand for semiconductor manufacturing equipment in the short term as China continues to develop their industry. On January 2017, the President's Council of Advisors on Science and Technology issued a issued a report on U.S. semiconductor innovation, competitiveness, and security, which warned that a "concerted push by China to reshape the market in its favor, using industrial policies backed by over one hundred billion dollars in government-directed funds, threatens the competitiveness of U.S. industry and the national and global benefits it brings," and that such policies "put U.S. national security at risk."

U.S.-China economic ties have expanded substantially since China began reforming its economy and liberalizing its trade regime in the late 1970s. Total U.S.-China merchandise trade rose from $2 billion in 1979 (when China's economic reforms began) to $636 billion in 2017. China is currently the United States' largest merchandise trading partner, its third-largest export market, and its biggest source of imports. In 2015, sales by U.S. foreign affiliates in China totaled $482 billion. Many U.S. firms view participation in China's market as critical to their global competitiveness. U.S. imports of lower-cost goods from China greatly benefit U.S. consumers. U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs. China is also the largest foreign holder of U.S. Treasury securities (at $1.2 trillion as of April 2018). China's purchases of U.S. debt securities help keep U.S. interest rates low. Despite growing commercial ties, the bilateral economic relationship has become increasingly complex and often fraught with tension. From the U.S. perspective, many trade tensions stem from China's incomplete transition to a free market economy. While China has significantly liberalized its economic and trade regimes over the past three decades, it continues to maintain (or has recently imposed) a number of state-directed policies that appear to distort trade and investment flows. Major areas of concern expressed by U.S. policymakers and stakeholders include China's alleged widespread cyber economic espionage against U.S. firms; relatively ineffective record of enforcing intellectual property rights (IPR); discriminatory innovation policies; mixed record on implementing its World Trade Organization (WTO) obligations; extensive use of industrial policies (such as subsidies and trade and investment barriers) to promote and protect industries favored by the government; and interventionist policies to influence the value of its currency. Many U.S. policymakers argue that such policies adversely impact U.S. economic interests and have contributed to U.S. job losses in some sectors. The Trump Administration has pledged to take a more aggressive stance to reduce U.S. bilateral trade deficits, enforce U.S. trade laws and agreements, and promote "free and fair trade," including in regard to China. On March 8, 2018, President Trump announced a proclamation imposing additional tariffs on steel (25%) and aluminum (10%), based on Section 232 national security justifications (China is the world's largest producer of both of these commodities). On April 1, China announced that it had retaliated against the U.S. action by raising tariffs (from 15% to 25%) on various U.S. products, which together totaled $3 billion in 2017. On March 22, President Trump announced that action would be taken against China under Section 301 over its IPR policies deemed harmful to U.S. stakeholders. In addition, he stated that he would seek commitments from China to reduce the bilateral trade imbalance and to achieve "reciprocity" on tariff levels. On June 15, the United States Trade Representative (USTR) announced a two-stage plan to impose 25% ad valorem tariffs on $50 billion worth of Chinese imports. Under the first stage, U.S. tariffs would be increased on $34 billion worth of Chinese products and effective July 6. For the second stage, the USTR proposed increasing tariffs on $16 billion worth of Chinese imports, mainly targeting China's industrial policies. China released its own two-stage list of counter-retaliation of equal magnitude. President Trump then threatened 10% ad valorem tariffs on another $400 billion worth of Chinese products. On July 6, the Trump Administration implemented the first round of tariff increases and China retaliated in kind. These tit-for-tat actions threaten to sharply reduce U.S.-China commercial ties, disrupt global supply chains, raise import prices for U.S. consumers and importers of Chinese inputs, and diminish economic growth in the United States and abroad.

Reducing Cost-of-Living Adjustments for Military Retirees One of the offsets for raising the defense and nondefense caps in FY2014 and FY2015 in the Bipartisan Budget Act of 2013 ( H.J.Res. 59 / P.L. 113-67 ) was a reduction in the cost-of-living adjustment (COLA) for many current and nearly all future military retirees. Instead of using the full Consumer Price Index (CPI) to adjust retired pay each year, as has been customary in recent years, Section 403 of the Bipartisan Budget Act (BBA) substituted the CPI less 1% for all current and future military retirees under the age of 62 (except those already receiving reduced COLAs under the Redux retirement option). At age 62, beneficiaries would receive a bump-up in their benefit level to the amount they would have received had a full COLA adjustment been included each year rather than the lower COLAs. In subsequent years, this new benefit level would be adjusted using the full CPI. This change would have affected almost all military retirees below the age of 62, including those collecting disability retirement, as well as individuals receiving survivor benefits. The new formula would take effect on December 1, 2015. According to CBO, this change would have saved the Department of Defense $6.235 billion over the decade. This provision of the Bipartisan Budget Act generated significant debate. Some called for a reversal, arguing that retaining the full COLA adjustment is part of a commitment to servicemembers to preserve benefits including future COLAs at the full CPI to offset inflation. Some servicemembers and advocates also argued that retirement changes should be delayed until the April 2015 report of Military Compensation and Retirement Modernization Commission provides a "holistic" solution. Others defended the COLA adjustments, arguing that the effect on most retirees would be small compared to their lifetime benefits. They also argued that the change would help restrain the growth in military compensation over the past decade. Admiral Winnefeld, Vice-Chair of the Joint Chiefs of Staff, recently suggested that these increases have "more than closed previously existing gaps with the rest of our nation's workforce." Some argued further that military retirement benefits are exceptional because servicemembers do not contribute to their basic retirement benefits, and that military personnel have also been insulated from one of the major expenses for older persons, higher health insurance premiums, because premiums for military personnel have been frozen since 1995. Most Recent Action In January, responding to concerns raised about the effect on disabled military retirees who tend to retire younger and have shorter life expectancies, Congress reversed the COLA adjustments in the BBA for disability retirees and survivor benefit recipients with passage of the FY2014 Consolidated Appropriations Act ( H.R. 3547 / P.L. 113-76 ). The new formula, as revised by P.L. 113-76 , would have still taken effect for nondisabled retirees on December 1, 2015, but Congress would take further action. On February 11, 2014, the House passed an amended version of S. 25 , to modify the impact of the reduced COLA provision of the BBA so it only applied to individuals who become members of the uniformed services on January 1, 2014, or later. The Senate passed this amended version on February 12, and the President signed it into law ( P.L. 113-82 ) on February 15. Hence, all currently serving military personnel who joined before January 1, 2014, and all current retirees are effectively excluded ("grandfathered") from the COLA reduction provision of the BBA. Only those individuals who join in 2014 or later and subsequently qualify for non-disability retirement will ultimately be subject to the COLA provision (along with REDUX retirees, who opt into a reduced COLA retirement in exchange for a cash bonus). Since non-disability retirees typically must serve 20 years before qualifying for retirement, the first major cohort of non-disability retirees to be impacted by this provision will be those who retire in 2034. Demographics of Military Retirees Note: T he following sections were largely written before the BBA was revised by the FY2014 Consolidated Appropriations Act and S. 25 . They now reflect what would have happened had the or i ginal BBA language remained in effect. Based on the profile of the 1.94 million military retirees collecting benefits as of FY2012, about 40% or 750,000 would likely have been affected in some way by the lower COLAs that were adopted in the BBA. To get a picture of the potential effect of reducing the COLA by 1%, the demographic portrait in Table 1 shows average age, years of service, and retirement benefits, with separate entries for officers and enlisted. While active-duty personnel are eligible for immediate retirement benefits after 20 years of service, reservists generally are not eligible for retirement until age 60, and so would generally be affected by the BBA's COLA minus 1% provision for a year. Excluding reservists, some 1.6 million military retirees currently receive benefits. For nondisabled military retirees as whole, about half are below the age of 62, and most of those would face reduced COLAs for 1 to 10 years based on DOD Actuary statistics. Nondisabled Retirees To illustrate the effect of the original BBA, Table 1 shows that among the current retiree population, the average disabled retiree retired at age 42 after 22 years of service, receives $30,550 in retired pay per year, and is now 62 years old. Officers generally are several years older than enlisted personnel, and receive benefits about twice as large as enlisted personnel: an average of $51,450 vs. $23,650 in retired pay per year. The table breaks out new FY2012 retirees because the data on them are later used to estimate effects on future retirees had the original BBA formula remained in effect. Based on the most recent DOD Actuary data, those servicemembers who retired in FY2012 were, on average, slightly older than those who retired in earlier years (age 44 vs. 42), with one additional year of service, and received somewhat higher average retired pay ($37,700 vs. $30,550) ( Table 1 ). Higher average pay for the latest group may reflect a variety of factors, including pay raises above the Economic Cost Index (ECI) received in the past decade. Future retirees would have been more affected by the BBA's lower COLAs than the current beneficiary population because they are generally younger, so the reduced COLAs would have affected them for a longer period of time. The benefits of today's older retirees would have only been reduced for those under the age of 62. Disabled Retirees To illustrate the effect of the original BBA, Table 1 shows that today's disabled retirees generally retire at 33-34 with 10-11 years of service with lower benefits. Compared to nondisabled retirees, disabled retirees generally retire some 10 years earlier, with roughly half the number of years of service, and over $10,000 less in annual retired pay. Those retiring in FY2012 show similar characteristics (see Table 1 ). The congressional decision to exempt disabled retirees from the lower COLAs may reflect, in part, the fact that disabled retirees generally retire at younger ages, meaning that lower COLAs would affect them for a longer period of time, and that their benefits are lower as well. In addition, the life expectancy for disabled retirees is about 8 years below that of nondisabled retirees, meaning that there would have been fewer years after 62 with full COLA benefits had the original BBA remained in effect. Because of these two factors, disabled retirees would have experienced a greater loss of retirement income than nondisabled retirees. These demographic factors help explain why lower COLAs would be expected to have greater effects on disabled retirees. In addition, enlisted disabled personnel would have been more affected than disabled officers in percentage reductions to their income, because their retirement income is considerably lower (see Table 1 ). Potential Effects on Military Retirees If FY2012 retirees are representative of future retirees, and the original BBA language had remained in effect, then those currently retired would have been less affected than future retirees because of the demographic characteristics described above. Similarly, disabled retirees would have been more affected than nondisabled retirees had the original BBA remained in effect. To estimate the effects of the original BBA formula on both current and future retirees, CRS used DOD Actuary data about average age, retirement income, and life expectancy for nondisabled and disabled military and CBO's projections of the CPI. To project the effect on future retirees, CRS used DOD Actuary statistics about those who retired in FY2012, the most recent data available. Current Nondisabled Retirees On average, lifetime retirement benefits for the current retiree population are about $590,000 for enlisted personnel and $1.37 million for officers based on DOD Actuary figures and CBO projections of Consumer Price Index (CPI). The average age of nondisabled current retirees is 61 for enlisted and 66 for officers, suggesting that many retirees would not have been affected by reduced COLAs under the original BBA or would have been subject to lower COLAs for fewer years than future retirees. As a point of comparison, had the COLA adjustment for current disabled military retirees in the BBA remained in effect, the average enlisted disabled retiree, with an average age of 53, would have received $13,000 or 3% less in lifetime benefits of $390,000. For disabled officers, with an average age of 66, few would experience reductions in lifetime benefits of $440,000. Disabled retirees who are younger than this average would have been affected by larger amounts and those older by lesser amounts. Future Nondisabled Retirees Had the original BBA remained in effect, future military retirees would have been more affected than current retirees. Generally in their early 40s, the average future retiree would have received reduced COLAs for about 18 years until the age of 62. To estimate the effect on future nondisabled military retirees under the BBA formula, CRS calculated average lifetime retirement income for enlisted and officer retirees with a full CPI adjustment and with the CPI less 1% as set in the Bipartisan Budget Act. CRS based its calculations of the effect on future nondisabled retirees using the DOD Actuary's data on the characteristics of those who retired in FY2012—average age, retirement income, and life expectancy—and CBO's projections of the CPI. These estimates exclude reservists and reflect the bump-up to full-COLA retired benefits at age 62 and full CPI adjustments for the remainder of a retiree's life as provided in the original BBA language. Under these assumptions, the average nondisabled military retiree could be affected by the lower COLAs as follows. Enlisted personnel would have received a total of about $1.67 million rather than $1.73 million in lifetime retirement benefits, a $69,000 or 4.0% reduction in a 36-year period; Officers would have received a total of $3.74 million rather than $3.83 million in lifetime retired pay, an $87,000 or 2.3% reduction in a 36-year period (see Table 2 ). For nondisabled enlisted retirees, the estimate reflects an average where servicemembers joined the military at age 21, retired at age 43, received reduced COLAs for 18 years until they reached the age of 62 in FY2034, and then full COLAs for the rest of their lives. DOD Actuary figures project a life expectancy of 79 for these nondisabled, enlisted military retirees (see Table 2 below). For nondisabled officer retirees, the average reflects servicemembers who joined the military at age 23, retired at 47, received reduced COLAs for 15 years until they reached the age of 62 in FY2030, and then full COLAs for the rest of their lives. The DOD Actuary projects a life expectancy of 84 for the average officer. Current Disabled Retirees Had the lower COLAs been applied to disabled retirees as originally required by the BBA, the effect on these retirees would have been greater than for nondisabled retirees because disabled servicemembers tend to retire at younger ages resulting in more years with a reduced COLA. In addition, with an average life expectancy of eight years less than nondisabled retirees, disabled retirees would had have fewer years with full-COLA benefits ( Table 1 ). Because the average disabled retiree is 55 rather than 62, the majority of currently disabled retirees would have experienced several years of reduced COLAs had the original BBA remained in effect. Future Disabled Retirees As a point of comparison and to illustrate the effect of the original BBA, CRS used DOD Actuary estimates of the effect on future disabled retirees. Based on those data, CRS estimated that lifetime retired benefits for the average disabled military retiree would have been affected as follows if the reduced COLAs had remained in effect. Enlisted personnel would have received about $1.16 million rather than $1.29 million, a reduction of $123,000 or 9.6% in lifetime benefits received over a 37-year period; Officer personnel would have received about $2.60 million rather than $2.74 million, a decrease of $144,000 or 5.3% in lifetime benefits received over a 38-year period (see Table 2 ). Reflecting DOD Actuary data, the estimate above reflects an average disabled enlisted retiree who joined the military at 24, retired at 33 after 9 years of service, and lived until the age of 71. The comparable average disabled officer retiree would have begun service at the age of 28, retired at 40 after 12 years of service, and lived until the age of 77. These estimates suggest that under the original BBA, the potential effect for disabled retirees would have been about double that faced by nondisabled retirees ( Table 2 ). These estimates, however, do not include income that about one-third of disabled retirees would receive in additional Combat Related Special Compensation (CRSC) or Department of Veterans Affairs (VA) disability benefits. Under concurrent receipt, certain disabled military retirees can receive CRSC or VA disability benefits in addition to their DOD retirement benefits if their disability was combat-related or assessed as 50% or greater.

In addition to raising budget caps in FY2014 and FY2015, the Bipartisan Budget Act (BBA) reduced the cost of living adjustments (COLAs) provided to working-age military retirees under the age of 62 from the full Consumer Price Index (CPI) to the CPI less 1%. Military retirees would then receive a "bump-up" at age 62 that would raise their benefit level to an amount that included full rather than partial CPI adjustments for each year below the age of 62. This new benefit level would then be increased for full CPI adjustments in later years. According to CBO, this change would have saved the Department of Defense $6.235 billion over the decade. Based on data published by the Department of Defense (DOD) Actuary about the characteristics of FY2012 military retirees and CBO projections of the CPI, CRS estimates that for the average nondisabled future retiree, lifetime retirement income under the BBA's lower COLA would be about: $1.67 million rather than $1.73 million in lifetime retired pay, a $69,000 or 4.0% reduction for enlisted personnel; and $3.74 million rather than $3.83 million in lifetime retired pay, an $87,000 or 2.3% reduction for officers. The impact of the BBA's reduced COLAs on disabled retirees would have been larger because they tend to retire younger and thus would have faced COLA reductions for more years. CRS estimates that the lifetime retirement income for disability retirees under the BBA formula would have been reduced by $123,000 or 9.6% for enlisted personnel and $144,000 or 5.3% for officers. In response to concerns about potential effects, Congress restored full CPI COLA adjustments for disabled military retirees and survivors in the FY2014 Omnibus (H.R. 3547/P.L. 113-76) signed by the President on January 17, 2014. Several bills were also introduced that would reverse the COLA decrease for non-disabled military retirees as well. Although the reduced COLAs would not have gone into effect for non-disability retirees until December 1, 2015, some Members called for action sooner. On February 11, 2014, the House passed an amended version of S. 25, to modify the impact of the reduced COLA provision of the BBA so it only applied to individuals who become members of the uniformed services on January 1, 2014, or later. The Senate passed this amended version on February 12, and the President signed it into law (P.L. 113-82) on February 15. Hence, all currently serving military personnel who joined before January 1, 2014, and all current retirees are effectively excluded ("grandfathered") from the COLA reduction provision of the BBA. Only those individuals who join in 2014 or later and subsequently qualify for non-disability retirement will ultimately be subject to the COLA provision (along with REDUX retirees, who opt into a reduced COLA retirement in exchange for a cash bonus). Since non-disability retirees typically must serve 20 years before qualifying for retirement, the first major cohort of non-disability retirees to be impacted by this provision will be those who retire in 2034.

Introduction Considerable congressional attention has been placed on the treatment of consumers within the private health insurance marketplace. Among the many concerns, particular attention has been paid to the value of coverage in terms of out-of-pocket (OOP) costs relative to premiums. One method that lowers the value of coverage is the use of annual limits on the dollar amount of coverage. Private health insurers use annual limits to require the consumer to assume 100% of the cost of coverage after a certain amount of spending for the year has been reached. The spending can be for the total health benefits covered or targeted to specific services, such as hospitalizations. Policyholders and plan members that exceed these coverage caps end up with very high OOP costs. However, market demand for low-premium coverage has led to the proliferation of limited benefit plans ("mini-med plans") that rely on annual limits to keep premiums down. According to the Department of Health and Human Services (HHS) approximately 18 million Americans are subject to annual limits in their health coverage. The Patient Protection and Affordable Care Act ( P.L. 111-148 , PPACA) was enacted on March 23, 2010, and amended by the Health Care and Education Reconciliation Act ( P.L. 111-152 , HCERA), enacted on March 30, 2010 (hereafter collectively referred to as PPACA). PPACA, among other provisions, reorganizes and amends title XXVII of the Public Health Service Act (PHSA) to reform the private health insurance marketplace. The "immediate" reforms in sections 2711 through 2719 of the PHSA become effective for plan years beginning on or after September 23, 2010. The plan year refers to the 12-month period during which a policy or plan benefit is effective. Among the immediate reforms are consumer protections from high OOP costs by placing restrictions on and eventually prohibiting the use of annual limits. This report provides an overview of the waiver available for the restriction on annual limits and will be periodically updated to reflect any legislative or regulatory changes. Restriction on Annual Limits For plan years beginning on or after six months after enactment, group health plans, grandfathered group health plans, and health insurance issuers offering group or individual plans are restricted, as determined by the Secretary of HHS (hereafter the Secretary), from establishing annual limits on the dollar value of essential health benefits for any participant or beneficiary. Essential health benefits may be further defined by the Secretary, but they must include at least the following types of care: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, and preventive and wellness and chronic disease management and pediatric services, including oral and vision care. Annual limits are permissible for health care expenses that are not considered part of the essential health benefits. PPACA also requires the Secretary to ensure that there is access to needed services with a minimal impact on premiums in the context of defining the restriction on annual limits. This provision is the basis for the Secretary's waiver authority. On June 28, 2010, the Secretary promulgated regulations, with the Secretaries of Labor and the Treasury, defining the restrictions on annual limits. In order to limit the magnitude of the likely premium increases for coverage that previously used annual limits, the regulations have a three-year phase-in period allowing insurers to implement annual limits of $750,000 in the first year culminating in a $2 million allowable annual limit in the final year, as illustrated in Figure 1 . On January 1, 2014, annual limits will be prohibited altogether. Impact on Limited Benefit ("Mini-Med") Plans There is substantial variability in the marketplace due to different consumer demands, but generally, a limited benefit plan offers coverage with restrictive annual limits on total benefits and/or on specific service categories (e.g., surgeries). Table 1 illustrates an example of grandfathered limited benefits plan called Fundamental Care. In this example, Fundamental Care has a annual deductible of $500 and a policy year maximum or annual limit of $100,000 and service specific benefit maximums. The plan has a drug benefit with a $100 deductible and a $1,000 annual limit. Premiums vary by covered group, but the employer is required to make at least a 50% contribution to the cost of the coverage. HHS estimates that about 17.9 million persons have plans or policies that are subject to annual limits, primarily in the individual (65% of total) and small group (31% of total) markets. Industry groups have argued that limited benefit plans are necessary because more comprehensive coverage would be too costly without the federal subsidies for qualified health plans in the exchanges that are not available until 2014. They say that without the option of limited benefit plans, these workers would likely become uninsured. This assertion has been the basis for requesting and granting waivers from the restriction on annual limits. On the other hand, some consumer groups have argued that limited benefit plans are not deserving of any regulatory leniency. They assert that many consumers enroll in these plans without understanding how little protection they provide against large health expenses, resulting in a lack of access to care and substantive medical debt when they experience a major illness or accident. These concerns prompted a December 1, 2010, hearing by the Senate Commerce Committee. Temporary Waivers Limited benefit plans do not have a categorical exemption from the reforms of PPACA. However, regulators have found the industry argument for waivers compelling while acknowledging the potential risks to consumers. In the interim final regulations on restricted annual limits, the Secretaries of HHS, Labor, and the Treasury announced that HHS would establish a waiver process for limited benefit plans in order to preserve coverage at similar premiums. In other words, it was assumed that applying the restriction on annual limits to limited benefit plans would result in substantive increases in the premiums charged for those insurance products. HHS, however, expressed concern that consumers might be confused about the value of their coverage in relation to the restriction on annual limits. Accordingly, HHS is requiring plans that are approved for the waiver to prominently display in their materials a "black box type" warning in 14-point bold font explaining that their plan does not meet the standards of the law with respect to annual limits. Organizations may apply for a waiver on an annual basis until January 1, 2014, when annual limits are prohibited. The standards of the waiver apply equally to all applicants, as there are no differential or preferred paths to a waiver by the category of the applicant, such as unions or small businesses. The operational process for applying for a waiver was published as a memorandum on September 3, 2010. The memorandum, and subsequent guidance, establishes the following reporting requirements: the terms of the plan or policy for which a waiver is sought; the number of individuals enrolled in the plan or covered by the policy; the annual limit(s) and rates applicable to the plan or policy; and a brief description of why compliance with the restriction on annual limits standard would result in a significant decrease in access to benefits or a significant increase in premiums paid. As of April 1, 2011, 1,168 waivers have been approved, representing slightly more that 2.9 million enrollees and policyholders. This means the enrollees and policyholders of the accepted waiver applicants represent around 1.5% of the approximately 194.5 million individuals with private health insurance in the United States. HHS did not provide any data on denied waiver applicants, but has reported that 94% of the applicants were granted waivers. As illustrated by Figure 2 , most (94.3%) of the waivers were approved for either self-insured employers (40.6%), health reimbursement arrangements (HRAs, 28.9%), or multiemployer union plans (24.7%). As illustrated by Figure 3 , most (92.5%) of enrollment for the approved waivers was for either health insurance issuers (29.7%), multiemployer union plans (29.4%), non-Taft Hartley union plans (19.1%), or self-insured employers (14.3%). Legislative Activity in the 112th Congress The Health Care Waiver Transparency Act (H.R. 1184/S. 650) On March 17, 2011, the Health Care Waiver Transparency Act was introduced by Representative Darrell Issa ( H.R. 1184 ) and Senator John Ensign ( S. 650 ). H.R. 1184 / S. 650 would require the Secretary of HHS to publish, on the HHS website, detailed criteria used to determine approval of an application submitted for a waiver, adjustment, or other compliance relief provided for under the authority of PPACA or title I or subtitle B of title II of the Health Care and Education Reconciliation Act ( P.L. 111-152 ). The Secretary of HHS would be further required to publish each application for a waiver, the determination of the Secretary of HHS whether to approve or reject the application, and the reason for such approval or rejection. H.R. 1184 / S. 650 would also expressly prohibit preferential treatment being given to any waiver applicant based on political contributions or association with a labor union, a health plan provided for under a collective bargaining agreement, or another organized labor group. Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10) Section 1856(b) of P.L. 112-10 requires the Government Accountability Office (GAO) to submit to Congress a report that includes the results of an audit of requests for waiver of the restricted annual limit not later than June 14, 2011. The report must include an analysis of the number of approvals and denials of such requests and the reasons for such approval or denial. Oversight Concern regarding the favoritism toward unions in granting waivers, the frequency of the waivers, and the transparency of the waiver process has prompted oversight and legislative activity. On January 20, 2011, the House Energy and Commerce Committee sent a letter to the director of the Center for Consumer Information and Insurance Oversight (CCIIO) asking for, among other things, documents and information regarding the submission and approval of the waivers for restricted annual limits. Similar letters requesting additional details on the waivers and waiver applicants have been sent by Senator Hatch and by Senator Ensign. On March 22, 2011, the House Committee on Small Business sent a letter to the Secretary of HHS asking a series of questions and for documentation concerning the specific impact of the waivers on small businesses. The waivers have also been a topic of discussion in several hearings on PPACA. For context, it is relevant to note that Congress has not consistently specified the manner in which information concerning health care waivers is to be released to the public. Indeed, the annual limits provision of PPACA does not even have a specific public reporting requirement. As a result of different legal standards, or in some cases the absence of a congressional directive, no standardized practice for releasing information about health care waivers has ever been developed. As illustrated in Table 2 , there is substantial variation in the release of information between different health care waiver types. No obvious bias could be found in the publicly available application materials for the annual limits waivers. The available evidence suggests no favoritism for any particular applicant groups (e.g., unions). The Hill obtained records of waiver denials and reported that as of mid-February, CMS had denied 79 requests for waivers and that unions accounted for roughly 60% of those denials. Moreover, in completing the work required by P.L. 112-10 , the GAO found that CMS granted waivers when an application projected a significant increase in premiums or significant reduction in access to health care benefits rather than organizational factors (e.g., union membership, geographical location, number of employees).

Considerable congressional attention has been placed on the dollar value of health insurance coverage in terms of out-of-pocket (OOP) costs placed on policyholders. One method that lowers the dollar value of coverage is the use of annual limits on the dollar amount of coverage. Private health insurers use annual limits to require the consumer to assume 100% of the cost of coverage after a certain amount of spending for the year has been reached. While annual limits may be a benefit design feature in any type of health insurance, they are used as the primary method of cost control for limited benefit plans, which provide low premium coverage typically to low-income part-time or seasonal workers. Limited benefit plans generally have annual limits on both the total dollar coverage and on specific coverage categories (e.g., hospitalizations and outpatient surgeries). Without the limited benefit plan option, many of these low-income workers would likely be uninsured. On the other hand, these plans have been criticized as providing little value and giving a false sense of security to policyholders. The Patient Protection and Affordable Care Act (P.L. 111-148, PPACA) prohibits the use of annual limits effective 2014 and places certain restrictions on their use effective for plan years starting on or after September 23, 2010. These restrictions would effectively eliminate limited benefit plans. Accordingly, the Secretary of Health and Human Services has implemented a waiver process for limited benefit plans under the authority provided by Section 1001 of PPACA to define restricted annual limits in such a way as to "ensure that access to needed services is made available with a minimal impact on premiums." Considerable attention has been paid to the fairness and transparency of the waiver process. For context, it is relevant to note that Congress has not consistently specified the manner in which information concerning health care waivers is to be released to the public. Indeed, the annual limits provision of PPACA does not even have a specific public reporting requirement. As a result of different legal standards, or in some cases the absence of a congressional directive, no standardized practice for releasing information about health care waivers has ever been developed. With respect to the annual limits waivers, no obvious bias could be found in the publicly available application materials. Moreover, the Government Accountability Office found that the waivers were granted when an application projected a significant increase in premiums or significant reduction in access to health care benefits and not based on organizations factors (e.g., being a union).

Sovereign Default Risk Concerns about developed-country sovereign default risks have grown in the aftermath of the 2007-2008 financial crisis and have intensified in the past year as some Eurozone countries have been facing several fiscal pressures. A sovereign default occurs when a sovereign government is unable to meet its financial obligations. Although U.S. Treasury securities, which represent nearly all federal debt, have long been considered risk-free assets, the magnitude of federal deficits and the projected imbalance between federal revenues and outlays has raised concerns among some. The size of federal deficits and the projected imbalance between federal revenues and outlays have raised concerns among some, including the rating agency Standard & Poor's (S&P), which downgraded the U.S. sovereign credit rating from AAA to AA+ on August 5, 2011. S&P also cited as a factor "political brinksmanship" in debt ceiling negotiations, which raised the spectre that the United States might default on some of its obligations if the debt limit were not raised before Treasury's projected deadline of August 2. Prices for Treasuries suggest that financial markets continue to consider federal debt instruments a safe haven despite the S&P downgrade. Continued concerns about rising federal debt and the ability of policymakers to reach solutions to fiscal challenges could raise borrowing costs and negatively affect capital markets. Many believe that risks were underestimated before the 2007-2008 financial crisis. Some macroeconomists spoke of a "Great Moderation," reflected in reduced volatility of real economic output, which was seen to have resulted from improved monetary policy, more flexible labor markets, resurgent economic growth, and greater sophistication of financial markets. In hindsight, many financial risks appear to have been underappreciated. More recent analysis and commentary has put greater emphasis on managing and understanding risks. For example, one prominent macroeconomist noted that "there is no such thing as an absolutely safe sovereign." A former chief economist of the International Monetary Fund (IMF) and a coauthor note that from a broad historical perspective, sovereign defaults have not been uncommon. Financial analysts use many indicators to evaluate various risks associated with holding government securities. Some risks, such as interest rate risks, are generated by wider market trends. Sovereign default risks may depend on macroeconomic conditions, spending and revenue policies, as well as political and international factors. Some analysts use market prices for derivative financial instruments known as credit default swaps (CDSs) to track sovereign default risks. Although CDS prices may indicate market assessments of default probabilities, the market for U.S. CDSs is small and thinly traded, which reduces its reliability as a measure of the federal government's fiscal condition. What is a Credit Default Swap? A credit default swap is a financial contract in which one party promises to pay another party if a third party defaults. The third party, in this case, is known as the "reference entity." In the case of a CDS on U.S. sovereign debt, the U.S. government is the reference entity. A typical CDS contract on sovereign debt specifies that a buyer, in exchange for an annual fee set by the market and paid quarterly, obtains from a seller specified protection against default and broadly similar events affecting securities issued by a country (i.e., the reference entity). For "cash-settlement" CDS contracts, the buyer would receive a cash payment equal to the difference between the fair market value of the specified asset and its par value if a "credit event" occurs. Other CDS contracts, known as physical settlement CDSs, require the buyer to surrender the asset in return for a payment equal to its par value if a credit event occurs. Par, or face value, is the value of a bond at maturity. For widely held CDSs, recovery values are typically determined through an auction-based procedure specified by the International Swaps and Derivatives Association (ISDA). CDSs are part of a larger class of financial instruments known as credit derivatives, which allow investors to hedge against or speculate that risks that a company or country will fail to meet its financial obligations may rise or fall. The market for credit derivatives has grown enormously since the mid-1990s. In legal terms, a CDS is a bilateral derivative contract traded in the over-the-counter (OTC) derivatives market. It transfers from one party to another the risk that a specified reference entity will experience a "credit event." The CDS protection buyer typically pays a periodic fee to a protection seller in return for compensation if a reference entity experiences a credit event. The reference entity, such as the U.S. government in this case, is almost never a party to the credit default swap contract. In a typical sovereign CDS, such as for the United States, credit events include failure to pay, repudiation or moratorium on debt, and certain debt restructurings. Failure to pay means a failure by the reference entity (in this case, the U.S. government) to make any payments due on its obligations. For U.S. sovereign CDS, there is an automatic grace period of three business days after the date of a missed payment before a "credit event" is triggered for the purpose of CDS. This is true for the purpose of CDS payments even if the underlying debt instrument does not specify any grace period, or specifies a shorter grace period. Also, under standard CDS contracts for sovereign U.S. debt, a credit rating agency's downgrade of the U.S. credit rating does not constitute a "credit event." The maturity of the credit default swap need not match the maturity of an asset issued by the reference entity—that is, a 10-year bond may be protected by a CDS that provides protection for only one year. Five-year CDSs have been the most widely traded, although CDS with shorter and longer maturities—up to 10 years—are also traded. Some observers find it helpful to think of a CDS as a tradable form of insurance, whereas others find it more analogous to a put option on a debt instrument. A put option gives its holder the right to sell a specified asset at a given price by a set date. Someone who thinks an asset will fall in price would value such an option. Banks can use CDSs to offload risks tied to certain assets while retaining legal ownership of the assets. CDS markets enable investors with negative information unrecognized by other traders to exploit that information, which could help discourage the emergence of pricing bubbles in asset markets, or could help limit their duration. Sovereign CDSs can provide a convenient way for major financial institutions to take positions or hedge risks associated with a region or a national economy. Some, however, have contended that CDS markets could also destabilize asset markets or financial institutions in some situations. Naked CDSs An investor can buy a CDS without owning or ever having owned or borrowed debt of the reference entity. That is, the owner of a CDS will be eligible for compensation if a credit event occurs, even if he or she realized no actual loss. An investor holding a CDS while not owning or borrowing the underlying bond is often said to possess a "naked CDS." For example, an investor might buy a CDS on a foreign bank's debt in order to hedge against wider financial risks in the bank's home country or region. Issues related to naked CDSs are similar to issues raised by short selling of assets. A short seller contracts to sell an asset at a future date, typically in expectation of a fall in the asset's price. If the price does fall, the short seller can then fulfill the contact by buying the asset at a reduced price, thus collecting a profit. Opponents of such naked CDSs charge that heavy buying of CDS protection, without owning an underlying bond, may contribute to credit-related market panics by fueling market perceptions that an entity is uncreditworthy. They contend that short selling and related transactions may restrict credit available to affected issuers or raise borrowing costs. Others counter that trading in such naked CDSs simply allows traders to arrive at prices for credit protection that better reflect the actual credit risks for the reference entity. Some contend that CDS prices make differences in risk more transparent, which may increase borrowing costs for entities perceived to pose greater default risks, but may give investors a way to hedge against those risks. Public interests, in some cases, may be promoted by restricting the creation or publication of certain types of information. Restrictions on genetic testing, for example, may help maintain the viability of health insurance markets by preventing the splintering of risk pooling arrangements. Such restrictions can help societies spread costs of rare genetic conditions widely, lessening financial burdens on affected individuals, who had no control over their genes. Whether similar restrictions should be implemented to assist sovereigns or corporations under financial pressure, which presumably controlled some aspects of their material conditions, is less clear. European Restrictions on Short-Selling and Naked CDSs Some lawmakers in the United States and European Union (EU) have questioned whether widespread trading of naked CDSs could destabilize the market for a country's debt, particularly for certain sovereign debt under distress, such as that of Greece; or whether naked CDS trades might create destabilizing ripple effects in other markets as well. On July 4, 2011, the European Parliament discussed restrictions on CDSs and short selling. On July 5, the European Parliament voted to adopt a report calling for short-selling restrictions, but a final vote was postponed to allow time for negotiation with the Council of the European Union (formerly the Council of Ministers), which represents governments of member states. On August 11, 2011, France, Italy, Spain, and Belgium adopted temporary restrictions on short selling of financial stocks. On the same day, regulators in Turkey reportedly raised margin requirements on short selling. Greece imposed short sale restrictions on August 8. Several other European governments have imposed reporting and other requirements on short selling, naked CDS holdings, and related transactions. SEC Restrictions on Short-Selling During 2008 At present, short selling and naked CDSs are legal under federal law, although certain short selling restrictions on financial institutions were temporarily imposed in 2008. U.S. Securities and Exchange Commission (SEC) and its chairman Christopher Cox banned stock short sales of securities of mortgage guarantors Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks from July 21 through July 29, 2008. SEC also banned short selling for stocks in 799 financial institutions between September 19, 2008, and October 3, 2008. How Does the U.S. Sovereign CDS Market Work? When a buyer purchases CDS protection on U.S. Treasury securities (often termed "Treasuries"), the seller of the CDS, in exchange for a stream of payments, essentially agrees to pay the CDS buyer in case of a credit event that affects U.S. Treasury securities. For many years, U.S. Treasury securities have been considered assets basically free of default risks. The emergence of a market in credit default swaps for U.S. government securities, and the growth in volume for this market in 2011, suggests that some investors believed a small but non-zero default risk exists. Investor concerns became more acute during the latter stages of the 2011 debt limit discussions. As noted above, Standard & Poor's (S&P) downgraded the United States' sovereign credit rating from AAA to AA+ on August 5, 2011. Prices for Treasuries suggest that financial markets continue to consider federal debt instruments a safe haven despite the S&P downgrade. Some financial market and federal budget analysts view price trends of U.S. CDSs as an indicator of the risks of a sovereign default by the federal government. CDSs may help insure against default or other events that may damage the interests of those holding claims on the U.S. government. Pricing of U.S. CDS Contracts Although prices of U.S. sovereign CDSs remain low compared with CDS prices of fiscally distressed Eurozone countries, five-year U.S. CDS prices have risen since early 2009, as shown in Figure 1 . For instance, The Economist noted that U.S. CDS prices rose from about 20 basis points in 2010, to more than 40 basis points in mid-2011, as debt ceiling discussions in Congress remained unresolved. Large changes in U.S. CDS rates in 2008 appeared to track events that could have affected the long-term fiscal situation of the U.S. government, such as the failure of IndyMac Bank, the Lehman Brothers bankruptcy, and AIG's attempts to negotiate a bridge loan from the Federal Reserve. Prices for five-year CDSs on federal debt are currently about 55 basis points (bps), in the range of Germany and major corporations such as Target and Walmart. A CDS contract with a notional value of $1 million and a price of 55 bps would require payment of $5,500 over the course of a year. Notional value represents the par amount of credit protection bought or sold. The net notional value for U.S. CDSs, which excludes amounts from offsetting positions, totaled $4.6 billion for the week ending July 8, 2011. At a price of 55 bps, insuring $4.6 billion of U.S. Treasuries would then cost a total of $25.3 million, a small amount by the standard of global financial markets. The Depository Trust and Clearinghouse Corporation (DTCC) reported only 1,004 U.S. CDSs for the week ending July 8, 2011. The number of CDSs traded on U.S. sovereign debt—though traded on a small and illiquid market—has been reported in the financial press to have grown noticeably, particularly since around mid-May, as the U.S. debt ceiling debate has intensified. Figure 1 shows trends in U.S. CDS prices and number of contracts since late 2008. Differences Between Sovereign and Corporate CDSs CDSs for corporate and sovereigns differ in important ways that reflect differences between sovereign and corporate default risks. For one thing, legal barriers may make it difficult for creditors to successfully sue governments. For example, the doctrine of sovereign immunity, a well-established tenet of Anglo-American jurisprudence, may impose limits on a creditor's ability to seek redress through the courts. In addition, a 1937 Supreme Court decision made it difficult for federal debt holders to seek interest payments as damages, even in cases of default. By contrast, holders of corporate debt may be able to force a defaulting corporation into bankruptcy or may have other forms of recourse through the judicial system. A desire by governments to borrow from financial markets in the future may provide a more consistent incentive for repayment. In terms of CDSs, sovereign and corporate debt restructurings may be treated differently under ISDA protocol for the purpose of determining CDS payments. This could further complicate sovereign CDS holders' efforts to compel payment. Academics have found that sovereigns under severe fiscal stress typically restructure their obligations, rather than declare outright default. Sovereigns in some cases have used changes in laws, taxes, and monetary systems to alter their financial obligations. The Market for U.S. CDSs Is Thin The CDS market for U.S. Treasuries, however, is relatively small and illiquid. A relatively small number of CDS contracts, according to available data, trade on U.S. sovereign debt, compared to the amount of U.S. debt issued. For most reference entities, however, the number of CDS contracts traded in a typical week is less than 50, as shown in Figure 2 . During the week ending July 8, 2011, CDS trading volumes only exceeded 200 for Spain (341) and Italy (475). Similarly, for most reference entities the gross notional value of CDS contracts traded in a typical week is less than $250 million, as shown in Figure 3 . For a few reference entities, however, gross notional value traded may be much higher. The number of CDS outstanding contracts on U.S. debt is small compared to some other sovereigns, such as Italy and Portugal. As noted above, only 1,004 U.S. CDS contracts, with a total net notional value of $4.6 billion, were outstanding as of July 8, 2011, according to DTCC. By contrast, on that date the total federal debt held by the public was $9.75 trillion—an amount roughly 2000 times that of the associated U.S. CDS market. Unlike certain financial asset markets, no trader in CDS markets has market-maker responsibilities. In certain markets, designated traders known as market makers are obligated to post buy and sell prices for a specific stock or contract. The lack of a market maker in a thinly traded market such as U.S. CDSs may reduce liquidity. Thus, finding buyers and sellers for U.S. CDSs at reported prices could be harder than in more liquid derivatives markets. Some analysts, rather than focusing on U.S. CDS price trends, prefer to track a wider set of measures that might indicate changes in relative riskiness, such as spreads with German bonds, spreads between short-term and long-term Treasury bonds, and other comparisons. Those measures arguably also have shortcomings. Some ratings agencies also rely on their evaluation of how well political processes appear to be addressing fundamental fiscal challenges. Why is the U.S. CDS Market Thin? The lack of liquidity in this market means that some financial institutions may be reluctant to offer U.S. CDSs because of the small size of that market and the analytic challenges in estimating the probabilities of a credit event affecting Treasury securities. In such a market, buyers who wish to purchase U.S. CDSs may pay a premium reflecting the costs of offering low-volume contracts. If so, calculations of the probability of a credit event affecting Treasury securities based on U.S. CDS prices are likely to be imprecise. Moreover, investors holding U.S. CDSs could have different business models than investors holding sovereign CDSs that trade more widely, which could complicate imputations of relative risk. Supply of U.S. CDSs is limited because U.S. banks or banks with strong ties to U.S. financial markets might not be credible counterparties in the event of a major credit event. Were a serious Treasury default to occur, major U.S. banks could face severe deterioration in their capital bases, leaving their ability to make CDS payments in doubt. Thus, counterparty risk may make many U.S. banks less attractive suppliers of U.S. CDSs. Demand for CDS on emerging market (EM) government debt is greater than for CDS on Treasuries and the debt of most developed country governments. Borrowing costs for banks are typically above borrowing costs for the U.S. Treasury, Germany, and most developed countries, but many major banks can borrow more cheaply than several EM governments. Thus, borrowing to hold Treasuries is not a profitable strategy for banks. Borrowing to hold EM government debt whose yields exceed banks' borrowing costs, however, could be a profitable strategy. Banks holding EM debt may then want to hedge against EM default risks by holding matching CDSs. EM debt yields, even subtracting CDS costs, may offer banks an attractive risk-adjusted rate of return. Thus, demand for CDSs for EM government debt is much stronger than for CDSs on developed-country government debt. Banks face capital regulations that may encourage purchase of CDSs for other types of assets, but those regulations provide little incentive to buy CDSs on U.S. Treasuries. Large banks subject to Basel II regulations face capital requirements that include risk-based adjustments to asset holdings. Bank regulators also evaluate the riskiness of asset holdings when evaluating the adequacy of a bank's capital. In general, holdings of riskier assets are given less weight in the calculation of a bank's capital reserves. During the run-up in housing prices from about 2000 to 2007, some banks met regulatory capital requirements by purchasing CDS protection on their mortgage-backed securities (MBS) and other assets. Basel II, however, puts a 0% standard risk weight on banks' holdings of debt issued by domestic and foreign sovereigns with credit ratings of AA- or higher. Because Treasury debt is sufficiently highly rated, purchasing CDS protection on Treasuries would not help banks meet minimum capital requirements. What Constitutes a Credit Event? What would constitute a "credit event" for a U.S. CDS holder is important, as it determines whether, and when, a buyer of CDS protection is paid by the CDS seller. Committees organized by the International Swaps and Derivatives Association (ISDA) determine when a credit event has occurred. Although failure to make a timely interest payment generally would constitute a credit event, several other situations could also trigger a credit event. Typical credit events include failure to pay, bankruptcy, restructuring, repudiation, or a moratorium. If a credit event occurs and if fair market value of the asset is below the par value, the resulting gap as a percentage of par value is known as the recovery rate. A credit event might occur that would leave an asset's value at or above par, implying a recovery rate of 100%, in which case the CDS buyer would receive nothing. For example, many Treasury securities trade well above par because interest rates have fallen since they were issued. Were a credit event to occur that left such securities above par, CDS holders would receive zero payment. For any sovereign CDS that used the standard ISDA documentation, the ISDA committee, at the request of a CDS buyer or seller, would determine whether a particular event would constitute a triggering credit event according to terms of the relevant ISDA documentation. The ISDA standard contract provides detailed definitions of what would constitute a credit event, which the ISDA committee would then apply and interpret in a given case. Those entering into such contracts generally agree to be bound by the decisions reached by this ISDA committee. In a typical sovereign CDS, such as for the United States, credit events include failure to pay, repudiation or moratorium on debt, and certain debt restructurings. Failure to pay means a failure by the reference entity (in this case, the U.S. government), to make any payments due on its obligations. For U.S. sovereign CDS, there is an automatic grace period of three business days after the date of a missed payment before a "credit event" is triggered for the purposes of CDS. This is true for the purposes of CDS payments even if the underlying debt instrument does not specify any grace period, or specifies a shorter grace period. Also, under standard CDS contracts for sovereign US debt, a credit rating agency's downgrade of the U.S. credit rating does not constitute a "credit event". In a June 28, 2011, letter to the Financial Times , Robert Pickel, the executive vice chairman of ISDA, addressed concerns regarding what would constitute a credit event for the purposes of Greek sovereign CDSs. He noted that the committee would review any potential credit event, analyze ISDA's CDS definitions of a credit event, and then vote on whether the potential event was covered under the definitions. He noted that, in the case of Greece, "it is well understood in the CDS market that certain types of restructuring will not trigger a credit event." Jean-Claude Juncker, head of a Eurozone council of finance ministers, was quoted as saying in May 2011 that a "kind of reprofiling" of Greek debt could be under consideration. For some, this appeared to reflect an attempt to avoid outcomes that would trigger CDS payments. On July 21, 2011, the European Council announced a framework, which emphasized voluntary measures, to support Greece. The framework included a call for further austerity measures by the Greek government, a stretchout of Greek government bond obligations, EU support for private sector bonds, and in conjunction with the International Monetary Fund (IMF), support totaling 109 billion euros. Implementation of those measures would require further action by member states and EU institutions. One prominent financial journalist termed the arrangement a "bailout" and "a kind of default." As of this writing, no query has been filed with ISDA to determine whether this support package constitutes a credit event. Roles of Credit Rating Agencies and ISDA Differ Credit rating agency statements and rating decisions are not considered "credit events" for the purposes of CDS payments, under the standard CDS agreements. Also, whereas some credit rating agencies normally consider certain types of restructuring as "defaults," the ISDA definition of restructuring is somewhat broader. Thus, an ISDA committee might not declare a credit event to have occurred, even if that event affected a security's credit rating. Some credit rating agencies have also been more willing to discuss contingencies than ISDA, which generally seeks to avoid statements regarding hypothetical future events. Credit Rating Agency Warnings and the S&P Downgrade The rating agency Standard & Poor's (S&P) downgraded the United States' sovereign credit rating from AAA to AA+ on August 5, 2011. S&P not only expressed concerns about the federal government's fiscal outlook, but also cited "political brinksmanship" in debt ceiling negotiations, which raised the issue of a hypothetical federal default, as a factor in its decision. On August 2, 2011, Moody's confirmed the federal government would retain its Aaa rating, Moody's highest, although it would continue to keep it on "negative outlook." Fitch Ratings also confirmed its AAA rating of federal debt on the same day. Both agencies, however, expressed concerns about the federal government's fiscal outlook. S&P provided the U.S. Treasury with an advance draft of its downgrade announcement that contained an error that overestimated federal government's accumulation of debt of the next decade by about $2 trillion. The error resulted from confusion in the use of budget baselines and led many economists to criticize S&P. A former CBO acting director termed the error "remarkably sloppy." S&P contends that factors that led to the downgrade—"current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook"—were unaffected by its choice of baseline. As many budget experts have noted, the CBO current-law baseline used to score legislation is likely an overly optimistic indicator of the federal government's fiscal condition. Previous Credit Agency Warnings On April 18, 2011, Standard and Poor's had affirmed the U.S. government's long-term AAA rating on its debt, although it expressed concerns about "very large budget deficits and rising government indebtedness" and that "the path to addressing these is not clear to us." On July 14, 2011, it announced that it had placed its rating of federal debt on a negative watch because of its perception of the state of budgetary negotiations. Standard and Poor's also stated that it would maintain the U.S. government's long-term AAA rating if Congress and the President could reach an agreement on a fiscal consolidation plan of about $4 trillion over the "medium term." One analyst criticized Standard and Poor's for framing a credit rating warning in those terms, contending that "[r]esolving the long-term fiscal imbalances facing the United States will be a project for an entire political generation, not a one-time affair that can be wrapped up in a single Congressional session." The analyst also noted that Standard and Poor's had reportedly issued private warnings that prioritizing obligations that would delay commercial payments risk the federal government's AAA long-term rating, even if all payments to holders of federal securities were made. The Fitch ratings agency announced on June 8, 2011, that it would place the U.S. sovereign rating on negative watch if Congress did not raise the federal government's borrowing ceiling by August 2. Fitch also stated that if the U.S. government missed an August 15 coupon payment, then Fitch would place the rating on restricted default. Although Moody's and S&P have issued warnings along the same lines, Fitch was the first large ratings agency to say directly that U.S. Treasury securities could be downgraded, even for a short period. In 1995, Fitch reportedly issued a similar warning when a default on Treasury interest payments was viewed as possible. After the debt limit was raised, that warning was dropped. On June 2, Moody's announced that it would likely review the U.S. government's Aaa bond rating in mid-July if negotiations to raise the debt limit failed to make adequate progress. On July 13, 2011, Moody's stated it would place the U.S. government's Aaa bond rating on review because of the possibility that the "debt limit will not be raised in a timely basis." Moody's also stated that a default, however short lived, would lead to a downgrade from Aaa to "somewhere in the Aa range." Criticisms of Credit Rating Agencies Credit rating agencies in general and S&P in particular have been criticized in the wake of the 2007-2009 financial crisis and the S&P downgrade of federal debt. The Financial Crisis Inquiry Commission concluded that "three credit rating agencies were key enablers of the financial meltdown," due to their role in rating structured financial products and the institutions that issued them. Others have criticized rating agencies for tending to assign higher ratings to corporate securities than to public sector securities, even though historical public sector default rates have been far lower than corporate default rates. Ratings agencies contend that they have taken steps to recalibrate their scales to ensure that securities with the same rating have similar risk characteristics. Low rates of public sector defaults in the past, of course, is no guarantee of future behavior. Some analyses suggest that credit ratings for sovereigns are more closely tied to reputational indicators rather than factors that are predictive of default or severe fiscal stress. Another analysis found that Moody's sovereign ratings and Institutional Investor scores were poor predictors of banking and currency crises. That rating agencies had been overly optimistic about the performance of some corporations, structured financial products, or emerging market sovereigns in the past need not imply that credit ratings agencies are now too pessimistic regarding the federal government's fiscal situation in the future. Historical Precedents The U.S. Treasury missed a payment on Treasury bills only once, as far as is generally known. In 1979, the Treasury failed to redeem $122 million of Treasury bills on time, blaming unusually high interest from small investors, a delay in raising the debt ceiling, and a word-processing equipment failure, according to The Economist magazine. One study concluded that it resulted in a 60-basis point interest premium on certain federal debt for several years afterwards. Small investors affected by the missed payment then filed a class action suit against the federal government. Some were persuaded to accept compensation and agreed to withdraw from the suit. The case was dismissed on June 10, 1980. Representative Gephardt introduced a measure ( H.R. 6054 , 96 th Congress) on December 6, 1979, to authorize the Treasury Secretary to compensate the remaining investors from the case, which was referred to the House Committee on Banking, Finance and Urban Affairs, but was not enacted. Some economists contend that the departure of the United States and several other advanced countries from the gold standard in the 1930s constituted a de facto sovereign default, although not all economic historians have characterized those events as defaults. The Supreme Court ruled in the 1935 case Perry v. United States that Congress could statutorily adjust the conditions for repayment on existing bonds, specifically from gold to legal tender. In the early 1840s, several state governments defaulted on obligations. Nine governments defaulted in the period 1841 to 1843, and five governments repudiated their debts, in part or in whole. Many of these states, having observed the success of the Erie Canal, had invested heavily in canals, turnpikes, and other internal improvements. A severe economic downturn in the 1840s left several states unable or unwilling to service their bond debt. Following the Civil War, 10 southern states repudiated at least some of their public debts. Several other states defaulted on obligations following the Panic of 1873. Some economists have noted that while defaults among highly developed countries have been rare in the past half century, sovereign defaults have occurred many times in the past. Information and Market Prices Markets for contingent contracts, such as CDSs, can provide valuable information about the probability of the occurrence of defined events as perceived by financial markets. Economists have long noted that market prices may convey valuable signals about economic fundamentals. More recently, economists have engineered markets in order to induce individuals to reveal private information. In some cases, however, predictions drawn from such markets have not always performed as well as predictions generated in more traditional ways. Under strong technical assumptions, default probabilities can be extracted from CDS prices conditional on an assumed recovery rate. The recovery rate, were a credit event to occur, would be one minus the percentage loss deemed to have occurred. For example, if an analyst assumed a recovery rate would be 95%, then a default probability could be inferred from a CDS price. The reliability of inferred default probabilities, however, may be low for several reasons. In small and thinly traded markets, a few large trades might have strong effects on prices. Large spreads between bid and ask prices (i.e., offered buying and selling prices) can affect reliability of inferences about default probabilities. Prices for CDSs on U.S. Treasuries, therefore, may be an imperfect and potentially misleading indicator of actual sovereign default risks. In thin markets, investors with strong information but weak financial backing may have difficulty leveraging insights into trading profits. Such traders seeking financing may experience conflicts between revealing some information to signal credibility while keeping enough information private to maintain a trading advantage. This may discourage some traders from participating in these markets, which in turn hinders the flow of information to markets. In addition, information or the ability to understand the consequences of key information may not flow smoothly in markets, but may respond sharply at a few key turning points. For example, CDSs on the investment banks Bear Stearns and Lehman Brothers, as well as insurer AIG, moved dramatically before their bankruptcies. Even if CDS prices are an imperfect signal of credit events, they may nonetheless react systematically to economic or political events. CDSs, however, probably provide a more useful indicator of sovereign default risks for countries whose sovereign CDSs are more actively traded. Thus, pricing and volume trends for sovereign CDSs on countries facing more immediate fiscal challenges, such as Greece and Portugal, where default risks appear more salient due to higher levels of fiscal stress, may be more informative indicators. U.S. CDSs Versus Other Sovereign CDSs Volumes of outstanding contracts and trading activity for U.S. CDSs are limited in comparison with CDS markets for several Eurozone countries. CDS markets have been more active for sovereigns such as Greece, Ireland, and Portugal, which have been facing investor concerns over potential defaults or restructurings; and for the larger countries Spain and Italy, reflecting concerns that Eurozone fiscal pressures could spread. CDS markets on emerging market (EM) government debt has typically been more active than CDS markets for governments of developed countries. The CDS market on U.S. CDSs, as noted above, is illiquid and thinly traded. On June 15, 2011, Dow Jones reported that the one-year CDS spread for the United States was at 43 basis points—higher than the 41 basis points spread for Brazil, and that the cost of insuring one-year U.S. debt against default had been rising since mid-May on worries related to the debt ceiling. Price trends for selected governments and their banking sectors are presented in Appendix Figure A-1 . CDS Contracts and Net Notional Values Outstanding Table 1 shows summary totals for outstanding CDS for sovereign entities with net notional value above $3 billion equivalent value for the week ending July 8, 2011, as reported by DTCC. Volumes of outstanding contracts were higher for Eurozone member states facing fiscal strains, either directly in the present, or potentially in the future. Italy was the sovereign with the largest net CDS notional value outstanding ($23.8 billion equivalent), according to DTCC data for the week ending July 8, 2011, followed by France ($20.4 billion equivalent), Spain ($18.9 billion equivalent), Brazil ($16.9 billion equivalent), and Germany ($16.4 billion equivalent). Total CDS notional value outstanding for the United States was far lower ($4.6 billion). Differences in the number of CDS contracts outstanding are similar. For the week ending July 8, 2011, the DTCC repository reported only 1,004 outstanding CDS contracts on the United States. CDS contracts on Italy, by contrast, totaled 8,336, and some EM countries, such as Brazil (11,783 contracts) and Mexico (9,707 contracts) had even more. CDS Transactions Recent trading in sovereign CDSs on Eurozone countries such as Italy, Spain, Portugal, and Greece has been heavier than trading in U.S. CDSs, despite the fact that the total amount of U.S. debt outstanding dwarfs the amount of sovereign debt of these smaller Eurozone countries. Table 2 shows reference entities with the highest trading volumes for the week ending July 8, 2011, as reported to DTCC. In general, trading in CDS contracts remains small in comparison with deeper, more liquid markets in foreign exchange swaps or interest rate swaps. Italy was the sovereign with the heaviest CDS trading, with 475 contract transactions covering a notional value of $8.16 billion. By contrast, the United States had a total of 19 CDS contracts traded and reported to DTCC, on a total notional value of $607.1 million worth of U.S. government bonds. Market Context Heavier sovereign CDS trading in recent months among Eurozone and other developed countries reflects several distinct tensions. CDS trading on EM governments, which has typically been more active than trading in CDS covering debt of most developed countries, in general reflects different considerations. The introduction of the euro stems from a broader EU aim to develop deeper and wider ties on several levels among European countries. Eurozone countries share a common monetary policy controlled by the European Central Bank (ECB). The Stability and Growth Pact (SGP), adopted as part of the 1992 Maastricht Treaty, was intended to ensure that overly expansionary fiscal policies of member states would not undermine macroeconomic stability of the Eurozone and the EU. According to SGP rules, member states running government deficits above 3% of gross domestic product (GDP) and public debt levels above 60% of GDP are subject to the "excessive deficit procedure" (EDP), although EDP penalty provisions have often been waived. Despite revisions in SGP, however, member states often exceeded those target levels. Some member governments, such as Greece, submitted budgetary data to EU institutions that misreported fiscal conditions. The 2007-2008 financial crisis also strongly affected public finances of many advanced economies. Some countries guaranteed bank deposits and other liabilities of the financial sector, leading to an entanglement of public sector and financial sector balance sheets. The ensuing economic downturn strongly affected economies of most developed countries. On average, EU government ran deficits of under 1% of GDP in 2007. In 2010, those deficits were expected on average to reach over 7% of GDP. Many European countries face some of the same long-term fiscal challenges as the United States, such as a demographic shift to an older population and rising health care costs. Concerns about the sustainability of the fiscal situations of Greece, Ireland, and Portugal have been fueled by high levels of public debt and weak prospects for economic growth. These countries are currently receiving financial support from other Eurozone countries and the International Monetary Fund (IMF) to avoid defaulting on their debt. Those economies, however, are small relative to the Eurozone as a whole. A wider concern is that an uncontained sovereign debt crisis in one of those countries could spark fiscal contagion, leading to larger challenges for EU policymakers. Italy and Spain, which are much larger economies, have also been experiencing heavy selling of stocks and bonds, as apprehension grows among investors about the sustainability of public finances and the scope of the Eurozone crisis. Is the United States Different? Significant differences appear to exist in the market for U.S. CDSs compared with that of Greece and other EU countries under severe fiscal pressure, even if some long-term challenges are similar. Economists point to various reasons for the differences, particularly the low amount of extant CDSs on U.S. debt relative to other countries facing financial difficulties. The U.S. dollar's status as an international reserve currency implies that the U.S. government can earn additional seignorage, a privilege that policymakers may wish to protect. Seignorage is earned on the difference between a currency's production cost and its circulating value. U.S. debt is also denominated in dollars, the supply of which is controlled by the U.S. government. This might, in theory, provide a short-run incentive for monetary policies that would lead to higher inflation rates, thus reducing the real value of the debt. On the other hand, many government expenses would rise with inflation, and the financial burden of past accumulations of debt (which inflation would cut) have been projected to be smaller than the costs of future entitlement payments (which inflation would not in itself cut). Despite the upward trend in U.S. CDS prices, U.S. Treasury yields remain at historically low levels, in part due to the United States' status as a "safe haven," amidst potential turmoil in Eurozone countries. The Federal Reserve System, which has a dual mandate to maintain price stability and to pursue maximum sustainable employment, has run a more accommodating monetary policy than the European Central Bank, as inflationary pressures in the United States have generally been more subdued. The federal government is not subject to the structural stresses facing the Eurozone resulting from a common monetary policy and a less centralized set of fiscal policies. That noted, the United States also faces long-term fiscal challenges. The Debt Limit and Long Term Fiscal Challenges President Obama signed the Budget Control Act of 2011 ( S. 365 ; P.L. 112-25 ) on August 2, 2011, which included provisions to raise the debt limit and reduce deficits. The narrowing of the spread between one-year and five-year CDSs on Treasury debt in the first half of 2011, as shown in Figure 1 , suggests that market concerns were focused on debt limit constraints facing the U.S. Treasury. The consequences of not raising the debt limit before that point, according to some financial analysts, could be severe. Debt limit concerns appear to have decreased demand for longer-maturity Treasury securities and increased demand for shorter-term securities, as some financial institutions take steps to ensure liquidity. While U.S. CDS prices rose to a record high of about 82 bps before passage of the act. After the Budget Control Act was enacted, U.S. CDSs fell to previous levels, trading at about 55 bps in mid August 2011. U.S. CDSs have been trading in the same price range as Germany's, but far below CDS prices for Greece, Portugal, and Ireland. For example, in mid August 2011, Greek CDSs traded around 1700 bps, Portuguese CDSs around 800 bps, and Irish CDSs around 700 bps. Prices for Treasuries suggest that financial markets continue to consider federal debt instruments a safe haven despite the S&P downgrade. Treasury price trends shortly after enactment of the Budget Control Act suggested an unwinding of liquidity positions taken beforehand, leading to a slight increase in yields on shorter maturity Treasuries, while longer maturity Treasury yields fell, perhaps reflecting renewed concerns about economic growth and events in the Eurozone. While passage of the Budget Control Act eased concerns about the U.S. Treasury's ability to meet federal financial obligations for the time being, market participants remain concerned about longer-term fiscal challenges facing the U.S. government, even if the relevant horizon for those issues extends well beyond the window of a five-year CDS contract. The Congressional Budget Office (CBO), the Government Accountability Office (GAO), the IMF, and others consider the federal government's current fiscal path unsustainable. Moreover, the tenor of the debt limit discussions raised additional concerns among credit rating agencies, among others. Protection of the federal government's full faith and credit in the long term, according to most public finance experts, requires measures to bring the trajectories of spending and revenues into line with each other. Appendix. CDS Price Trends for Selected Countries

Paying the public debt is a central constitutional responsibility of Congress (Article I, Section 8). U.S. Treasury securities, which represent nearly all federal debt, have long been considered risk-free assets. The size of federal deficits and the projected imbalance between federal revenues and outlays, however, have raised concerns among some, including the rating agency Standard & Poor's (S&P), which downgraded the U.S. sovereign credit rating from AAA to AA+ on August 5, 2011. S&P also cited "political brinksmanship" in debt ceiling negotiations as a factor, which raised the issue of a hypothetical federal default. Prices for Treasuries suggest that financial markets continue to consider federal debt instruments a safe haven despite the S&P downgrade. Continued concerns about rising federal debt and the ability of policymakers to reach solutions to fiscal challenges could raise borrowing costs and negatively affect capital markets. A credit default swap (CDS) contract is a way to hedge or speculate on credit risk, including sovereign credit risk. A CDS protection buyer, in exchange for an annual fee set by the market and paid quarterly, can trade an asset issued by a "reference entity" (or a cash equivalent) for its face value if a "credit event" occurs. A CDS buyer need not own or borrow an asset issued by the reference entity, thus may hold a "naked CDS." A committee of the derivatives trade organization, the International Swaps and Derivatives Association (ISDA), determines whether a credit event has occurred, according to their interpretation of applicable guidelines. In general, failure to make a timely payment usually constitutes a credit event, as does a repudiation of debts, and in some cases, debt restructuring. Some view CDS price trends for U.S. debt as an indicator of the market's perception of the federal government's creditworthiness. The cost of buying CDS protection on federal debt for a one-year duration has roughly doubled since the start of 2011. In mid-August 2011, U.S. CDSs traded at about 55 basis points (bps; one-hundredths of 1%), after having risen to about 63 bps after the S&P downgrade. U.S. CDS trading volume rose and prices hit a record high of about 82 bps in the week before President Obama signed the Budget Control Act of 2011 (S. 365; P.L. 112-25) on August 2, 2011. The act included provisions to raise the debt limit and reduce deficits. U.S. CDSs have traded in the same price range as Germany, which is far below sovereign CDS prices for Greece, Portugal, and Ireland. For example, in mid-August 2011, Greek CDSs traded around 1700 bps, Portuguese CDSs around 800 bps, and Irish CDSs around 700 bps. While the federal government faces fiscal challenges, especially in the long term, markets seem to regard fiscal stresses confronting some European governments as far more severe and immediate. The U.S. CDS market is small and thinly traded, which may limit its reliability as a measure of the federal government's fiscal condition. CDSs may more usefully indicate sovereign default risks for countries with more immediate fiscal challenges, such as Greece and Portugal, where sovereign default risks may be more salient due to higher levels of fiscal stress, or for larger European economies, such as Italy and Spain, which have recently come under increased fiscal stress. Four Eurozone countries imposed certain restrictions on types of sovereign CDS trading in August 2011. This report explains how the sovereign CDS market works and how such CDS price trends may illuminate fiscal stresses facing sovereign governments. Although CDS prices may be imperfect measures of the federal government's fiscal condition, some investors may try to glean information from those price trends, which could potentially affect U.S. debt markets in the future. European calls for reform in sovereign CDS trading may also be of interest to U.S. lawmakers. This report will be updated as events warrant.

Introduction The Department of Veterans Affairs (VA) provides a range of benefits and services to veterans who meet certain eligibility criteria. These benefits and services include, among other things, hospital and medical care, disability compensation and pensions, education, vocational rehabilitation and employment services, assistance to homeless veterans, home loan guarantees, administration of life insurance as well as traumatic injury protection insurance for servicemembers, and death benefits that cover burial expenses. The Department carries out its programs nationwide through three administrations and the Board of Veterans Appeals (BVA). The Veterans Health Administration (VHA) is responsible for health care services and medical and prosthetic research programs. The Veterans Benefits Administration (VBA) is responsible for, among other things, providing compensations, pensions, and education assistance. 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 BVA reviews all appeals made by veterans or their representatives for entitlement to veterans' benefits, including claims for service connection, increased disability ratings, pension, insurance benefits, and educational benefits, among other things. This report provides a preliminary analysis of the President's budget request for FY2012 for the programs administered by the VA. The information provided in this report is based on the President's budget proposal provided to Congress on February 14, 2011, and does not reflect amounts contained in the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ) nor funding levels included in the Full Year Continuing Appropriations Act, 2011 ( H.R. 1 as passed by the House of Representatives on February 19, 2011). This step has been taken to provide consistency when comparing funding levels across the fiscal years. Since the beginning of the fiscal year on October 1, 2010, VA benefits and services (except medical programs) have been funded under a series of five continuing resolutions (CRs)— P.L. 111-242 ; P.L. 111-290 ; P.L. 111-317 ; P.L. 111-322 ; and P.L. 112-4 . The Consolidated Appropriations Act, 2010 ( P.L. 111-117 ) provided advance appropriations for medical programs for FY2011. The report begins with a brief introduction to the Department's budget. Next, it provides funding levels requested by the President for FY2012 for VA health related programs. This is followed by a discussion of funding levels requested for mandatory programs and administration including programs such as construction of VA facilities and information technology. It should be noted that this not an exhaustive discussion of VA's budget request for FY2012. The Department of Veterans Affairs Budget To provide some context to the discussion that follows, this section provides a brief introduction to the various accounts that fund the Department. The VA's budget is comprised of both mandatory and discretionary spending accounts. Mandatory funding supports disability compensation, pension benefits, education, vocational rehabilitation, life insurance, and burial benefits, among other benefits and services. Discretionary funding supports a broad array of benefits and services with a majority of funding going towards providing medical care to veterans. According to the President's budget documents, in FY2010 the total VA budget authority was approximately $127.2 billion. The FY2012 budget request for the VA is for approximately $132.1 billion in budget authority. The VA's health care program is funded through multiple appropriations accounts that are supplemented by other sources of revenue. The appropriation accounts used to support VA health care programs include (1) medical services, (2) medical administration (currently known as medical support and compliance), (3) medical facilities, and (4) medical and prosthetic research. In addition to direct appropriations accounts mentioned above, the Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ), enacted into law in 1986, gave the VA the authority to bill some veterans and most health care insurers for nonservice-connected care provided to veterans enrolled in the VA health care system, to help defray the cost of delivering medical services to veterans. The Balanced Budget Act of 1997 ( P.L. 105-33 ) gave the VA the authority to retain these funds in the Medical Care Collections Fund (MCCF). The funds deposited into the MCCF would be available for medical services for veterans. These collected funds do not have to be spent in any particular fiscal year and are available until expended. In 2009, Congress enacted the Veterans Health Care Budget Reform and Transparency Act of 2009 ( P.L. 111-81 ) that authorized advance appropriations for three of the four accounts that comprise the VHA: medical services, medical support and compliance, and medical facilities. The medical and prosthetic research account is not funded as an advance appropriation, and is funded through the regular appropriations process. The medical services account funds health care services provided to eligible veterans and beneficiaries in VA's medical centers, outpatient clinic facilities, contract hospitals, state homes, and outpatient programs on a fee basis; the medical support and compliance account funds management and administration of the VA health care system, including financial management; and the medical facilities account includes funds for the operation and maintenance of the VA health care system's capital infrastructure (excluding construction), such as costs associated with utilities, facility repair, laundry services, and groundskeeping. The Budget Request for FY2012—Health Care Programs Background The Veterans Health Administration (VHA) operates the nation's largest integrated direct health care delivery system. While Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) are also publicly funded programs, most health care services under these programs are delivered by private providers in private facilities. In contrast, the VA health care system could be categorized as a veteran-specific national health care system, in the sense that the federal government owns the medical facilities and employs the health care providers. The VA's health care system is organized into 21 geographically defined Veterans Integrated Service Networks (VISNs). Although policies and guidelines are developed at VA headquarters to be applied throughout the VA health care system, management authority for basic decision making and budgetary responsibilities are delegated to the VISNs. As of FY2010, VHA operates 152 hospitals (medical centers), 133 nursing homes, 791 community-based outpatient clinics (CBOCs), 6 independent outpatient clinics, and 300 Readjustment Counseling Centers (Vet Centers). In 2009, VA began a pilot Mobile Vet Center (MVC) program to improve access to services for veterans in rural areas, and the Department has deployed 50 MVCs. VHA also operates 9 mobile outpatient clinics. The VHA pays for care provided to veterans by private-sector providers on a fee basis under certain circumstances. This program pays non-VA health care providers to treat eligible veterans when medical services are not available at VA medical facilities or in emergencies when delays are hazardous to life or health. Fee basis care includes inpatient, outpatient, prescription medication, and long-term care services. 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 VHA also provides grants for construction of state-owned nursing homes and domiciliary facilities and collaborates with the Department of Defense (DOD) in sharing health care resources and services. Apart from providing direct patient care to veterans, VHA's other statutory missions are to conduct medical research, to serve as a contingency backup to the Department of Defense (DOD) medical system during a national security emergency, to provide support to the National Disaster Medical System and the Department of Health and Human Services as necessary, and to train health care professionals in order to provide an adequate supply of health personnel for the VA and the nation. The Veteran Patient Population In FY2011 approximately 8.4 million of the 22.1 million living veterans in the nation were enrolled in the VA health care system. It is estimated that in FY2012 there would be approximately 8.6 million veterans enrolled in the system. Of the total number of enrolled veterans in FY2011, VA anticipated treating approximately 5.5 million unique veteran patients. For FY2012, VHA estimates that it will treat about 5.6 million unique veteran patients or 1.4% over the FY2011 estimate. The VHA also estimates that outpatient visits would increase from 85.8 million in FY2011 to 90.8 million in FY2012, an increase of 5.1 million, or 5.9%. It also anticipates an increase in inpatients treated from 931,028 in FY2011 to 959,920 in FY2012, an increase of 28,892, or 3.1%. President's Request The Obama Administration released its FY2012 budget on February 14, 2011. The Administration's FY2012 budget request for VHA (medical services, medical support and compliance, medical facilities, and medical and prosthetic research) is $51.4 billion. In total the FY2012 budget request for VHA is $54.4 billion including medical care collections (see Table 1 ). The President's budget proposal also revises the FY2012 advance appropriations request—included in the FY2011 President's budget request—by lowering the advance appropriations by $713 million to reflect the 2011 and 2012 estimated civilian pay freeze. Additionally, the Administration is proposing to set up a $953 million contingency fund that would provide additional funds up to $953 million to become available for obligation if the Administration determines that additional funds are required due to changes in economic conditions in 2012. Furthermore, as required by the Veterans Health Care Budget Reform and Transparency Act of 2009 ( P.L. 111-81 ), the President's budget is requesting $52.4 billion in advance appropriations for the three medical care appropriations (medical services, medical support and compliance, and medical facilities) for FY2013. In FY2013, the Administration's budget request would provide $41.4 billion for the medical services account, $5.7 billion for the medical support and compliance account, and $5.4 billion for the medical facilities account (see Table 1 ). The Budget Request for FY2012—Mandatory Benefit Programs and Administration Table 2 shows the VA budget for mandatory benefit programs and administration, as reported by the Office of Management and Budget (OMB), for FY2010 through FY2012. The amounts shown in the columns for the FY2010 Actual and FY2011 Continuing Resolution are those reported by OMB on February 14, 2011, and do not reflect appropriations legislation currently under consideration or passed by the House and Senate Appropriations Committees. The changes in certain accounts between FY2010 and FY2012 may reflect changes due to law, regulations, or other factors as discussed below. Disability Compensation The Disability Compensation category includes payments for a number of benefits including disability compensation; dependency and indemnity compensation (DIC); pension benefits for low-income disabled or elderly combat veterans and their survivors; burial benefits (allowances, flags, headstones, etc); and a clothing allowance for certain disabled veterans. Caseloads for the benefits in this category are expected to increase between FY2010 and FY2012, and increases in some benefits (as a result of changes in law) will take place in FY2012. Overall, the appropriations for this category are expected to decline by 5.1% primarily due to the annual impact of regulation changes made in FY2010. During FY2010, the VA Secretary exercised his legal authority and made (by regulation) additional conditions associated with Agent Orange exposure presumptive for disability compensation to veterans, and for DIC to survivors of veterans with those conditions. Because of the range of effective dates for compensation due to conditions related to Agent Orange, appropriations for the first year (FY2010) included payments for prior years of disability compensation in a number of cases. Therefore, the first year impact of the change in regulations was larger (in FY2010) than the annual impact of the change (in later years). Readjustment Benefits The Readjustment Benefits category reflects a number of benefits related to the transition of servicemembers from active duty status to veteran status, as well as disabled veterans including education benefits; vocation rehabilitation; financial assistance for adaptive automobiles and equipment; and housing grants. Between FY2010 and FY2012, there is an increase of 24.8% due to changes in law for benefits in this category. Educational and vocational rehabilitation benefits reflect an increase in the workload and average cost of the benefits (due to inflation or educational cost adjustments). In addition, P.L. 111-275 increased the maximum financial assistance for automobiles and adaptive equipment from $11,000 to $18,900 effective October 1, 2011. Insurance (Mandatory) The Insurance (Mandatory) category includes supplemental funding for National Service Life Insurance (NSLI); Service-Disabled Veterans Insurance (S-DVI); and Veterans Mortgage Life Insurance. This category shows a large increase (78.1%) between FY2010 and FY2012, primarily due to a projected increase in S-DVI due to death claims. Housing and Other Mandatory Benefits The Housing and Other Mandatory Benefits category includes guaranteed and direct loan programs for veterans, Native American housing loans; and various proprietary receipts (from the public). Part of the decrease between FY2010 and FY2012 is attributed to a projected decline in proprietary receipts, including those associated with the GI Bill, the National Service Life Insurance fund; and housing. Major Construction The Major Construction category, which is for construction related projects for all VA components where the total project cost is $10 million or more, reflects a 50.6% decline in the requested appropriation between FY2010 and FY2012. However, the VBA has noted in supporting documents that it has identified $381.6 million in prior appropriations for major construction that is unobligated, of which $135.7 million will be used for FY2012 major construction projects. Minor Construction The Minor Construction category, which is for construction related projects for all VA components where the total project cost is less than $10 million, reflects a decline between FY2010 and FY2012 of 21.8%. General Operating Expenses The General Operating Expenses category includes funding for the Office of the Secretary; the Board of Veterans' Appeals (BVA); the Offices of General Counsel and Acquisition, Logistics, and Construction; and the Assistant Secretaries for Management, Human Resources and Administration, Congressional and Legislative Affairs, Policy and Planning, Security and Preparedness, and Public and Intergovernmental Affairs. The increase between FY2010 and FY2012 of 18.2% reflects an increase of 562 full-time equivalent (FTE) employees, and funds for initiatives including the Acquisition Improvement Initiative. Information Technology The Information Technology category includes maintenance and improvements to the information technology of all VA functions. The small decrease between FY2010 and FY2012 reflects increases for new initiatives and completion or discontinuation of older initiatives. Grants to States for Extended Care Facilities The American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) provided additional funds for grants to states for extended care facilities. These funds were required to be obligated by the end of FY2010 (September 30, 2010). The ARRA funds were used by the VA to advance projects planned for FY2010 and FY2011. The 15.0% decline between FY2010 and FY2012 reflects the impact of the additional ARRA funds in FY2010.

The Department of Veterans Affairs (VA) provides a range of benefits and services to veterans who meet certain eligibility criteria. These benefits and services include hospital and medical care, disability compensation and pensions, education, vocational rehabilitation and employment services, assistance to homeless veterans, home loan guarantees, administration of life insurance as well as traumatic injury protection insurance for servicemembers, and death benefits that cover burial expenses. This report provides a preliminary analysis of the President's budget request for FY2012 for the programs administered by the VA. For FY2012, the Administration is requesting approximately $132.1 billion for the VA. This amount includes approximately $62 billion in discretionary funds and approximately $70 billion in mandatory funding. The FY2012 budget request for VA medical care programs is $51.3 billion, an increase of approximately $240 million over the FY2012 advance appropriations request of $50.6 billion that was included in the FY2011 budget request. The FY2013 request of advance appropriations is $52.5 billion, an increase of approximately $1.7 billion over the FY2012 budget request. The President's budget is proposing an establishment of a contingency fund of $953 million for VA medical care programs in FY2012. These contingency funds would become available for obligation if the Administration determines that additional costs would be incurred due to changes in economic conditions. This report is not an exhaustive discussion of VA's budget request for FY2012. A full CRS report on FY2012 VA budget and appropriations issues is planned after initial congressional consideration of appropriations legislation.

Overview Amtrak—officially, the National Railroad Passenger Corporation—is the nation's primary provider of intercity passenger rail service. Amtrak is structured as a private company, but virtually all its shares are held by the U.S. Department of Transportation (DOT). Amtrak was created by Congress in 1970 to preserve a basic level of intercity passenger rail service, while relieving private railroad companies of the obligation to provide money-losing passenger service. Although created as a for-profit corporation, Amtrak has never made a profit; in this it resembles both the passenger rail experience of the private-sector companies that preceded it and of intercity passenger rail operators in many other countries. During the 47 years from 1971 to 2017, federal assistance to Amtrak amounted to approximately $81 billion in constant 2017 dollars (see Appendix , Table A-1 ). Amtrak's approximately 20,000 employees operate trains and maintain its infrastructure. It carries around 31 million passengers annually, providing slightly less than 1% of total U.S. intercity passenger miles traveled by common carrier (see Table 1 ). The company operates approximately 44 routes over 21,300 miles of track. Most of that track is owned by freight rail companies; Amtrak owns about 625 route miles. The primary section it owns—most of the Northeast Corridor (NEC)—includes some of the most heavily used segments of track in the nation. Amtrak also operates corridor routes (covering distances under 750 miles) and long-distance routes (over 750 miles in length). Most of its corridor routes are financially supported by states they serve. Amtrak also operates commuter service under contract with state and local commuter authorities in various parts of the country. Funding Issues Amtrak's expenses exceed its revenues each year. In FY2016, Amtrak's revenues totaled $3.2 billion, against expenses of $4.3 billion, for a net loss of $1.1 billion (see Table 2 ). That loss was covered by federal grants made to Amtrak by DOT. In recent years, Congress has typically divided Amtrak's grant into two categories: operating and capital grants. Roughly, the operating grant could be thought of as relating to Amtrak's annual cash loss, and the capital grant as relating to the depreciation of Amtrak's assets, as well as an amount for Amtrak debt repayments. Amtrak's federal funding is primarily provided within the DOT's appropriation. The Administration requests funding for Amtrak each year as part of its DOT budget request. Amtrak also submits a separate appropriation request directly to Congress each year; typically, that request is larger than the Administration request. Table 3 shows the difference in the requests that were submitted for FY2016. Congress changed the structure of federal grants to Amtrak in the Passenger Rail Reform and Investment Act of 2015 (Title XI of the Fixing America's Surface Transportation (FAST) Act; P.L. 114-94 ) . Previously, Congress had divided Amtrak funding into two pots, one for capital expenditures and one for operating costs. Starting in FY2017, the grants are divided between funding for Amtrak's NEC service (which is operationally self-sufficient but has billions of dollars in capital needs) and the rest of Amtrak's network (the National Network, which has modest capital needs but runs an operating deficit of several hundred million dollars). The change is intended to increase transparency of the costs of Amtrak's two major lines of business and eliminate cross-subsidization between them; operating profits from the NEC and state access payments for use of the NEC will be reinvested in that corridor, and passenger revenue, state payments, and federal grants for the National Network will be used for that account. Authorization Status Amtrak funding was authorized through FY2020 in the Passenger Rail Reform and Investment Act of 2015 (Title XI of the FAST Act, P.L. 114-94 ). This was the first time that it was included in the larger surface transportation act that authorizes highway and transit programs, fulfilling a longtime goal of Amtrak supporters. Amtrak's funding, however, is still drawn from the general fund, rather than from a transportation trust fund, and therefore it must still compete with other programs in the Transportation, Housing and Urban Development, and Related Agencies appropriations bill under the bill's overall limit on discretionary spending. Amtrak typically is appropriated less funding than is authorized, and funding Amtrak from a transportation trust fund likely would improve the odds that it receives the amount Congress authorized for it, as well as increasing the predictability of its future funding (see discussion of funding stability below). Table 4 shows the funding authorized and appropriated for Amtrak from FY2009 through FY2020. Ongoing Funding Issues Amtrak is able to cover about three-fourths of its total costs from its revenues. That leaves a portion of its operating (i.e., cash) expenses—and virtually all of its capital expenses, including depreciation—to be covered by outside funding, primarily federal funding. The federal grants Amtrak receives have, in recent years, typically been enough to cover its annual losses, with small amounts left over for capital projects. Amtrak reports a backlog of capital maintenance of many billions of dollars, and says this backlog grows larger each year because the amount available for capital expenses is not enough to keep up with maintenance needs. The stability, or predictability, of Amtrak's federal funding levels is a perennial issue. Roughly one-third of Amtrak's revenue comes from federal funding appropriated on a year-to-year basis by Congress. DOT's Inspector General has noted that the lack of long-term funding "has significantly affected Amtrak's ability to maintain safe and reliable infrastructure and equipment, and increased its capital program's annual cost." Congressional authorizations for highway and transit programs are typically in the form of special budget authority (contract authority) drawn from a trust fund, which provides more predictable funding. There have been proposals to create a trust fund for Amtrak, in order to provide a greater level of financial stability. Such efforts have faced objections from some Members of Congress opposed to Amtrak receiving federal funding. There is also a practical challenge to identify where the revenues for an Amtrak trust fund would come from. If such a trust fund were to be funded solely from a tax on Amtrak passengers, the tax would need to be roughly two-thirds of the current ticket cost, potentially reducing ridership. Another potential funding source, the existing Highway Trust Fund, also has challenges, as the revenues flowing into the fund are far below the level required to maintain the existing level of federal highway and transit spending. The Highway Trust Fund has received several transfers of money from the general fund since 2008. Infrastructure Issues Amtrak owned no infrastructure at the time of its creation. It was structured as a contracting agency, and Amtrak trains were operated by private railroads over tracks they owned. Several years later, as Congress was dealing with the bankruptcy of the Penn Central Railroad, Congress decided to give Amtrak much of the trackage owned by the Penn Central in the 450-mile corridor running from Washington, DC, north through Philadelphia and New York City to Boston, along with shorter lines serving Harrisburg, PA, and Springfield, MA. The line running from Washington to Boston, known as the Northeast Corridor (NEC), traverses 8 states and hosts 2,200 daily trains carrying over 800,000 passengers (mostly on commuter trains). The line includes more than 200 bridges, tunnels dating to the 1870s, and electric traction systems relying on 1930s-era components. While Amtrak owns the vast majority of the right-of-way and track, there are sections owned by state governments and commuter rail agencies. In addition to Amtrak, eight commuter rail agencies operate on the NEC, as well as four freight railroads. The NEC is Amtrak's flagship corridor, with its fastest service. The premium-fare Acela service attains speeds of up to 125 miles per hour on the southern section between Washington, DC, and New York City, and up to 150 mph on the northern section between New York City and Boston. But those high speeds are possible only in limited stretches: the average speed of the Acela service is around 70 to 80 miles per hour. Travel time improvements on the NEC likely would be valuable. A 2008 analysis by the DOT Inspector General estimated that reducing the New York-Washington travel time from nearly three to two and a half hours and the New York-Boston travel time from over three and a half to three hours would result in an average of $500 million in annual benefits (in 2006 dollars). Most of that was estimated to come from air passengers shifting to the train as its travel times shrank. The impact might be less now, as Amtrak's share of the combined air/rail market in the Northeast has increased since that report was written. The Northeast Corridor Commission Recognizing that improvements to the NEC would require collaboration between many groups, in the Passenger Rail Investment and Improvement Act of 2008 (PRIIA; Division B, P.L. 110-432 ) Congress directed DOT to create a Northeast Corridor Infrastructure and Operations Advisory Commission. The commission is made up of members from each of the states (including the District of Columbia) traversed by the NEC, plus representatives of DOT, Amtrak, and (as nonvoting members) freight rail companies that operate on the NEC. The commission's purpose is to promote cooperation and planning for rail operations and improvements on the NEC. Toward this end, the commission has published several reports on the infrastructure needs of the NEC. Also, the commission was directed to develop a formula for determining and allocating costs, revenues, and compensation for NEC commuter rail operators that use Amtrak facilities or services or that provide such facilities or services to Amtrak to ensure there is no cross-subsidization among commuter, intercity, and freight services on the NEC. In January 2015, the commission published a policy to allocate the annual operating costs and normal asset replacement on the NEC. This policy does not address the capital maintenance backlog, which the commission has estimated at around $38 billion. NEC Improvement Plans Portions of the NEC date from before the Civil War. In addition to the advanced age of much of the NEC infrastructure, its alignment was laid out at a time when the top speed of trains was much less than is possible today. These two factors have complicated Amtrak's efforts to improve service on the NEC. Amtrak has identified three general issues: a large backlog of capital projects needed to bring the railway to a state of good repair; limits on the number of trains that can operate on the NEC, especially due to bottlenecks at tunnels; and increasing demands for service, including service by commuter operators. There are three plans for improvements to the NEC: Amtrak's Gateway Program, a set of projects between Newark, NJ, and New York; the Northeast Corridor Commission's Capital Investment Plan; and the Federal Railroad Administration's (FRA's) NEC FUTURE plan for the entire corridor. Amtrak Gateway Program Amtrak says that no further significant expansion of intercity service on the NEC is possible without increasing capacity into and through Manhattan. Also, the reliability of that service is threatened due to the aftereffects of the flooding of the rail tunnel under the Hudson River during Hurricane Sandy in 2012. The Gateway Program is a package of eight projects proposed to increase both reliability and capacity (see Table 5 for a list of the projects and their status). The centerpiece is a new two-track tunnel under the Hudson River, supplementing the current tunnel. The cost estimates for the entire program of work are in the range of $24 billion to $29 billion. Most parts of the Gateway Program are currently in the planning stage. For the Hudson Tunnel project, FRA and New Jersey Transit published a Draft Environmental Impact Statement in July 2017. The Northeast Corridor Commission's Capital Investment Plan The commission publishes a five-year investment plan (currently for the period FY2018-2022). The plan identifies the top 10 unfunded priority projects (3 of which are included in Amtrak's Gateway Program); it calculates the state-of-good-repair backlog to be $38 billion, and calls for $29 billion in work over the next 5 years to address that backlog, $19 billion more than the commission sees as being available under current arrangements. NEC FUTURE FRA is leading a program called NEC FUTURE, which developed a long-range plan to bring the infrastructure to a state of good repair and make improvements to accommodate faster and more frequent passenger service through the year 2040. Public meetings were held in the fall of 2012, a preliminary alternatives evaluation was published in 2014, and FRA issued a Record of Decision describing the Selected Alternative for development in July 2017. The Selected Alternative includes a range of possible improvements to the NEC, represented at a conceptual level. The estimated cost of these improvements is $121 billion to $153 billion (in 2014 dollars). Improvements to the NEC based on this plan will depend on the decisions of Amtrak and commuter railroads and the pertinent states; these entities would be responsible for implementing and securing funding for individual projects. The individual projects will generally require a Tier 2 Environmental Impact Statement as part of their planning and permitting process. The next step in this long-range planning process is for FRA and the NEC Commission to complete a service development plan, which would prioritize improvements to the NEC. Washington Union Station Redevelopment Proposal Union Station in Washington, DC, is the second-busiest station in Amtrak's system, with 100,000 passenger boardings or alightings each day. Amtrak says that the station is operating over its capacity; during rush hours lines of Amtrak passengers waiting to board trains extend beyond the waiting areas, obstructing movement through the station. Also, the tracks and platforms are not in compliance with Americans with Disabilities Act (ADA) requirements or with life safety codes. Amtrak and the other transportation agencies using Union Station have proposed a redevelopment plan to address these problems. The plan envisions 4 phases of construction over a period of roughly 20 years. The first 3 phases, which focus on reconstruction of the station and increasing the capacity of the terminal, are estimated to cost around $7 billion (in 2012 dollars). While FRA prepares an Environmental Impact Statement for the station reconstruction, Amtrak has begun a much more modest $50 million modernization of its passenger concourse. Fleet Replacement Strategy Amtrak owns or leases more than 1,500 passenger cars, almost 400 locomotives, and 25 trainsets (in which locomotives and passenger cars stay together in a unit). The average age of Amtrak's passenger car equipment in 2015 was almost 31 years, the highest figure in its history, and considerably older than the average age (22 years) of the equipment it inherited from the private railroads in 1971. In 2017, Amtrak finished replacing aging locomotives used on the NEC with 70 new electric locomotives from Siemens at a cost of $466 million. This is intended to increase the reliability of the NEC fleet. The purchase was financed by a $563 million loan from FRA under the Railroad Rehabilitation and Improvement Financing (RRIF) program (45 U.S.C. §821); that loan was paid off with part of the proceeds of a much larger RRIF loan to Amtrak in 2016. The primary purpose of that loan, for $2.45 billion, is the purchase of 28 Acela trainsets. Amtrak's plan to replace equipment used in parts of its network other than the NEC was published in 2012. At that time, Amtrak planned to purchase about 700 new single-level passenger cars between 2016 and 2022 (ordering about 100 per year) and about 500 bi-level cars between 2018 and 2022 (also ordering 100 per year). In its 2018 budget request, Amtrak notes that the funding needed to implement that fleet replacement plan was not received; "Absent a new approach to funding the capital investment needs of intercity rail passenger service, the lack of adequate capital investment in fleet will at some point become a significant, perhaps the most significant factor, in what services are provided." Amtrak ordered 130 cars for long-distance trains at a cost of $298 million from CAF USA for delivery in 2013-2015. That schedule was missed. The current schedule has deliveries through 2020. Fleet replacement raises several oversight issues for Congress, including the following: High costs due to lack of scale economies. Amtrak does not purchase enough equipment with enough frequency to establish a robust domestic manufacturing base. Section 305 of PRIIA attempted to address that by creating a mechanism to create standardized passenger railcar designs. The intent of this provision was to achieve economies of scale not only in the cars' manufacture, but also in repair and parts replacement. However, there is a risk that equipment standardization could retard development of innovative car designs and dampen competition among manufacturers. Lack of import competition. By law, passenger rail equipment must abide by certain domestic manufacturing requirements. Also, FRA safety standards put greater emphasis on crash survivability than crash avoidance compared to foreign standards. The need for bulkheads at the ends of cars generally makes U.S. equipment much heavier than foreign equipment, meaning that foreign car designs cannot simply be produced in U.S. plants. This likely increases Amtrak's cost to acquire equipment. Equipment lease arrangements. Much of Amtrak's rolling stock is owned by banks that can claim tax benefits (depreciation) while Amtrak rents the equipment from them. In Section 205 of PRIIA, Congress authorized the Secretary of the Treasury, in consultation with Amtrak and the Secretary of Transportation, to restructure Amtrak's capital leases. This authorization expired in October 2010. Under this authority, Amtrak restructured 13 capital leases, including sale and lease-back arrangements for its locomotive and passenger car fleet, at a cost of $420 million, but with ultimate savings of $152 million. The Amtrak Inspector General reported that 39 additional capital leases that could result in savings of $426 million, at a cost of $638 million, are still available if Congress were to extend the authorization to negotiate early buyout options. Also, it is unclear how well the remaining economic life of Amtrak's equipment corresponds with the length of its lease agreements, and therefore whether the lease agreements interfere with fleet replacement plans. Train Station Compliance with Americans with Disabilities Act The Americans with Disabilities Act of 1990 (ADA) required that intercity passenger rail stations be made usable by persons with disabilities no later than 2010. PRIIA directed Amtrak to produce a schedule for bringing all stations into compliance by the 2010 deadline. The legislation did not provide any specific funding for this purpose, authorizing "such sums as may be necessary" for the improvements. Amtrak's 2009 schedule for achieving full compliance estimated that it would take until 2015, 5 years past the statutory deadline, and cost $1.564 billion. According to Amtrak, a subsequent DOT rule on ADA compliance, issued in 2011, significantly delayed its plans for making its stations ADA-compliant because "in order to ascertain whether a level boarding platform is required, a freight usage determination must first be made for every track adjacent to every platform at each station." In 2015, the Department of Justice found that Amtrak had violated the ADA by failing to make stations accessible. The department also found that Amtrak had incorrectly classified some stations as "flag stop" stations in an attempt to avoid having to make those stations accessible. As of March 2017, Amtrak had determined that it had 517 stations, of which 512 were required to be ADA-accessible. Of those 512, Amtrak had determined that its responsibilities were sole ADA responsibility for 138 stations; shared ADA responsibility for 246 stations; and no ADA responsibility for 128 stations. Thus, Amtrak had sole or shared responsibility for 384 stations. Of those, the following work tasks had been completed: land survey: 368 ADA assessment: 301 design: 99 construction awarded: 83 construction complete: 57 The basic challenge in making Amtrak trains accessible to individuals with disabilities is that the boarding platforms typically are not at the same height as the seating areas of the trains. One complicating factor is that the various models of Amtrak passenger cars do not have uniform seating area heights above the wheels. Another complicating factor is that most station platforms used by Amtrak are owned by freight railroads, which generally do not permit platforms higher than 8 inches above the top of the rails in order to prevent physical conflicts with the freight rail rolling stock. Consequently, in most stations where freight and passenger trains operate on the same track, it is difficult to provide wheelchair-accessible level boarding platforms. Positive Train Control Implementation Section 104 of the Rail Safety Improvement Act of 2008 (Division A of P.L. 110-432 ) required that intercity passenger railroads, commuter railroads, and freight railroads that haul certain toxic or poisonous products install a "positive train control" (PTC) system by the end of 2015; Congress subsequently extended that deadline to December 31, 2018. The distinctive feature of PTC is that an automatic override system or a dispatcher from a remote location could slow a train or stop it in order to avoid a collision if the engineer fails to comply with a signal indication. The system relies on radio communications among a locomotive, track-side equipment, and a control center. PTC is intended to prevent accidents due to excessive train speed or conflicting train movements. As currently conceived, it will not address accidents caused by trespassers on railroad property, vehicles blocking tracks at grade crossings, or other factors. Before enactment of Section 104, passenger and freight railroads were developing systems that could remotely control train movements, but there was no requirement that these systems be interoperable. Interoperability is a significant concern for Amtrak, which operates its trains over track owned by many different railroads and hosts freight and commuter railroads' trains on its own tracks. Amtrak began installation of a PTC system in 2000 on some NEC tracks as part of FRA requirements for higher-speed Acela service. An Amtrak train derailed due to excessive speed on a curved section of the NEC outside of Philadelphia on May 12, 2015; 8 passengers died and 185 were taken to hospitals for treatment. Investigators said the crash could have been prevented by PTC; Amtrak said PTC had been installed in that area but was not yet operational. Outside the NEC, Amtrak has had to install a different version of PTC on tracks it owns in Michigan, and must install PTC equipment on its diesel locomotives that is compatible with the host railroads' versions of PTC. In some cases, the presence of Amtrak trains on freight lines is the sole trigger of the PTC requirement, because the lines in question do not carry poisonous or toxic products. As Amtrak is required to pay host railroads for the incremental costs of operating its trains, it would be responsible for PTC installation in these circumstances, but Amtrak has stated it does not have the funds to install PTC on tracks it does not own. Operational Issues Ridership Levels Amtrak ridership has grown slowly over the past decade. As Table 6 shows, these increases have been seen on all types of trains. The corridor/short-distance trains have overtaken the flagship NEC service in terms of ridership, although the Northeast Corridor still provides the majority of ticket revenue. Operating Efficiency The number of passengers carried is not the only measure that should be considered when evaluating Amtrak's performance. A railroad may boost ridership by increasing the supply of seats (running more trains or offering more seats per train) or by increasing demand (improving service or reducing fares absolutely or relative to competitors). Thus, measures of efficiency and measures that incorporate financial results are also useful to assess performance. Passenger Load Factor One measure of efficiency is the passenger load factor, which measures what percentage of the available seats is being used by passengers. As Figure 1 shows, Amtrak's load factor has varied within a fairly narrow band since 1986. Its current load factor, 51%, is near the record load factor Amtrak reported in FY1988. In certain respects Amtrak's circumstances were more favorable at that time than today: its fleet was newer and the rail network was less congested. Operating Ratio The most basic measure of financial performance may be operating ratio (the percentage of costs covered by revenues). Amtrak is able to cover about three-fourths of its operating costs from its revenues. As Figure 2 shows, that ratio has been fairly constant over the past two decades, but Amtrak's operating ratio is currently about as high as it has ever been over that period. Amtrak's On-Time Performance Amtrak's ability to keep trains running on time has a direct bearing on its operating profit or loss. First and foremost, low on-time performance reduces ridership (and ticket revenue). Secondly, it increases crew, fuel, and other operating costs. For Acela service, a train is considered on time if it arrives at its final destination within 10 minutes of the scheduled time. This is also the standard for any routes of less than 250 miles. For longer routes, the standard depends on distance, with 30 minutes being the allowance for trips over 550 miles. Amtrak's on-time performance over a recent three-month period, compared to its performance in 2012, is shown in Table 7 . The data suggest that Amtrak's on-time performance has deteriorated, even on the NEC, where Amtrak controls train operations. Outside of the NEC, Amtrak trains run predominantly on track owned by freight railroads, and much of the delay on these routes is related to sharing track with freight trains. The host freight railroad controls all the trains running on its network, including Amtrak trains. Freight railroads use automated systems that dispatch trains when all trains are running on schedule, but delays or unanticipated problems usually require that a human dispatcher intervene to make train control decisions. According to data recorded by Amtrak train conductors, "host railroad delays" is by far the leading cause of Amtrak trains being delayed, and within that category, freight train interference is the leading factor. "Slow order" track—track that is subject to a temporarily reduced speed limit until repair or maintenance can be performed—was the second-leading cause of Amtrak delays. Signal problems and interference from other passenger trains were the third- and fourth-leading causes of delay. Figures on the causes of delays are based on the recordings of Amtrak train conductors. Freight railroads contend that the data are inaccurate because conductors may not be aware of the root causes of delay; for instance, the conductor of an Amtrak train stuck behind a freight train might record the cause of delay as "freight train interference" even though the freight train could be stopped because of a railroad crossing accident farther ahead. Several circumstances exacerbate interference between freight and Amtrak trains. A surge in rail shipments of oil from the Bakken formation in North Dakota led to frequent delays on routes in the upper Midwest in 2013 and 2014. In some areas, construction to add trackage in response to this increased traffic has caused delays in train movements. On some route segments, Amtrak uses a secondary route of the owning freight railroad, which may not want to invest in improving the performance of that segment. Off the NEC, about 70% of the mileage over which Amtrak operates consists of a single track with sidings, meaning that a single late train can cause many other trains to be delayed. Amtrak trains, which travel faster than most freight trains, require more headway clearance, complicating operations on a heavily used freight corridor. Amtrak's Terms of Access to Freight Track In 1973, shortly after Amtrak's creation, Congress granted Amtrak "preference" over freight trains in using a rail line, junction, or crossing ( P.L. 93-146 , §10(2), 87 Stat. 548). In Amtrak's view, this "preference" should be enforced each time a dispatcher makes a decision involving an Amtrak train and a freight train. The freight railroads contend that the entire fluidity of the route has to be taken into consideration, and that this sometimes may involve giving priority to a freight train over an Amtrak train in order to avoid delays on a larger scale. Under the Rail Passenger Service Act of 1970 (P.L. 91-518, 84 Stat. 1327), Amtrak pays the host railroads for the incremental costs specific to Amtrak's usage of track—for instance, the additional track maintenance costs required for passenger trains. Amtrak is not required to contribute any share to a freight railroad's overhead costs. Based on agreements it has negotiated with each freight railroad, Amtrak provides incentive payments to host railroads when its trains arrive on time. Part of this negotiation involves agreeing on a schedule for Amtrak trains. The DOT Inspector General reported in 2008 that three of the four host freight railroads visited regard the incentive payments as insufficient to influence the way they dispatch Amtrak trains. There are also penalty provisions for late trains, but they come into effect only if the host railroad has received incentive payments within the last 12 months. In recent years, Amtrak has paid an average of $100 million annually to the freight railroads for track usage and on-time incentive payments. This equates to about 0.2% of the freight railroads' annual freight revenues and about 1% of their annual capital expenditures. PRIIA Initiatives to Improve On-Time Performance In PRIIA §207, Congress directed FRA and Amtrak to develop metrics and standards for measuring the performance and service quality of intercity passenger train operations, including on-time performance and delays incurred by Amtrak trains on the rail lines of each carrier. In Section 207 and Section 213, Congress gave the Surface Transportation Board (STB) the power to investigate, in certain circumstances, failures by Amtrak to meet the on-time performance standards. The statute provided that if the STB determined that a host freight railroad has failed to provide preference to Amtrak trains, the STB could award damages against the host freight railroad and order other relief. The freight railroads challenged the constitutionality of this statute, arguing that Amtrak, as a private corporation, cannot have rule-making authority in developing performance standards and that the statute violates their due-process rights. On March 9, 2015, the Supreme Court ruled that Amtrak is a government entity for the purpose of developing the performance standards; it remanded the case to the U.S. Court of Appeals for the D.C. Circuit to consider the lawfulness of the standards. The Appeals Court then found Section 207 to be an unconstitutional delegation of power and voided the associated standards that FRA issued in 2011. With the on-time performance standards developed by FRA and Amtrak suspended due to pending litigation, and with a complaint by Amtrak against host railroads causing delays, the STB developed its own standard for on-time performance through the rule-making process, and used that to rule against a host railroad. This action was challenged by freight railroads, and ultimately overturned. So Congress's effort in PRIIA to address the persistent problem of host railroad delays to Amtrak trains has thus far had little impact. As freight traffic increases and states implement plans to increase passenger train speeds over certain routes (from a prevailing maximum of 79 mph to 110 mph), tension between freight and passenger use of track is likely to intensify. Food and Beverage Service Amtrak has served food and beverages since it began operating in 1971, continuing the practice of its predecessor companies. As far back as 1981, Congress prohibited Amtrak from providing food and beverage service at a loss, and this prohibition is still in the statutes governing Amtrak: "Amtrak may ... provide food and beverage services on its trains only if revenues from the services each year at least equal the cost of providing the services." The law does not define what is to be included in the "cost of providing the services." Amtrak has stated that providing food and beverage service is essential to meeting the needs of passengers, especially on long-distance trains, and it has interpreted the law as requiring that revenues cover the costs of food and beverage items and commissary operations but not the labor cost of Amtrak employees providing food service on-board trains. When on-board labor costs are excluded, Amtrak says, the service covers its costs. When labor costs are included, however, the service operates at a significant deficit (see Table 8 ). Amtrak has taken measures, at Congress's direction, to reduce costs for food and beverage service. In 1999, it shifted from handling food and beverage supplies internally to contracting out such activities. A House proposal in the 112 th Congress would have required FRA to contract out Amtrak's on-board food and beverage service but acknowledged that the service may operate at a loss. Section 11207 of the FAST Act requires Amtrak to develop a plan to eliminate food and beverage service losses, and prohibits federal funds from being used to cover losses starting five years after enactment—but also provides that no Amtrak employee shall lose his or her job as a result of any changes made to eliminate losses. Congress provided that Amtrak could eliminate the losses on food and beverage service through "ticket revenue allocation." Although that phrase is not defined in the law, it implies that Amtrak could declare that a portion of the ticket prices paid by certain passengers is dedicated to food and beverage service. Restoration of Amtrak Service Along Gulf Coast In 1993, service on Amtrak's Sunset Limited, which had operated between Los Angeles, CA, and New Orleans, LA, was extended east to Jacksonville, FL. The Sunset Limited route operated three trains a week in each direction. In August 2005, service east of New Orleans was suspended due to damage to the rail infrastructure between New Orleans and Mobile, AL, as a result of a hurricane. Although CSX, the owner of the rail infrastructure, restored the line to service in 2006, Amtrak did not restore its passenger service east of New Orleans. This eliminated service at 12 stations that were not served by any other Amtrak route. In Section 226 of PRIIA, Congress directed Amtrak to develop a plan for restoring passenger rail service between New Orleans and Sanford, FL. Amtrak presented a plan to Congress in July 2009 with three options for meeting this requirement. All three would have required tens of millions of dollars in capital improvements (including making the stations be reopened compliant with ADA accessibility requirements and installing positive train control on that section of the rail network) and would have produced operating losses. Amtrak sought funding to implement any of the options, but no further action was taken by Congress. Amtrak looked at the issue of resuming Gulf Coast service again in 2015 at the request of the Southern Rail Commission. This study examined a slightly different set of options, omitting the option of extending the thrice-weekly Sunset Limited Service eastward. In Section 11304 of the FAST Act, Congress directed DOT to establish a working group to evaluate restoration of passenger rail service along the Gulf Coast. The working group's final report, published in July 2017, found that opening passenger service from New Orleans to Orlando, FL, via Jacksonville, would require capital expenditures of at least $10 million and perhaps as much as $102 million. CSX has stated that it needs $2.3 billion in infrastructure upgrades to provide reliable service that does not interfere with its freight operations. The interested parties have yet to verify the need for the recommended improvements and develop a funding plan. Privatization of Intercity Passenger Rail Services When discussing privatization of intercity passenger rail service, details are important. Amtrak itself can be considered a privatized rail provider, as it is legally a for-profit company that receives grants from federal and state governments. Similarly, the rail service providers in Great Britain, for example, are not owned by the British government, but they receive government funding to operate routes that are not profitable on the basis of passenger-related revenues. The differences lie in how the government payments are structured; Amtrak receives annual funding directly from the federal government as a line item in DOT's appropriations act, while the British government awards franchises to rail companies to operate trains over a route for a certain amount of government funding over a period of years. Suggestions for privatizing intercity passenger rail in the United States range from encouraging Amtrak to contract out more activities to encouraging private operators to compete with Amtrak on individual routes. One challenge to the latter is that, unlike in many other countries, the majority of the U.S. rail network is owned by private freight companies that control who can use their tracks and under what circumstances. Freight railroads have a statutory obligation to carry Amtrak trains, but they have discouraged the notion of having other passenger rail providers operating on their tracks. There has been one recent effort to replace Amtrak with a private operator. In that instance, the State of Indiana contracted in 2015 with Iowa Pacific Holdings, a private company, to provide passenger service between Indianapolis and Chicago for a subsidy amount less than the state was paying Amtrak to serve the route. The company made improvements to the passenger experience in hopes of increasing ridership, but the increased revenue did not cover the costs. The company decided to stop operating the service several months before its contract period was completed, saying it was losing money. In 2017, the state turned to Amtrak to resume operation of the service. One obstacle to privatization is that if a state or a private operator other than Amtrak wishes to begin passenger service over freight-owned right-of-way, it would likely have to pay more than Amtrak does to gain access to freight property. Under laws enacted during Amtrak's first decade, Amtrak enjoys eminent domain power over freight railroad facilities and can use freight track at the railroad's incremental cost of hosting Amtrak trains. To enforce these terms, Amtrak can appeal to the STB. No other potential passenger rail operator has access to freight track on these favorable terms. These provisions may make it difficult for other companies to compete directly with Amtrak, or to offer passenger service over any existing trackage without the support of the freight railroads that control the track. In December 2016, Congress directed DOT to establish a pilot program for competitive selection of applicants to operate up to three long-distance routes currently operated by Amtrak. The winning bidder would have the right to operate a route for four years, and the contract could be renewed for another four years. Amtrak would be eligible to bid; if a bidder other than Amtrak is selected, the winning bidder would have the same right to operate over the freight railroad's tracks as Amtrak, subject to performance standards set by DOT, and could receive an operating subsidy of not more than 90% of the amount provided for service on that route in the year before the bid to operate the route was received, adjusted for inflation. Several pending initiatives involve proposed construction of new privately owned lines specifically for high-speed passenger rail services. One major obstacle to such ventures is the financial challenge of building the infrastructure before receiving any revenue. All Aboard Florida All Aboard Florida, a subsidiary of Florida East Coast Industries (FECI), plans to run a passenger service called Brightline between Miami and Orlando (a distance of approximately 240 miles), with intermediate stops at Fort Lauderdale and West Palm Beach. It has said that it will begin service on the section between Miami and West Palm Beach in 2017. The company already owns most of the right-of-way; it plans to construct 40 miles of track that would allow it to serve a station at the Orlando Airport. The trains would travel at up to 110 miles per hour over much of the route, and up to 125 miles per hour on the section of track yet to be built. The company also owns land in downtown Miami where it is building a passenger terminal and a mixed-use development, using the availability of passenger rail service to enhance the value of its real estate development projects. The entire rail project is estimated to cost $3 billion; construction began in 2015. The sponsor applied for an RRIF loan, but suspended the application and instead sought state approval to sell $1.75 billion in tax-free qualified private activity bonds, an amount subsequently reduced to $600 million. As of summer 2017 it had not issued the bonds. The project, which has encountered opposition from communities unhappy about the prospect of increased train frequencies interfering with road traffic in their downtowns, is dealing with a variety of permitting challenges as it approaches its scheduled opening of service. Texas Central High Speed Railway This project, which is being pursued by a group including the Central Japan Railway Company, one of the leading rail companies in Japan, would build a dedicated high-speed line connecting Dallas-Fort Worth and Houston. Trains on the 240-mile route would operate at up to 200 miles per hour, offering a 90-minute ride. The project's initial cost estimate was $8 billion; that has now grown to $12 billion. The initial target completion date was 2021, now moved to 2023. FRA has completed an alternatives analysis for the project and is working on a Draft Environmental Impact Statement, expected to be completed in 2017. The project group says it does not expect to request government grants, though it may seek a federal loan. As of February 2017, Texas Central Partners, the company seeking to build the rail line, said it had contracts for about 30% of the land parcels estimated to be needed for the entire project. Some landowners whose properties would be crossed by the rail line have been vocal in their opposition to the project. In 2017, the Texas State Legislature enacted a bill to ensure that the state will not be responsible for any costs of the train. XpressWest Southern California to Las Vegas XpressWest (formerly known as DesertXpress) has proposed to build a dedicated high-speed rail line from Victorville, CA (a community northeast of Los Angeles), to Las Vegas, NV, following the Interstate 15 right-of-way, a distance of 185 miles. It proposes to run nonstop trains over this route at 150 mph, with trains operating at 20-minute intervals during peak periods, transporting tourists from southern California to Las Vegas and back. The project has been in development since 2005, and has completed various environmental and regulatory requirements. The project reportedly had private funding commitments of $1.5 billion, and applied for a $5.5 billion loan from the RRIF program, which would have been the largest RRIF loan to date. FRA halted review of the loan request in 2013, citing the railroad's unwillingness to meet the RRIF program's Buy America requirements. In 2015 XpressWest announced a partnership with China Railway International, which was to help provide financing for the project; in 2016, they announced the partnership was ended. The company reports that it is continuing discussions with potential partners and investors. In 2016, the High Desert Corridor Joint Powers Authority, which was examining construction of a high-speed rail line linking the proposed XpressWest line with the California High Speed Rail project between Los Angeles and San Francisco, estimated that a high-speed line connecting Las Vegas with points close to Los Angeles and an average round-trip fare of around $100 would carry 6.5 million passengers by 2024. It estimated that the Las Vegas ridership would grow if completion of the California High Speed Rail project allowed direct service between Las Vegas, Burbank, CA, and Los Angeles Union Station, producing passenger revenues of over $1 billion each year. California High-Speed Rail Project The California High-Speed Rail Authority proposes to build a dedicated rail line between Sacramento and San Diego that will allow trains to reach speeds of up to 220 mph. The first phase of the project will link San Francisco and Los Angeles, with trains covering the 520-mile distance in as little as 2 hours and 40 minutes. A recent change to the first phase would also provide service between San Francisco and the Central Valley city of Merced. The Authority expects to open service on the portion of the route in 2025, with the first phase completed by 2029. The Authority will need to select an operating company to run the trains, which may or may not be Amtrak. Appendix. Federal Funding for Amtrak

Amtrak is the nation's primary provider of intercity passenger rail service. It was created by Congress in 1970 to preserve some level of intercity passenger rail service while enabling private rail companies to exit the money-losing passenger rail business. It is a quasi-governmental entity, a corporation whose stock is almost entirely owned by the federal government. It runs a deficit each year, and relies on congressional appropriations to continue operations. Amtrak was last authorized in the Passenger Rail Reform and Investment Act of 2015 (Title XI of the Fixing America's Surface Transportation (FAST Act; P.L. 114-94). That authorization expires at the end of FY2020. Amtrak's annual appropriations do not rely on separate authorization legislation, but authorization legislation does allow Congress to set multiyear Amtrak funding goals and federal intercity passenger rail policies. Since Amtrak's inception, Congress has been divided on the question of whether it should even exist. Amtrak is regularly criticized for failing to cover its costs. The need for federal financial support is often cited as evidence that passenger rail service is not financially viable, or that Amtrak should yield to private companies that would find ways to provide rail service profitably. Yet it is not clear that a private company could perform the same range of activities better than Amtrak does. Indeed, Amtrak was created because private-sector railroad companies in the United States lost money for decades operating intercity passenger rail service and wished to be relieved of the obligation to do so. By some measures, Amtrak is performing as well as or better than it ever has in its 47-year history. For example, it is carrying a near-record number of passengers, and its passenger load factor and its operating ratio are at the upper end of their historic ranges. On the other hand, Amtrak's ridership is barely growing at a time when other transportation modes are seeing ridership increases. Amtrak contends that improvements to its infrastructure in the Northeast Corridor (NEC), between Washington, DC, and Boston, would enable it to offer faster and more reliable service and thus boost ridership. However, such improvements are expected to be extremely costly. Amtrak's ridership may also be hurt by its relatively low on-time performance, which is especially low on routes which use tracks owned by freight railroads. In 2008, Congress tried to put in place measures that could improve Amtrak's on-time performance on these routes, but that effort has been blocked by the courts. There are perennial calls to privatize Amtrak, but it could be argued that Amtrak is already privatized to a considerable degree. Efforts to create intercity passenger service independently of Amtrak have had limited success. Several efforts are under way to build high-speed rail lines independent of Amtrak. These include the state-sponsored California High Speed Rail project and private passenger rail initiatives in Florida, Texas, and Nevada. It is unclear whether any of these initiatives, if completed, will ultimately be operated by or have business relationships with Amtrak.

Introduction The National Security Act of 1947 (P.L. 80-253) established the statutory framework for themanagerial structure of the United States Intelligence Community, including the Central IntelligenceAgency (CIA) and the position of Director of Central Intelligence (DCI). A fundamental intent ofthis legislation was to coordinate, and to a certain extent centralize, the nascent intelligence effortsof the United States as an emergent superpower in the face of a hostile Soviet Union. In addition,the act provided the CIA with the ability to assume an operational role by charging it with: Perform[ing] such other functions and duties related to intelligence affecting the national security as the National Security Council may from time to timedirect. (1) In 1947, the foundation of the present-day Intelligence Community consisted only of therelatively small intelligence components in the Armed Services, the Departments of State and theTreasury, the Federal Bureau of Investigation (FBI), and the fledgling CIA. Since 1947, however,the Intelligence Community "has greatly expanded in size and acquired a much broader range ofresponsibilities in the collection, analysis, and dissemination of foreign intelligence." (2) The U.S. Intelligence Community is defined in the National Security Act as amended. It currently includes the following: Central Intelligence Agency; National Security Agency; Defense Intelligence Agency; National Geospatial-Intelligence Agency; National Reconnaissance Office; Intelligence elements of the Army, Navy, Air Force, Marine Corps, the FederalBureau of Investigation, the Department of the Treasury, the Department of Energy, and the CoastGuard; Bureau of Intelligence and Research, Department ofState; Elements of the Department of Homeland Security concerned with analysesof foreign intelligence information; and Coast Guard. (3) Beginning in January 1948, numerous independent commissions, individual experts, and legislative initiatives have examined the growth and evolving mission of the IntelligenceCommunity. Proposals by these groups have sought to address perceived shortcomings in theIntelligence Community's structure, management, role, and mission. These proposals have rangedin scope from basic organizational restructuring to the dissolution of the CIA. In 1948 and 1949, two executive branch commissions examined the intelligence and operational missions of the CIA, and identified fundamental administrative and organizational loopholes in P.L.80-253. By the 1950s, however, the physical growth and evolving mission of the IntelligenceCommunity led subsequent commissions to broaden the scope of their proposals to include theenhancement of the DCI's community-wide authority, and the establishment of executive andlegislative branch intelligence oversight committees. Unlike the intelligence investigations of the1970s and 1980s, these early studies were primarily concerned with questions of efficiency andeffectiveness rather than with issues of legality and propriety. Following the Vietnam War and "Watergate," investigatory bodies became increasingly critical of the national intelligence effort. Beginning in the mid-1970s, the impetus shifted to the legislativebranch where investigatory committees led by Senator Frank Church and Representative Otis G. Pikeissued a broad range of proposals, including the separation of the DCI and CIA Director positions,dividing the CIA's analytical and operational responsibilities into two separate agencies, and theestablishment of congressional oversight committees. In 1976 and 1977, respectively,recommendations by the these committees led to the establishment of the Senate Select Committeeon Intelligence (SSCI) and the House Permanent Select Committee on Intelligence (HPSCI). Thesecommittees were heavily involved in the investigations into the Iran-Contra affair of the mid-1980s. With the end of the Cold War, and in the wake of the Aldrich Ames espionage case, both the executive and legislative branches undertook studies to determine the future roles, capabilities,management, and structure of the Intelligence Community. These studies include such issues as theneed to maintain the CIA as a separate entity, the extent and competence of U.S. counterintelligence(CI) efforts, and the managerial structure of intelligence components in the armed services and theDepartment of Defense (DOD). A comprehensive examination of the DCI's roles, responsibilities,authorities, and status was also undertaken. In an era of budgetary constraints and shifting policyconcerns, these studies also examined personnel issues, allocation of resources, duplication ofservices, expanded use of open source Intelligence (OSCINT), and the need for maintaining a covertaction (CA) capability. The results of this effort were reflected in organizational adjustments madeby the Intelligence Authorization Act for FY1997 ( P.L. 104-293 ), but some observers havesubsequently concluded that this legislation did not go far enough and that, in the light of the eventsof September 11, 2001 and the Iraq War, intelligence organization questions need to be reevaluated. The history of these investigations has witnessed the gradual transformation of intelligence from a White House asset to one that is shared between the executive and legislative branches. Congressnot only has access to intelligence judgments but to most information that intelligence agenciesacquire as well as to the details of intelligence activities. Congress has accepted some responsibilityas a participant in the planning and conduct of covert actions. In significant measure, this processhas been encouraged by these external intelligence investigations. This report provides a chronological overview and examination of the major executive and legislative branch intelligence investigations made from January 1949 to date. Major proposals arelisted in chronological order with a brief discussion of their respective results. Proposals specificallyrelating to congressional oversight of the Intelligence Community are not included in this report. Intelligence Reform Proposals Made by Commissions and Major Legislative Initiatives The Truman Administration, 1945-1953 Following the Second World War, the United States emerged as a global political, military, and economic leader. In the face of Soviet aggressiveness, the U.S. sought to enhance its nationaldefense capabilities to curb the international spread of communism and to provide security for thenation itself. The National Security Act (P.L. 80-253), signed July 26, 1947, established the statutory framework for the managerial structure of the United States Intelligence Community, including theCentral Intelligence Agency (CIA) and the position of Director of Central Intelligence (DCI). Theact also created a semi-unified military command structure under a Secretary of Defense, and aNational Security Council (NSC) to advise the President "with respect to the integration of domestic,foreign, and military policies relating to the national security." (4) The fundamental intent of thislegislation was to coordinate U.S. national defense efforts, including intelligence activities, in theface of a Soviet Union intent upon expanding and leading a system of communist states. In response to the rapid growth and changing role of the Federal government following theSecond World War, several studies were conducted to examine the structure and efficiency of theexecutive branch, including the intelligence agencies. (5) Between 1948 and 1949, two importantinvestigations of the national intelligence effort were conducted. The first, the Task Force onNational Security Organization of the First Hoover Commission, was established by a unanimousvote in Congress. The second, known as the Dulles-Jackson-Correa Report, was initiated by theNSC at the request of President Harry S. Truman. The First Hoover Commission, 1949 The Commission on Organization of the Executive Branch of the government was established pursuant to P.L. 80-162 of July 27, 1947. (6) Underthe chairmanship of former President HerbertHoover, the twelve member bipartisan commission conducted a comprehensive review of the federalbureaucracy, including the intelligence agencies. The commission's Task Force on National SecurityOrganization was headed by Ferdinand Eberstadt, a strong advocate of a centralized intelligencecapability who had been instrumental in drafting the National Security Act of 1947. (7) Hearings conducted by the task force began in June 1948. On January 13, 1949, the Hoover Commission submitted the task force's 121 page unclassified report to Congress. (8) Known as theEberstadt Report, it found the "National Security Organization, established by the National SecurityAct of 1947, [to be] soundly constructed, but not yet working well." (9) The report identifiedfundamental organizational and qualitative shortcomings in the national intelligence effort and thenewly created CIA. A principal concern of the task force was the adversarial relationship and lack of coordination between the CIA, the military, and the State Department. It suggested that this resulted inunnecessary duplication and the issuance of departmental intelligence estimates that "have oftenbeen subjective and biased." (10) In large measure,the military and State Department were blamed fortheir failure to consult and share pertinent information with the CIA. The task force recommended"that positive efforts be made to foster relations of mutual confidence between the [CIA] and theseveral departments and agencies that it serves." (11) In short, the report stressed that the CIA "must be the central organization of the nationalintelligence system." (12) To facilitate communitycoordination in the production of national estimates,a founding intent of CIA, the task force recommended the creation within CIA "at the top echelonan evaluation board or section composed of competent and experienced personnel who would haveno administrative responsibilities and whose duties would be confined solely to intelligenceevaluation." (13) To foster professionalism andcontinuity of service, the report also favored a civilianDCI with a long term in office. (14) In the arena of covert operations and clandestine intelligence, the Eberstadt Report supported the integration of all clandestine operations into one office within CIA, under NSC supervision. Toalleviate concerns expressed by the military who viewed this proposal as encroaching upon theirprerogatives, the report stated that clandestine operations should be the responsibility of the JointChiefs of Staff (JCS) in time of war. (15) In examining the daily workings of the CIA, the task force found the agency's internal structure and personnel system "not now properly organized." (16) This led to recommendations for the adoptionof clearer lines of departmental responsibilities, and the establishment of proper personnel selectionand training systems. (17) In response to legislativeconcerns regarding intelligence budgets, the reportsupported establishing a legal framework for budgetary procedures and authorities, and inmaintaining the secrecy of the CIA budget in order to provide the "administrative flexibility andanonymity that are essential to satisfactory intelligence." (18) The report also addressed, and rejected,the possibility of placing the FBI's counterintelligence responsibilities in the CIA. (19) Of particular concern was the level of professionalism in military intelligence, and the glaring inadequacies of medical and scientific intelligence, including biological and chemical warfare,electronics, aerodynamics, guided missiles, atomic weapons, and nuclear energy. (20) The reportdeclared that the failure to appraise scientific advances in hostile countries (i.e., the Soviet Union)might have more immediate and catastrophic consequences than failure in any other field ofintelligence. Accordingly, the report stressed that the U.S. should establish a central authority "tocollect, collate, and evaluate scientific and medical intelligence." (21) Intelligence Survey Group (Dulles-Jackson-Correa Report), 1949 On January 8, 1948, the National Security Council established the Intelligence Survey Group (ISG) to "evaluate the CIA's effort and its relationship with other agencies." (22) Commissioned at therequest of President Truman, the group was composed of Allen W. Dulles, who had served in theOffice of Strategic Services (OSS) during the Second World War and would become DCI in 1953,William Jackson, a future Deputy DCI, and Matthias Correa, a former assistant to Secretary ofDefense James V. Forrestal when the latter had served as Secretary of the Navy during the war. Under the chairmanship of Dulles, the ISG presented its findings, known as theDulles-Jackson-Correa Report, to the National Security Council on January 1, 1949. The 193-page report, partially declassified in 1976, contained fifty-six recommendations, manyhighly critical of the CIA and DCI. (23) In particular,the report revealed problems in the agency'sexecution of both its intelligence and operational missions. It also criticized the quality of nationalintelligence estimates by highlighting the CIA's -- and, by implication, the DCI's -- "failure to takecharge of the production of coordinated national estimates." (24) The report went on to argue that theCIA's current trend in secret intelligence activities should be reversed in favor of its mandated roleas coordinator of intelligence. (25) The Dulles Report was particularly concerned about the personnel situation at CIA, including internal security, the high turnover of employees, and the excessive number of military personnelassigned to the agency. (26) To add "continuity ofservice" and the "greatest assurance of independenceof action," the report argued that the DCI should be a civilian and that military appointees berequired to resign their commissions. (27) As with the Eberstadt Report, the Dulles Report also expressed concern about the inadequacies in scientific intelligence and the professionalism of the service intelligence organizations, and urgedthat the CIA provide greater coordination. (28) Thisled to a recommendation for increased coordinationbetween the DCI and the Director of the Federal Bureau of Investigation (FBI) in the arena ofcounterespionage. In turn, the report recommended that the Director of FBI be elevated tomembership in the Intelligence Advisory Committee (IAC), whose function was to help the DCIcoordinate intelligence and set intelligence requirements. (29) The principal thrust of the report was a proposed large-scale reorganization of the CIA to endoverlapping and duplication of functions. Similar to the Eberstadt Report, the Dulles studysuggested incorporating covert operations and clandestine intelligence into one office within CIA. In particular, the report recommended that the Office of Special Operations (OSO), responsible forthe clandestine collection of intelligence, and the Office of Policy Coordination (OPC), responsiblefor covert actions, be integrated into a single division within CIA. (30) Accordingly, the report recommended replacing existing offices with four new divisions for coordination, estimates, research and reports, and operations. The heads of the new offices wouldbe included in the immediate staff of the DCI so that he would have "intimate contact with theday-to-day operations of his agency and be able to give policy guidance to them." (31) Theserecommendations would become the blueprint for the future organization and operation of thepresent-day CIA. Summary of the Truman Administration Intelligence Investigations The Task Force on National Security Organization was almost immediately eclipsed by the Dulles-Jackson-Correa Report, that found a sympathetic ear in the White House. On July 7, 1949,the NSC adopted a modified version of the Dulles Report, and directed DCI Roscoe H. Hillenkoetterto begin implementing its recommendations, including the establishment of a single operationsdivision at CIA. In 1953, the OSO and OPC were merged within the CIA to form the Directorateof Plans (DP). (DP was designated the Directorate of Operations (DO) in 1973.) Although the Eberstadt Report was not as widely read among policymakers as the Dulles study, it did play a principal role in reorganization efforts initiated by DCI Walter Bedell Smith in 1950. The two reports, and the lessons learned from fall of China to the Communists and the unexpectedNorth Korean invasion of South Korea in June 1950, prompted Smith to create an intelligenceevaluation board called the Board of National Estimates (BNE). Designed to review and produceNational Intelligence Estimates (NIEs), the BNE was assisted by an Office of National Estimates(ONE) that drew upon the resources of the entire community. (32) The Eisenhower Administration, 1953-1961 The Eisenhower Administration witnessed the Soviet Union solidify its hold over Eastern Europe, crushing the Hungarian revolution, and the rise of Communist insurgencies in SoutheastAsia and Africa. This was a period in which extensive covert psychological, political, andparamilitary operations were initiated in the context of the threat posed by Soviet-led Communistexpansion. However, between 1948, when a covert action program was first authorized throughNSC Directive 10/2, and 1955 there was no formally established procedure for approval. Between 1954 and 1956, this prompted three investigations into U.S. intelligence activities, including the CIA. The first, the Task Force on Intelligence Activities of the Second HooverCommission on Organization of the Executive Branch of the Government, was sponsored byCongress. The second, the Doolittle Report, was commissioned at the request of President DwightD. Eisenhower in response to the Second Hoover Commission. The third, the Bruce-Lovett Reportwas initiated by the President's Board of Consultants on Foreign Intelligence Activities (PBCFIA),and reported to President Eisenhower. Second Hoover Commission, 1955 The Commission on Organization of the Executive Branch of the Government, also chaired by former President Hoover, was created pursuant to P.L. 83-108 of July 10, 1953. Known as theSecond Hoover Commission, it contained a Task Force on Intelligence Activities under thechairmanship of General Mark W. Clark. In May 1955, the task force submitted both classified andunclassified reports. The classified version was sent directly to President Eisenhower, and has notbeen declassified according to available information. The unclassified version was sent to Congress. The unclassified report's seventy-six pages contained nine recommendations and briefly described the evolution of the Intelligence Community and its then-current functioning. The reportinitiated the official use of the term "Intelligence Community." (33) Until that time, the U.S. had soughtto apply increasing coordination to departmental intelligence efforts, without the concept of a"community" of departments and agencies. The task force began by expressing the need to reform the CIA's internal organization, including the recommendation that the DCI concentrate on intelligence issues facing the entirecommunity by leaving the day-to-day administration of the CIA to an executive officer or chief ofstaff. (34) It foresaw the need for better oversightof intelligence activities and proposed a small,permanent, bipartisan commission, including Members of Congress and other "public-spiritedcitizens," to provide independent oversight of intelligence activities that were normally kept secretfrom other parts of the government. (35) The fullcommission's report elaborated on this byrecommending the establishment of both a congressional oversight committee and a presidentialadvisory panel. The task force also expressed concern about counterintelligence and recommended systematic rechecking of all personnel every five years "to make sure that the passage of time has not alteredthe trustworthiness of any employee, and to make certain that none has succumbed to some weaknessof intoxicants or sexual perversion." (36) In addition, the task force recommended that the CIA replace the State Department in the "procurement of foreign publications and for collection of scientific intelligence." (37) Finally, therewere a number of "housekeeping" recommendations such as the need to construct an adequate CIAheadquarters, to improve linguistic training, and to raise the salary of the DCI to $20,000 annually. (38) The Doolittle Report, 1954 In response to the establishment of the Second Hoover Commission's Task Force on Intelligence Activities, President Eisenhower sought and secured an agreement for a separate reportto be presented to him personally on the CIA's Directorate of Plans, that now had responsibility forboth clandestine intelligence collection and covert operations. Accordingly, in July 1954,Eisenhower commissioned Lieutenant General James Doolittle (USAF) to report on the CIA's covertactivities and to "make any recommendations calculated to improve the conduct of theseoperations." (39) On September 30, 1954, Doolittle submitted his 69-page classified report directly to Eisenhower. Declassified in 1976, the Doolittle Report contained forty-two recommendations. Thereport began by summarizing contemporary American Cold War attitudes following the Korean War: It is now clear that we are facing an implacable enemy whose avowed objective is world domination by whatever means and at whatever cost. There are norules in such a game...If the United States is to survive, long-standing American concepts of "fairplay" must be reconsidered. We must develop effective espionage and counterespionage services andmust learn to subvert, sabotage and destroy our enemies by more clever, more sophisticated andmore effective methods than those used against us. It may become necessary that the Americanpeople be made acquainted with, understand and support this fundamentally repugnantphilosophy. (40) The report went on to recommend that "every possible scientific and technical approach to the intelligence problem" be explored since the closed society of the Eastern Bloc made humanespionage "prohibitive" in terms of "dollars and human lives." (41) In examining the CIA, Doolittle found it to be properly placed in the organization of the government. Furthermore, the report found the laws relating to the CIA's functions were sufficientfor the agency to meet its operational needs, i.e. penetration of the Soviet Bloc. (42) The report wenton to issue several recommendations calling for more efficient internal administration, includingrecruitment and training procedures, background checks of personnel, and the need to "correct thenatural tendency to over classify documents originating in the agency." (43) It also called for increasedcooperation between the clandestine and analytical sides of the agency, and recommended that the"Inspector General ... operate on an Agency-wide basis with authority and responsibility toinvestigate and report on all activities of the Agency." (44) Finally, the report mentioned the need toprovide CIA with accommodations tailored to its specific needs, and to exercise better control(accountability) of expenditures in covert projects. Shortly after submitting the written report, General Doolittle voiced his concern to President Eisenhower over the potential difficulties that could arise from the fact that the DCI, Allen Dulles,and the Secretary of State, John Foster Dulles, were brothers and might implement policies withoutadequate consultation with other administration officials. (45) Bruce-Lovett Report, 1956 In 1956, PBCFIA's chairman, James Killian, president of the Massachusetts Institute of Technology, directed David Bruce, a widely experienced diplomat, and Robert Lovett, a prominentattorney, to prepare a report for President Eisenhower on the CIA's covert action programs asimplemented by NSC Directive 10/2. The report itself has not been located by either the CIA'sCenter for the Study of Intelligence or by private researchers. Presumably, it remains classified. However, Peter Grose, biographer of Allen Dulles, was able to use notes of the report prepared yearsearlier by historian Arthur M. Schlesinger, Jr. (46) According to Grose's account of the Schlesinger notes, the report criticized the CIA for beingtoo heavily involved in Third-World intrigues while neglecting the collection of hard intelligenceon the Soviet Union. Reportedly, Bruce and Lovett went on to express concern about the lack ofcoordination and accountability of the government's psychological and political warfare program. Stating that "no charge is made for failure," the report claimed that "No one, other than those in CIAimmediately concerned with their day-to-day operation, has any detailed knowledge of what is goingon." (47) These operations, asserted Bruce andLovett, were in the hands of a "horde of CIArepresentatives (largely under State or Defense cover),...bright, highly graded young men who mustbe doing something all the time to justify their reason for being." (48) As had Doolittle, Bruce and Lovett criticized the close relationship between Secretary of State John Foster Dulles and his brother DCI Allen W. Dulles. Due to the unique position of each brother,the report apparently expressed concern that they could unduly influence U.S. foreign policyaccording to their own perceptions. (49) The report concluded by suggesting that the U.S. reassess its approach to covert action programs, and that a permanent authoritative position be created to assess the viability and impactof covert action programs. (50) Summary of the Eisenhower Administration Intelligence Investigations As a result of the Second Hoover Commission's Report and General Doolittle's findings, two new NSC Directives, 5412/1 and 5412/2, were issued pertaining to covert activities in March andNovember 1955, respectively. Together, these directives instituted control procedures for covertaction and clandestine activities. They remained in effect until 1970, providing basic policyguidelines for the CIA's covert action operations. In 1956, in response to the Clark Task Force, and to preempt closer congressional scrutiny of intelligence gathering, President Eisenhower created the President's Board of Consultants on ForeignIntelligence Activities (PBCFIA) to conduct independent evaluations of the U.S. intelligenceprogram. PBCFIA became the President's Foreign Intelligence Advisory Board (PFIAB) in 1961. Permanent intelligence oversight committees were not established in Congress until the mid-1970s. When the Bruce-Lovett Report was first issued in the autumn of 1956, its immediate impact was muted due to the contemporaneous Suez Canal crisis and the Soviet invasion of Hungary. However, it did establish a precedent for future PBCFIA investigations into intelligence activities. The Kennedy Administration, 1961-1963 In the 1950s, the Eisenhower Administration had supported covert CIA initiatives in Iran (1953) and Guatemala (1954) to overthrow governments unfriendly to the United States. These operationswere planned to provide the United States with a reasonable degree of plausible deniability. Duringthe last Eisenhower years, revolution in Cuba resulted in a Communist government under FidelCastro. In the context of the Cold War, a communist Cuba appeared to justify covert U.S. action tosecure a change in that nation's government. In April 1961 an ill-fated U.S. backed invasion of Cubaled to a new chapter in the history of the Intelligence Community. On April 17, 1961, some 1,400 Cuban exiles of the Cuban Expeditionary Force (CEF), trained and supported by the CIA, landed at the Bay of Pigs in Cuba with the hope of overthrowing thecommunist regime of Fidel Castro. Known as Operation Zapata, the invasion was a completedisaster. Over the first two days, Castro succeeded in defeating the invasion force and exposingdirect U.S. involvement. The fiasco led to two official examinations of U.S. involvement and conduct in Operation Zapata. The first, the Taylor Commission, was initiated by President John F. Kennedy in an attemptto ascertain the overall cause of the operation's failure. The second, the Kirkpatrick Report, was aninternal CIA investigation to determine what had been done wrong. The Taylor Commission On April 22, President Kennedy asked General Maxwell Taylor, former Army Chief of Staff, to chair a high-level body composed of Attorney General Robert Kennedy, former Chief of NavalOperations Admiral Arleigh Burke, and DCI Allen Dulles to ascertain the reasons for the invasion'sfailure. Known as the Taylor Commission, the study group's 53-page classified report wassubmitted to President Kennedy on June 13, 1961. Declassified in 1977, the report examined the conception, development, and implementation of Operation Zapata. The commission's final report focused on administrative rather thanoperational matters, and evenly leveled criticism at the White House, the CIA, the State Department,and the Joint Chiefs of Staff. (51) The report found that the CIA, at White House direction, had organized and trained Cuban exiles to enter Cuba, foment anti-Castro sentiment, and ultimately overthrow the Cuban government. Originally intended by the Eisenhower Administration as a guerrilla operation, Zapata was supposedto operate within the parameters of NSC Directive 5412/2, that called in part for plausible U.S.deniability. However, in the Kennedy Administration, the operation grew in size and scope toinclude a full-scale military invasion involving "sheep-dipped" B-26 bombers, supply ships andlanding craft. (52) The report found that "themagnitude of Zapata could not be prepared and conductedin such a way that all U.S. support of it and connection with it could be plausibly disclaimed." (53) In large measure, the report blamed the operation's planners at the CIA's Directorate of Plans for not keeping the President fully informed as to the exact nature of the operation. However, thereport also criticized the State Department, JCS, and the White House for acquiescing in the ZapataPlan, that "gave the impression to others of approving it" and for reviewing "successive changes ofthe plan piecemeal and only within a limited context, a procedure that was inadequate for a properexamination of all the military ramifications." (54) The Taylor Commission found the operation to be ill-conceived with little chance for ultimate success. Once underway, however, the report cited President Kennedy's decision to limit overt U.S.air support as a factor in the CEF's defeat. (55) Thisdecision was apparently reached in order to protectthe covert character of the operation. The report criticized this decision by stating that when anoperation had been approved, "restrictions designed to protect its covert character should have beenaccepted only if they did not impair the chance of success." (56) The failure in communication, breakdown in coordination, and lack of overall planning led the Taylor Commission to conclude that: The Executive Branch of government was not organizationally prepared to cope with this kind of paramilitary operation. There was no singleauthority short of the President capable of coordinating the actions of CIA, State, Defense and USIA[U.S. Information Agency]. Top level direction was given through ad hoc meetings of seniorofficials without consideration of operational plans in writing and with no arrangement for recordingconclusions reached. (57) The lessons of Operation Zapata led the report to recommend six courses of action in the fields of planning, coordination, effectiveness, and responsibility in overall Cold War strategy. The reportrecommended the creation of a Strategic Resources Group (SRG) composed of representatives ofunder-secretarial rank from the CIA and the Departments of State and Defense. With direct accessto the President, the SRG would act as a mechanism for the planning and coordination of overallCold War strategy, including paramilitary operations. The report recommended including theopinions of the JCS in the planning and implementation of such paramilitary operations. In thecontext of the Cold War, the report also recommended a review of restraints placed upon the UnitedStates in order to make the most effective use of the nation's assets, without concern for internationalpopularity. The report concluded by reaffirming America's commitment to forcing Castro frompower. (58) The Kirkpatrick Report Concurrent with the Taylor Commission, DCI Dulles instructed the CIA's Inspector General, Lyman B. Kirkpatrick, Jr., to conduct an internal investigation to determine what the CIA had donewrong in the Cuban operation. Completed in five months, the report was viewed by the few withinCIA who read it as professionally shabby. (59) Whereas the Taylor Report had more of the detachedperspective of a management-consultant, the Kirkpatrick Report was viewed as a personal attackagainst the CIA and DCI Dulles. The 170-page report remains classified. However, in 1972, Kirkpatrick published an article in the Naval War College Review that apparently reflected the findings of his report. (60) In particular,Kirkpatrick criticized the Zapata planners at the Directorate of Plans for not having fully consultedthe CIA's Cuban analysts before the invasion. The article also criticized the operation's internalsecurity, that Kirkpatrick claimed was virtually nonexistent. Calling the operation frenzied,Kirkpatrick accused the CIA of "playing it by ear" and misleading the President by failing to informhim that "success had become dubious." (61) InKirkpatrick's view, the CIA bore most of the blame,and the Kennedy Administration could be forgiven for having trusted the advice of the operation'splanners at the Agency. Summary of the Kennedy Administration Intelligence Investigations On May 4, 1961, following the Bay of Pigs, President Kennedy reconstituted the PBCFIA as the President's Foreign Intelligence Advisory Board (PFIAB). Although little is known of theKirkpatrick Report's impact, the Taylor Report influenced Kennedy's desire to improve the overallmanagement of the intelligence process. In 1962, this prompted the President to instruct the newDCI, John McCone, to concentrate on his community-wide coordination role: As [DCI], while you will continue to have overall responsibility for the Agency, I shall expect you to delegate to your principal deputy, as you maydeem necessary, so much of the detailed operation of the Agency as may be required to permit youto carry out your primary task as [DCI]. (62) The Johnson Administration, 1963-1969 No major investigations of the Intelligence Community were conducted under President Lyndon B. Johnson. In large measure, this was due to America's growing preoccupation with the Vietnamconflict and the strain that this placed on the community's resources. The only major investigationduring the Johnson Administration was the Warren Commission on the assassination of PresidentKennedy. Former DCI Allen Dulles served on the commission. The Nixon Administration, 1969-1974 During the Vietnam War, the Intelligence Community devoted enormous attention in both manpower and resources towards achieving U.S. policy objectives in Southeast Asia. As the U.S.effort in Vietnam and Laos wound down, and attention turned towards strategic weapons concernswith the Soviet Union, some members of the Nixon Administration believed that the community wasperforming less than adequately. In 1970, President Richard M. Nixon and National SecurityAdvisor Henry A. Kissinger undertook a review of the Intelligence Community's organization. The Schlesinger Report, 1971 In December 1970, President Nixon commissioned the Office of Management and Budget (OMB) to examine the Intelligence Community's organization and recommend improvements, shortof legislation. In March 1971, the report, "A Review of the Intelligence Community," was submittedby Deputy OMB Director James R. Schlesinger, a future DCI. Known as the Schlesinger Report, the study's forty-seven pages noted the community's "impressive rise in...size and cost" with the "apparent inability to achieve a commensurateimprovement in the scope and overall quality of intelligence products." (63) The report sought touncover the causes of this problem and identify areas in which constructive change could take place. In examining the Intelligence Community, Schlesinger criticized "unproductively duplicative" collection systems and the failure in forward planning to coordinate the allocation of resources. (64) In part, the report cited the failure of policymakers to specify their product needs to the intelligenceproducers. (65) However, the report identified theprimary cause of these problems as the lack of astrong, central Intelligence Community leadership that could "consider the relationship between costand substantive output from a national perspective." (66) Schlesinger found that this had engendereda fragmented, departmental intelligence effort. To correct these problems, Schlesinger considered the creation of a Director of National Intelligence (DNI), enhancing the DCI's authority, and establishing a Coordinator of NationalIntelligence (CNI) who would act as the White House-level overseer of the Intelligence Communityto provide more direct representation of presidential interest in intelligence issues. (67) In the end, thereport recommended "a strong DCI who could bring intelligence costs under control and intelligenceproduction to an adequate level of quality and responsiveness." (68) Summary of the Nixon Administration Intelligence Investigation The Schlesinger Report led to a limited reorganization of the Intelligence Community under a Presidential directive dated November 5, 1971. In part, the directive called for: An enhanced leadership role for the [DCI] in planning, reviewing, and evaluating all intelligence programs and activities, and in the production of nationalintelligence. (69) Consequently, two boards were established to assist the DCI in preparing a consolidated intelligence budget and to supervise community-wide intelligence production. The first, was theill-fated Intelligence Resources Advisory Committee (IRAC), that replaced the National IntelligenceResources Board (NIRB) established in 1968 under DCI Richard Helms. The IRAC was designedto advise the DCI on the preparation of a consolidated budget for the community's intelligenceprograms. However, IRAC was not afforded the statutory authority necessary to bring theintelligence budget firmly under DCI control. The second, and the only long lasting result of theNixon directive, was the establishment of the Intelligence Community Staff (ICS) in 1972. Createdby DCI Helms, the ICS was meant to assist the DCI in guiding the community's collection andproduction of intelligence. However, the ICS did not provide the DCI with the statutory basisnecessary for an expanded community-wide role. (70) In 1992, DCI Robert Gates replaced the ICS withthe Community Management Staff (CMS). The Era of Public Investigations, 1974-1981 In the late 1940s and throughout the 1950s, there had been widespread public agreement on the need for an effective national security structure to confront Soviet-led Communist expansion. However, by the late 1960s, the war in Vietnam had begun to erode public consensus and supportfor U.S. foreign policy. The controversy surrounding the Watergate Investigations after 1972, andsubsequent revelations of questionable CIA activities involving domestic surveillance, provided abackdrop for increasing scrutiny of government policies, particularly in such fields as nationalsecurity and intelligence. Between 1975 and 1976, this led the Ford Administration and Congress to conduct three separate investigations that examined the propriety of intelligence operations, assessed the adequacyof intelligence organizations and functions, and recommended corrective measures. A fourth panel,convened earlier to look more broadly at foreign policy, also submitted recommendations forintelligence reform. Murphy Commission (Commission on the Organization of the Government for theConduct of Foreign Policy), 1975 The Commission on the Organization of the Government for the Conduct of Foreign Policy, created pursuant to the Foreign Relations Authorization Act for FY1973 (P.L. 92-352) of July 13,1972, was headed by former Deputy Secretary of State Robert D. Murphy. It looked at nationalsecurity formulation and implementation processes rather than the government as a whole. As such,the Murphy Commission was more focused than either of the two Hoover Commissions and devotedgreater attention to intelligence issues. Although it made reference to the need to correct "occasionalfailures to observe those standards of conduct that should distinguish the behavior of agencies of theU.S. Government," (71) the commission's approachwas marked by an emphasis of the value ofintelligence to national security policymaking and was, on the whole, supportive of the IntelligenceCommunity. Many of the Murphy Commission's recommendations addressed problems that have continued to concern successive intelligence managers. The commission noted the fundamental difficulty thatDCIs have line authority over the CIA but "only limited influence" over other intelligence agencies. (72) Unlike other observers, the Murphy Commission did not believe that this situation should bechanged fundamentally: "[It] is neither possible nor desirable to give the DCI line authority over thatvery large fraction of the intelligence community that lies outside the CIA." At the same time, itrecommended that the DCI have an office in close proximity to the White House and be accordedregular and direct contact with the President. The commission envisioned a DCI delegatingconsiderable authority for managing the CIA to a deputy while he devoted more time tocommunity-wide responsibilities. The commission also recommended that the DCI's title bechanged to Director of Foreign Intelligence. (73) The commission provided for other oversight mechanisms, viz., a strengthened PFIAB and more extensive review (prior to their initiation and on a continuing basis thereafter) of covert actions bya high-level interagency committee. It argued that although Congress should be notified of covertactions, the President should not sign such notifications since it is harmful to associate "the head ofState so formally with such activities. (74) " It wasfurther recommended that intelligence requirementsand capabilities be established at the NSC-level to remedy a situation in which "the work of theintelligence community becomes largely responsive to its own perceptions of what is important, andirrelevant information is collected, sometimes drowning out the important. (75) " It also recommendedthat this process be formalized in an officially approved five-year plan. A consolidated foreignintelligence budget should also be prepared, approved by an inter-agency committee and OMB andsubmitted to Congress. Although the importance of economic intelligence was recognized, the commission did not see a need for intelligence agencies to seek to expand in this area; rather, it suggested that the analyticalcapabilities of the Departments of State, Treasury, Commerce, Agriculture, and the Council ofEconomic Advisers should be significantly strengthened. The commission noted the replacement of the Board of National Estimates by some eleven National Intelligence Officers (NIOs) who were to draw upon analysts in various agencies to draftNational Intelligence Estimates (NIEs). This practice was criticized because it laid excessiveburdens on chosen analysts and because NIEs had in recent years been largely ignored by seniorofficials (presumably Secretary of State Kissinger) who made their own assessments of futuredevelopments based on competing sources of information and analysis. Thus, the commissionrecommended a small staff of analysts from various agencies assigned to work with NIOs in draftingNIEs and ensure that differences of view were clearly presented for the policymakers. Rockefeller Commission (Commission on CIA Activities within the United States),1975 Prior to the mid-1960s, the organization and activities of the Intelligence Community were primarily the concern of specialists in national security and governmental organization. The MurphyCommission, although working during a subsequent and more politically turbulent period, hadapproached intelligence reorganization from this perspective as well. The political terrain had,however, been shifting dramatically and the Intelligence Community would not escape searchingcriticism. During the era of the Vietnam War and Watergate, disputes over national security policyfocused attention on intelligence activities. In 1975, media accounts of alleged intelligence abuses,some stretching back over decades led to a series of highly publicized congressional hearings. Revelations of assassination plots and other alleged abuses spurred three separate investigations and sets of recommendations. The first was undertaken within the Executive Branch and was headedby Vice President Nelson A. Rockefeller. Other investigations were conducted by select committeesin both houses of Congress. The Senate effort was led by Senator Frank Church and the Housecommittee was chaired by Representative Otis Pike. These investigations led to the creation of thetwo permanent intelligence committees and much closer oversight by the Congress. In addition, theyalso produced a number of recommendations for reorganization and realignment within theIntelligence Community. Established by Executive Order 11828 on January 4, 1975, the Commission on CIA Activities within the United States was chaired by Vice President Rockefeller and included seven othersappointed by President Ford (including then-former Governor Ronald Reagan). The commission'smandate was to investigate whether the CIA had violated provisions of the National Security Act of1947, precluding the CIA from exercising internal security functions. The Rockefeller Commission's 30 recommendations (76) included a number of proposals designedto delimit CIA's authority to collect foreign intelligence within the United States (from "willingsources") and proscribe collection of information about the domestic activities of U.S. citizens, tostrengthen PFIAB, to establish a congressional joint intelligence committee, and to establishguidelines for cooperation with the Justice Department regarding the prosecution of criminalviolations by CIA employees. There was another recommendation to consider the question ofwhether the CIA budget should be made public, if not in full at least in part. The commission recommended that consideration should be given to appointing DCIs from outside the career service of the CIA and that no DCI serve longer than 10 years. Two deputiesshould be appointed; one to serve as an administrative officer to free the DCI from day-to-daymanagement duties; the other a military officer to foster relations with the military and providetechnical expertise on military intelligence requirements. The CIA position of Inspector General should be upgraded and his responsibilities expanded along with those of the General Counsel. Guidelines should be developed to advise agencypersonnel as to what activities are permitted and what are forbidden by law and executive orders. The President should instruct the DCI that domestic mail openings should not be undertaken except in time of war and that mail cover operations (examining and copying of envelopes only) areto be undertaken only on a limited basis "clearly involving matters of national security." The commission was specifically concerned with CIA infiltration of domestic organizations and submitted a number of recommendations in this area. Presidents should refrain from directing theCIA to perform what are essentially internal security tasks and the CIA should resist any effort toinvolve itself in improper activities. The CIA "should guard against allowing any component ... tobecome so self-contained and isolated from top leadership that regular supervision and review arelost." Files of previous improper investigations should be destroyed. The agency should notinfiltrate American organizations without a written determination by the DCI that there is a threatto agency operations, facilities, or personnel that cannot be met by law enforcement agencies. Otherrecommendations were directed at CIA investigations of its personnel or former personnel, includingprovisions relating to physical surveillance, wire or oral communications, and access to income taxinformation. As a result of efforts by some White House staff during the Nixon Administration to use CIA resources improperly, a number of recommendations dealt with the need to establish appropriatechannels between the agency and the Executive Office of the President. Reacting to evidence that drugs had been tested on unsuspecting persons, the commission recommended that the practice should not be renewed. Also, equipment for monitoringcommunications should not be tested on unsuspecting persons within the United States. Anindependent agency should be established to oversee civilian uses of aerial photography to avoid anyconcerns over the improper domestic use of a CIA-developed system. Concerned with distinguishing the separate responsibilities of the CIA and the Federal Bureau of Investigation (FBI), the commission urged that the DCI and the Director of the FBI prepare andsubmit to the National Security Council a detailed agreement setting forth the jurisdictions of eachagency and providing for effective liaison between them. The commission also recommended that all intelligence agencies review their holdings of classified information and declassify as much as possible. Church Committee (Senate Select Committee to Study Governmental Operations withRespect to Intelligence Activities), 1976 Established in the wake of sensational revelations about assassination plots organized by the CIA, the Church Committee had a much wider mandate than the Rockefeller Commission, extendingbeyond the CIA to all intelligence agencies. (77) Ittoo, however, concentrated on illegalities andimproprieties rather than organizational or managerial questions per se . After extensive and highlypublicized hearings, the committee made some 183 recommendations in its final report, issued April26, 1976. (78) The principal recommendation was that omnibus legislation be enacted to set forth the basic purposes of national intelligence activities and defining the relationship between intelligenceactivities and the Congress. Criticizing vagueness in the National Security Act of 1947, thecommittee urged charters for the several intelligence agencies to set forth general organizationalstructures and procedures, and delineate roles and responsibilities. There should also be specific andclearly defined prohibitions or limitations on intelligence activities. The effort to pass suchlegislation would consume considerable attention over a number of years, following the completionof the work of the Church Committee. A number of recommendations reflected the committee's views on the appropriate role of the National Security Council in directing and monitoring the work of the intelligence agencies. Theapparent goal was to encourage a more formal process, with accountability assigned to cabinet-levelofficials. The committee concluded that covert actions should be conducted only upon presidentialauthorization with notification to appropriate congressional committees. Attention was given to the role of the DCI within the entire Intelligence Community. The committee recommended that the DCI be recognized by statute as the President's principal foreignintelligence advisor and that he should be responsible for establishing national intelligencerequirements, preparing the national intelligence budget, and for providing guidance for intelligenceoperations. The DCI should have specific responsibility for choosing among the programs of the different collection and production agencies and departments and to insure against waste and unnecessaryduplication. The DCI should also have responsibility for issuing fiscal guidance for the allocationof all national intelligence resources. The authority of the DCI to reprogram funds within theintelligence budget should be defined by statute. (79) Monies for the national intelligence budget would be appropriated to the DCI rather than to the directors of the various agencies. The committee also recommended that the DCI be authorized toestablish an intelligence community staff to assist him in carrying out his managerial responsibilities.The staff should be drawn "from the best available talent within and outside the intelligencecommunity." (80) Further, the position of DeputyDCI for the Intelligence Community should beestablished by statute (in addition to the existing DDCI who would have responsibility primarily forthe CIA itself). It also urged consideration of separating the DCI from direct responsibility over theCIA. The DCI, it was urged, should serve at the pleasure of the President, but for no more than ten years. The committee also looked at intelligence analysis. It recommended a more flexible and less hierarchical personnel system with more established analysts being brought in at middle and uppergrades. Senior positions should be established on the basis of analytical ability rather thanadministrative responsibilities. Analysts should be encouraged to accept temporary assignments atother agencies or on the NSC staff to give them an appreciation for policymakers' use of intelligenceinformation. A system should be in place to ensure that analysts are more promptly informed aboutU.S. policies and programs affecting their areas of responsibility. In addressing covert actions, the committee recommended barring political assassinations, efforts to subvert democratic governments, and support for police and other internal security forcesengaged in systematic violations of human rights. The committee addressed the questions of separating CIA's analysis and production functions from clandestine collection and covert action functions. It listed the pros and cons of this approach,but ultimately recommended only that the intelligence committees should give it consideration. Reflecting concerns about abuses of the rights of U.S. citizens, the committee made a series of recommendations regarding CIA involvement with the academic community, members of religiousorganizations, journalists, recipients of government grants, and the covert use of books andpublishing houses. A particular concern was limiting any influence on domestic politics of materialspublished by the CIA overseas. Attention was also given to proprietary organizations CIA createsto conduct operations abroad; the committee believed them necessary, but advocated stricterregulation and congressional oversight. The committee recommended enhanced positions for CIA's Inspector General (IG) and General Counsel (GC), urging that the latter be made a presidential appointee requiring Senate confirmation. In looking at intelligence agencies other than the CIA, the committee recommended that the Defense Intelligence Agency (DIA) be made part of the civilian Office of the Secretary of Defenseand that a small J-2 staff provide intelligence support to the Joint Chiefs of Staff. It was urged thatthe directors of both DIA and the National Security Agency (NSA) should be appointed by thePresident and confirmed by the Senate. The committee believe that either the director or deputydirector of DIA and of NSA should be civilians. Turning to the State Department, the committeeurged the Administration to issue instructions to implement legislation that authorized ambassadorsto be provided information about activities conducted by intelligence agencies in their assignedcountries. It also stated that State Department efforts to collect foreign political and economicinformation overtly should be improved. Funding for intelligence activities has been included in Defense Department authorization and appropriations legislation since the end of World War II. The Church Commission advocatedmaking public, at least, total amounts and suggested consideration be given as to whether moredetailed information should also be released. The General Accounting Office (GAO) should beempowered to conduct audits at the request of congressional oversight committees. Tests by intelligence agencies on human subjects of drugs or devices that could cause physical or mental harm should not occur except under stringent conditions. The committee made a number of recommendations regarding procedures for granting security clearances and for handling classified information. It also recommended consideration of newlegislative initiatives to deal with other existing problems. Finally, the Committee recommendedthe creation of a registry of all classified executive orders, including NSC directives, with accessprovided to congressional oversight committees. Pike Committee (House Select Committee on Intelligence), 1976 The House Select Committee on Intelligence, chaired by Representative Otis G. Pike, also conducted a wide-ranging survey of intelligence activities. In the conduct of its hearings, the PikeCommittee was far more adversarial to the intelligence agencies than the Senate Committee. Publication of its final report was not authorized by the House, although a version was published ina New York tabloid. The Pike Committee's recommendations, however, were published onFebruary 11, 1976. (81) There were some twentyrecommendations, some dealing with congressionaloversight, with one dealing, anomalously, with the status of the Assistant to the President forNational Security Affairs. The Pike Committee recommended that covert actions not include, except in time of war, any activities involving direct or indirect attempts to assassinate any individual. The prohibition wasextended to all paramilitary operations. A National Security Council subcommittee would reviewall proposals for covert actions and copies of each subcommittee member's comments would beprovided to congressional committees. The committee further recommended that congressionaloversight committees be notified of presidential approval of covert actions within 48 hours. According to the proposal, all covert actions would have to be terminated no later than 12 monthsfrom the date of approval or reconsidered. The committee recommended that specific legislation be enacted to establish NSA and define its role in monitoring communications of Americans and placed under civilian control. The Pike Committee further recommended that all "intelligence related items" be included as intelligence expenditures in the President's budget and that the total sum budgeted for intelligencebe disclosed. The committee recommended that transfers of funds be prohibited between agencies or departments involved in intelligence activities. Reprogramming of funds within agencies would bedependent upon the specific approval of congressional oversight and appropriations committees. The same procedures would be required for expenditures from reserve or contingency funds. The Pike Committee also looked at the role of the DCI. Like many others who have studied the question, it recommended that the DCI should be separate from managing any agency and shouldfocus on coordinating and overseeing the entire intelligence effort with a view towards eliminatingduplication of effort and promoting competition in analysis. It advocated that he should be amember of the National Security Council. Under this proposal the DCI would have a separate staffand would prepare national intelligence estimates and daily briefings for the President. He wouldreceive budget proposals from agencies involved in intelligence activities. (The recommendationsdid not indicate the extent of his authority to approve or disapprove these recommendations.) TheDCI would be charged with coordinating intelligence agencies under his jurisdiction, eliminatingduplication, and evaluating performance and efficiency. The committee recommended that the GAO conduct a full and complete management and financial audit of all intelligence agencies and that the CIA internal audit staff be given completeaccess to CIA financial records. The committee recommended that a permanent foreign operations subcommittee of the NSC, composed of cabinet-rank officials, be established. This subcommittee would have jurisdiction overall authorized activities of intelligence agencies (except those solely related to intelligence gathering)and review all covert actions, clandestine activities, and hazardous collecting activities. It was recommended that DIA be abolished and its functions divided between the Office of the Secretary of Defense and the CIA. The intelligence components of the military services would beprohibited from undertaking covert actions within the U.S. or clandestine activities against U.S.citizens abroad. Relations between intelligence and law enforcement organizations were to be limited. Intelligence agencies would be barred from providing funds to religious or educational institutionsor to those media with general circulation in the United States. The committee recommended that specific legislation be considered to deal with the classification and regular declassification of information. It was also recommended that an Inspector General for Intelligence be nominated by the President and confirmed by the Senate with authority to investigate potential misconduct of anyintelligence agency or personnel. He would make annual reports to the Congress. The committee also made recommendations regarding the organization and operations of the FBI and its role in investigating domestic groups. In an additional recommendation, Representative Les Aspin, a member of the committee, urged that the CIA be divided into two separate agencies, one for analysis and the other for clandestinecollection and covert operations. A similar recommendation was made by Representative RonDellums, who also served on the committee. Clifford and Cline Proposals, 1976 In 1976 hearings by the Senate Committee on Government Operations, Clark Clifford (who had served as President Johnson's final Secretary of Defense and, in an earlier position in the TrumanAdministration, had been involved in legislation creating the CIA) proposed the creation of a postof Director General of Intelligence to serve as the President's chief adviser on intelligence mattersand as principal point of contact with the congressional intelligence committees. There would bea separate director of the CIA whose duties would be restricted to day-to-day operations. (82) In the same year, Ray Cline, a former Deputy Director of the CIA, made a number of recommendations. (83) He recommended that theDCI exert broad supervisory powers over the entireintelligence community and the CIA be divided into two agencies, one to undertake analytical workand the other for clandestine services. He also proposed that the DCI be given cabinet rank, apractice that would find support in both the Reagan and Clinton administrations. Proposed Charter Legislation, 1978-1980 Subsequent to the establishment of permanent intelligence oversight committees in the Senate in 1976 and the House of Representatives in 1977, attention in Congress shifted to consideration ofcharter legislation for intelligence agencies. (84) Itwas envisioned that the charter legislation wouldinclude many of the recommendations made earlier by the Church and Pike Committees. Introducedby Senator Walter Huddleston and Representative Edward Boland, the draft National IntelligenceReorganization and Reform Act of 1978 (S. 2525/H.R. 11245, 95th Congress)would have provided statutory charters to all intelligence agencies and created a Director of NationalIntelligence (DNI) to serve as head of the entire Intelligence Community. Day-to-day leadership ofCIA could be delegated to a deputy at presidential discretion. The draft legislation containednumerous reporting requirements (regarding covert actions in particular) to Congress and anextensive list of banned or restricted activities. The draft legislation of more that 170 pages wasstrongly criticized from all sides in hearings; some arguing that it would legitimize covert actionsinconsistent with American ideals and others suggesting that its complex restrictions would undulyhamper the protection of vital American interests. The bills were never reported out of eitherintelligence committee, although the Foreign Intelligence Surveillance Act of 1978 ( P.L. 95-511 )provided a statutory base for electronic surveillance within the United States. Charter legislation was also introduced in the 96th Congress. It contained many of the provisions introduced in the earlier version, but also loosened freedom of information regulationsfor intelligence agencies and the requirements of the Hughes-Ryan amendments of 1974 requiringthat some eight committees be notified of covert actions. This legislation (S. 2284, 96thCongress) came under even heavier criticism from all sides than its predecessor. It was not reportedby the Senate Intelligence Committee, but other stand-alone legislation did pass and a shorter billreducing the number of committees receiving notification of covert actions -- and "significantanticipated intelligence activities" -- was introduced and eventually became law in October 1980as part of the FY1981 Intelligence Authorization Act ( P.L. 96-450 ). The Executive Branch Response, 1976-1981 Concurrent with, and subsequent to, these legislative initiatives, the Executive Branch, in part to head off further congressional action, implemented some of the more limited recommendationscontained in their respective proposals. Presidents Gerald Ford, Jimmy Carter, and Ronald Reaganeach issued detailed Executive Orders (E.O.) setting guidelines for the organization and managementof the U.S. Intelligence Community. Issued by President Ford on February 18, 1976, prior to the release of the Church and Pike Committee findings, Executive Order 11905 undertook to implement some of the more limitedrecommendations of the Rockefeller and Murphy Commissions. In particular, E.O. 11905 identifiedthe DCI as the President's primary intelligence advisor and the principal spokesman for theIntelligence Community and gave him responsibilities for developing the National ForeignIntelligence Program (NFIP). It also delineated responsibilities of each intelligence agency, providedtwo NSC-level committees for internal review of intelligence operations, and established a separatethree-member Intelligence Oversight Board to review the legality and propriety of intelligenceactivities. It placed restrictions on the physical and electronic surveillance of American citizens byintelligence agencies. (85) On January 24, 1978, President Carter issued Executive Order 12036, that superseded E.O. 11905. (86) Carter's Executive Order sought todefine more clearly the DCI's community-wideauthority in areas relating to the "budget, tasking, intelligence review, coordination anddissemination, and foreign liaison." (87) Inparticular, it formally recognized the establishment of theNational Foreign Intelligence Program budget and the short-lived National Intelligence TaskingCenter (NTIC), that was supposed to assist the DCI in "translating intelligence requirements andpriorities into collection objectives." (88) E.O. 11905also restricted medical experimentation andprohibited political assassinations. President Reagan continued the trend towards enhancing the DCI's community-wide budgetary, tasking, and managerial authority. On December 4, 1981, he issued Executive Order 12333,detailing the roles, responsibilities, missions, and activities of the Intelligence Community. Itsupplanted the previous orders issued by Presidents Ford and Carter. E.O. 12333 remains thegoverning executive branch mandate concerning the managerial structure of the IntelligenceCommunity. E.O. 12333 designates the DCI "as the primary intelligence advisor to the President and NSC on national foreign intelligence." (89) In thiscapacity, the DCI's duties include the implementation ofspecial activities (covert actions), liaison to the nation's foreign intelligence and counterintelligencecomponents, and the overall protection of the community's sources, methods, and analyticalprocedures. (90) It grants the DCI "full responsibilityfor [the] production and dissemination of nationalforeign intelligence," including the authority to task non-CIA intelligence agencies, and the abilityto decide on community tasking conflicts. (91) Theorder also sought to grant the DCI more explicitauthority over the development, implementation, and evaluation of NFIP. (92) To a certain extent, E.O. 12333 represented a relaxation of the restrictions placed upon the community by Carter. Although it maintained the prohibition on assassination, the focus was on"authorizations" rather than "restrictions." "Propriety" was removed as a criterion for approvingoperations. Arguably, the Reagan Administration established a presumption in favor of governmentneeds over individual rights. (93) However, in theabsence of legislation, the DCI continued to lackstatutory authority over all aspects of the Intelligence Community, including budgetary issues. The Turner Proposal, 1985 In 1985, Admiral Stansfield Turner, DCI in the Carter Administration, expressed his views on the need for intelligence reform (94) . In part, Turnerrecommended reducing the emphasis on covertaction and implementing a charter for the Intelligence Community. The most importantrecommendation involved the future of the DCI of which Turner maintained: The two jobs, head of the CIA and head of the Intelligence Community, conflict. One person cannot do justice to both and fulfill the DCI's responsibilities to the President, the Congress, and thepublic as well. (95) Turner went on to propose the separation of the two jobs of DCI and head of the CIA with the creation of a Director of National Intelligence, separate and superior to the CIA. Turner alsorecommended placing less emphasis on the use of covert action than the Reagan Administration. Iran-Contra Investigation, 1987 During highly publicized investigations of the Reagan Administration's covert support to Iran and the Nicaraguan Resistance, the role of the Intelligence Community, the CIA, and DCI Caseywere foci of attention. Much of the involvement of National Security Council staff was undertakenprecisely because legislation had been enacted severely limiting the role of intelligence agencies inCentral America and because efforts to free the hostages through cooperation with Iranian officialshad been strongly opposed by CIA officials. The executive branch's review, chaired by formerSenator John Tower, expressed concern that precise procedures be established for restrictedconsideration of covert actions and that NSC policy officials had been too closely involved in thepreparation of intelligence estimates. (96) Theinvestigation of the affair by two congressional selectcommittees resulted in a number of recommendations for changes in laws and regulations governingintelligence activities. Specifically the majority report of the two congressional select committees that investigated the affair made a number of recommendations regarding presidential findings concerning the need toinitiative covert actions. Findings should be made prior to the initiation of a covert action, theyshould be in writing, and they should be made known to appropriate Members of Congress in noevent later than forty-eight hours after approval. Further, the majority of the committees urged thatfindings be far more specific than some had been in the Reagan Administration. Statutory inspectorgeneral and general counsels, confirmed by the Senate, for the CIA were also recommended. (97) Minority members of the two committees made several recommendations regarding congressionaloversight, urging that on extremely sensitive matters that notifications of covert actions be made toonly four Members of Congress instead of the existing requirement for eight to be notified. (98) These recommendations were subsequently considered by the two intelligence committees. A number of provisions was enacted dealing with covert action findings in the IntelligenceAuthorization Act for FY1991 ( P.L. 102-88 ). Boren-McCurdy, 1992 A major legislative initiative, reflecting the changed situation of the post-Cold War world, began in February 1992, when Senator David Boren, the Chairman of the Senate Select Committeeon Intelligence, and Representative Dave McCurdy, the Chairman of the House Permanent SelectCommittee on Intelligence, announced separate plans for an omnibus restructuring of the U.S.Intelligence Community, to serve as an intelligence counterpart to the Goldwater-NicholsDepartment of Defense Reorganization Act of 1986. The two versions of the initiative( S. 2198 and H.R. 4165 , 102nd Congress) differed in several respects, butthe overall thrust of the two bills was similar. Both proposals called for the following: Creating a Director of National Intelligence (DNI) with authority to program and reprogram intelligence funds throughout the Intelligence Community, including the DefenseDepartment, and to direct their expenditure; and to task intelligence agencies and transfer personneltemporarily from one agency to another to support new requirements; Creating two Deputy Directors of National Intelligence (DDNIs); one of whom would be responsible for analysis and estimates, the other for Intelligence Community affairs; Creating a separate Director of the CIA, subordinate to the new DNI, to manage the agency's collection and covert action capabilities on a day-to-day basis; Consolidating analytical and estimative efforts of the Intelligence Community (including analysts from CIA, and some from DIA, the Bureau of Intelligence and Research (INR)at the State Department, and other agencies) into a separate office under one of the Deputy DNIs(this aspect of the proposal would effectively separate CIA's analytical elements from its collectionand covert action offices); Creating a National Imagery Agency within the Department of Defense (DOD) to collect, exploit, and analyze imagery (these tasks had been spread among several entities; theHouse version would divide these efforts into two new separate agencies);and Authorizing the Director of DIA to task defense intelligence agencies (DIA, NSA, the new Imagery Agency) with collection requirements; and to shift functions, funding, andpersonnel from one DOD intelligence agency to another. This major restructuring effort would have provided statutory mandates for agencies where operational authority was created by executive branch directives. Both statutes and executive branchdirectives provided the DCI authority to task intelligence agencies outside the CIA and to approvebudgets and reprogramming efforts; in practice, however, this authority had never been fullyexercised. This legislation would have provided a statutory basis for the DCI (or DNI) to directcollection and analytical efforts throughout the Intelligence Community. The Boren-McCurdy legislation was not adopted, although provisions were added to the FY1994 Intelligence Authorization Act ( P.L. 102-496 ) that provided basic charters for intelligenceagencies within the National Security Act and set forth in law the DCI's coordinative responsibilities vis-à-vis intelligence agencies other than the CIA. Observers credited strong opposition fromtheDefense Department and concerns of the Armed Services Committees with inhibiting passage of theoriginal legislation. Commission on the Roles and Capabilities of the U.S. Intelligence Community (Aspin/Brown Commission), 1995-1996 Established pursuant to the Intelligence Authorization Act for FY1995 ( P.L. 103-359 ) of September 27, 1994, the Commission on the Roles and Capabilities of the U.S. IntelligenceCommunity was formed to assess the future direction, priorities, and structure of the IntelligenceCommunity in the post-Cold War environment. Originally under the chairmanship of Les Aspin,after his sudden death the commission was headed by former Secretary of Defense Harold Brown. Nine members were appointed by the president and eight nominated by the congressional leadership. The Report of the Aspin/Brown Commission (99) made a number of recommendations regardingthe organization of the Intelligence Community. Structural changes in the NSC staff were proposedto enhance the guidance provided to intelligence agencies. Global crime -- terrorism, internationaldrug trafficking, proliferation of weapons of mass destruction, and international organized crime -- was given special attention with recommendations for an NSC Committee on Global Crime. TheCommission also recommended designating the Attorney General to coordinate the "nation's lawenforcement response to global crime,"and clarifying the authority of intelligence agencies to collectinformation concerning foreign persons abroad for law enforcement purposes. It urged that thesharing of relevant information between the law enforcement and intelligence communities beexpanded, and their activities overseas be better coordinated. (100) The Commission noted that it considered many options for dealing with limitations in the DCI's ability to coordinate the activities of all intelligence agencies. The Aspin/Brown Commissionrecommended the establishment of two new deputies to the DCI -- one for the IntelligenceCommunity and one for day-to-day management of the CIA. Both would be Senate-confirmedpositions and the latter for a fixed six-year term. The DCI would concur in the appointment of theheads of "national" intelligence elements within DOD and would evaluate their performance in theirpositions as part of their ratings by the Secretary of Defense. "In addition, the DCI would be givennew tools to carry out his responsibilities with respect to the intelligence budget and new authorityover the intelligence personnel systems." The Aspin/Brown Commission recommended the realignment of intelligence budgeting procedures with "discipline" (i.e. sigint, imagery, humint, etc .) managers having responsibilities formanaging similar efforts in all intelligence agencies. "The DCI should be provided a sufficient staffcapability to enable him to assess tradeoffs between programs or program elements and shouldestablish a uniform, community-wide resource data base to serve as the principal information toolfor resource management across the Intelligence Community." (101) Responding to a longstanding criticism of intelligence budget processes, the Commission recommended that the total amounts appropriated for intelligence activities be disclosed -- arecommendation that was implemented by the Clinton Administration for Fiscal Years 1997 and1998. Subsequently, however, figures were not made public. In regard to congressional oversight, the Aspin/Brown Commission recommended that appointments to intelligence committees not be made for limited numbers of years but treated likeappointments to other congressional committees. IC21: Intelligence Community in the 21st Century, 1996 In addition to the Aspin/Brown Commission, in 1995-1996 the House Intelligence Committee undertook its own extensive review of intelligence issues. Many of the conclusions of the resultantIC21 Staff Study were consistent with those of the Commission. (102) The "overarching concept" wasa need for a more "corporate" intelligence community, i.e. a collection of agencies that recognizethat they are parts of "a larger coherent process aiming at a single goal: the delivery of timelyintelligence to policy makers at various levels." Accordingly, "central management should bestrengthened, core competencies (collection, analysis, operations) should be reinforced andinfrastructure should be consolidated wherever possible." (103) Specific IC21 recommendations provided for a radically restructured community and included the DCI should have a stronger voice in the appointment of the directors of NFIP defense agencies; the DCI should have greater programmatic control of intelligence budgets and intelligence personnel; a Committee on Foreign Intelligence should be established within the National Security Council; two DDCIs should be established; one to direct the CIA and managing analysis and production throughout the Community and the other responsible for IC-wide budgeting,requirements and collection management and tasking, infrastructure management and systemacquisition; establishment of a Community Management Staff with IC-wide authority over,and coordination of, requirements, resources and collection; there should be a uniformed officer serving as Director of Military Intelligence with authority to manage/coordinate defense intelligence programs (JMIP andTIARA); the Clandestine Service, responsible for all humint, should be separated from the CIA, reporting directly to the DCI; a Technical Collection Agency should be established to create an IC-wide management organization responsible for directing all collection tasking by all agencies and ensuringa coherent, multi-discipline approach to all collection issues; there should be common standards and protocols for technical collection systems, from collection through processing, exploitation and dissemination; a Technology Development Office should be established to perform community research and development functions; and congressional oversight should be strengthened by the establishment of a joint intelligence committee; alternatively the House intelligence committee should be made a standingcommittee without tenure limits. The Response to Aspin/Brown and IC21: The Intelligence Authorization Act for FY1997 Congressional Response. The recommendations of the Aspin/Brown Commission and the IC21 Study led to extensive congressional considerationof intelligence organization issues. The House Intelligence Committee considered separatelegislation on intelligence organization ( H.R. 3237 , 104th Congress); the Senateincluded extensive organizational provisions as part of the intelligence authorization bill for FY1997( S. 1718 , 104th Congress). In addition, the Defense Authorization Act for FY1997 ( P.L.104-201 ) included provisions establishing the National Imagery and Mapping Agency (NIMA) (104) that combined elements from intelligence agencies as well as the Defense Mapping Agency whichhad not been part of the Intelligence Community. (105) The conference version of the FY1997 intelligence authorization legislation, eventually enactedas P.L. 104-293 , included as its Title VIII, the "Intelligence Renewal and Reform Act of 1996." Theact established within the NSC two committees, one on foreign intelligence and another ontransnational threats. The former was to identify intelligence priorities and establish policies. Thelatter was to identify transnational threats and develop strategies to enable the U.S. to respond andto "develop policies and procedures to ensure the effective sharing of information about transnationalthreats among Federal departments and agencies, including law enforcement agencies and theelements of the intelligence community. ..." (106) Two deputy DCI positions were established, one for Deputy DCI and the other for a Deputy DCI for Community Management, both Senate-confirmed positions. While the Deputy DCI wouldhave responsibilities coterminous with those of the DCI, the Deputy DCI for CommunityManagement would focus on the coordination of all intelligence agencies. Congress did not attemptto establish a position for a head of the CIA separate from that of the DCI. In addition to the two deputy DCIs, the legislation provided for three assistant DCIs -- for Collection, for Analysis and Production of Intelligence, and for Administration. The statute callsfor all three assistant DCI positions to be filled by, and with, the advice and consent of the Senate. The statute is clear that the positions were envisioned as being designed to enhance intelligencecapabilities and coordination of the efforts of all intelligence agencies. In addition, the legislationrequired that the DCI concur in the appointment of three major defense intelligence agencies --NSA, the NRO, and NIMA (later renamed the National Geospatial-Intelligence Agency). If the DCIfailed to concur, the nominations could still be forwarded to the President, but the DCI'snon-concurrence had to be noted. The act required that the DCI be consulted in the appointment ofthe DIA director, the Assistant Secretary of State for Intelligence and Research, and the director ofthe Office of Nonproliferation and National Security of the Energy Department (107) . The FBI directoris required to give the DCI timely notice of an intention to fill the position of assistant director of theFBI's National Security Division. The act gave the DCI authority to develop and present to the President an annual budget for the National Foreign Intelligence Program and to participate in the development by the Secretary ofDefense of the Joint Military Intelligence Program (JMIP) and the Tactical Intelligence and RelatedActivities Program (TIARA). Moreover, the DCI gained authority to "approve collectionrequirements, determine collection priorities, and resolve conflicts in collection priorities levied onnational collection assets, except as otherwise agreed with the Secretary of Defense pursuant to thedirection of the President." (108) Presidential Statement. President Clinton signed the legislation on October 11, 1996, but in so doing he stated concerns about provisions that "purportto direct" the creation of two new NSC committees. "Such efforts to dictate the President's policyprocess unduly intrude upon Executive prerogatives and responsibilities. I would note that undermy Executive authority, I have already asked the NSC to examine these issues." Furthermore, hecriticized provisions requiring the DCI to concur or be consulted before the appointment of certainintelligence officials. This requirement, he argued, "is constitutionally questionable in two areas:regarding limitations on the President's ability to receive the advice of cabinet officers; and regardingcircumscription of the President's appointment authority." The statement also noted the "strong opposition" by DCI John Deutch to provisions establishing three new assistant DCIs, each requiring Senate confirmation. President Clinton added: "I share hisconcerns that these provisions will add another layer of positions requiring Senate confirmationwithout a corresponding gain in the DCI's authority or ability to manage the IntelligenceCommunity. I understand that the DCI intends to seek repeal or significant modification of theseprovisions in the 105th Congress. I will support such efforts." (109) Implementation. George Tenet, nominated to succeed John Deutch, responded to a question from Senator Robert Kerrey during his Senateconfirmation hearing in May 1997, that "I may have some changes in the law in my own mind, if I'mconfirmed, that allows us to meet your objectives. And I want to come work with you on it." Tenetalso indicated that he believed that the DCI's statutory responsibilities for coordinating the work ofall intelligence agencies was adequate. (110) In May 1998, the Senate Intelligence Committee held a hearing on the nomination of Joan A. Dempsey as the first Deputy DCI for Community Management. In opening remarks, ChairmanShelby noted discussions with the executive branch regarding the positions established by P.L.104-293 : we have reached an accommodation with the Director of Central Intelligence on these positions, and we expect that the President to put forward a nomineefor the position of Assistant Director of Central Intelligence for Administration, or ADCI, soon. Wehave agreed to allow the DCI to fill the positions of ADCI for Collection and ADCI for Analysis andProduction without exercising the Senate's right for advice and consent for up to one year while weassess the new management structure. (111) Dempsey in her testimony succinctly set forth the fundamental problem of intelligence organization: It's somewhat amusing to me -- and I've spent most of my career in the Department of Defense ... and when I was in DOD there was always this fear thata very powerful DCI with a full-time emphasis on intelligence and managing the community wouldfail to support the DOD the way it needed to be supported with intelligence. Since I've come overto the Central Intelligence Agency side of the intelligence community, I've found the same fear, butthis time directed at what DOD is going to do to subvert the role of theDCI She noted, however, the establishment of coordinative mechanisms such as the Defense Resources Board and the Intelligence Program Review Group and "constant accommodations made bySecretaries of Defense and DCIs to work together to find solutions to problems." In general, sheargued, "the relations have been good." (112) The following February, the Senate Intelligence Committee met to consider the nomination of James Simon as Assistant DCI for Administration. At the hearing, the Vice Chairman, SenatorRobert Kerrey, noted that the DCI had taken the interim steps of appointing Acting AssistantDirectors for collection and for analysis. He added: "I expect Presidential nominations for thesepositions will be forthcoming soon." (113) Henoted, however, that "Once the 1997 Authorization Actwas passed, the Community resisted mightily the appointment of Assistant Directors of CentralIntelligence for collection and analysis." (114) Simon testified that he would be responsible for "the creation of a process to ensure that the needs of all customers -- strategic and tactical, intelligence and battlefield surveillance, traditionaland novel -- are articulated, validated, and made manifest in our programs." (115) Simon noted inpassing the importance of a highly capable staff to perform coordination missions; he referred to theformer Intelligence Community Staff as having had "a certain percentage of people there who,frankly, had retired in place or were considered to be brain dead and wanted a quiet place where theycould make it to retirement without being bothered. A greater proportion were those that theiragencies either didn't want or that they felt were not progressing acceptably within their own agency.. . . " (116) Both Dempsey and Simon were confirmed by the Senate and served for several years in their respective positions. In July 2003 Dempsey, having left the DDCI position, was appointed ExecutiveDirector of the President's Foreign Intelligence Advisory Board; Simon retired in 2003. Only in July2004 was Larry Kindsvater confirmed by the Senate as DDCI for Community Management;nominations for assistant DCI positions have not been submitted. The statutory provisions remainin place, however. Despite the effort that went into the FY1997 legislation, the efforts intended to enhance the DCI's community-wide role have not been fully implemented. (117) The FY1997 Act established fournew Senate-confirmed positions having responsibilities that extend across all intelligence agencies. Since enactment, the Senate has received nominations for only two individuals to these positions(both were duly confirmed and sworn in) but both left office in 2003 and replacements have not yetbeen nominated. Some observers also believe that the DCI's authorities in the preparation of budgetsfor all intelligence agencies have not been fully exercised. (118) Observers suggest that there is littlelikelihood that serious efforts will be made, however, to seek repeal of the provisions at a time whenintelligence agencies are under scrutiny for their abilities to "connect the dots" on internationalthreats. Joint Inquiry on the Terrorist Attacks of September 11, 2001; Additional Views ofSenator Shelby, 2002 In the aftermath of the September 11, 2001 attacks on the World Trade Center and the Pentagon, the two congressional intelligence committees agreed to conduct a Joint Inquiry into theactivities of the Intelligence Community in connection with the attacks. The Joint Inquiry undertookan extensive investigation and conducted a number of public and closed hearings. The twoCommittees' recommendations were published in December 2002 some of which addressed issuesof Intelligence Community organization. The unclassified version of the Inquiry's report waspublished in mid-2003. Principally, the two committees urged that the National Security Act be amended to create a statutory Director of National Intelligence, separate from the head of the CIA. This DNI would havethe "full range of management, budgetary and personnel responsibilities needed to make the entireU.S. Intelligence Community operate as a coherent whole." These would include "establishment andenforcement" of collection, analysis, and dissemination priorities; authority to move personnelbetween Intelligence Community elements; and "primary management and oversight of theexecution of Intelligence Community budgets." The committees also recommended that Congress consider legislation, similar to the Goldwater-Nichols Act of 1986 which reorganized the Defense Department, to instill a sense ofjointness throughout the Intelligence Community, including joint education, joint career specialties,and more "joint tours" in other agencies that would be designated as "career-enhancing." The then-Vice Chairman of the Senate Intelligence Committee, Senator Richard Shelby, submitted additional views that also advocated organizational changes in the IntelligenceCommunity. (119) Shelby argued that "Thefragmented nature of the DCI's authority has exacerbatedthe centrifugal tendencies of bureaucratic politics and has helped ensure that the IC responds tooslowly and too disjointedly to shifting threats."Accordingly, the "office of the DCI should be givenmore management and budgetary authority over IC organs and be separated from the job of the CIADirector." (120) Further, Shelby argued that the basic structure of the National Security Act needs to be re-examined to separate "central" analytical functions from "resource-hungry collectionresponsibilities that make agencies into self-interested bureaucratic 'players.'" Shelby acknowledgedthat, "Creating a true DCI would entail removing dozens of billions of dollars of annual budgetsfrom the Defense Department, and depriving it of 'ownership' over 'its' 'combat supportorganizations.' In contemporary Washington bureaucratic politics, this would be a dauntingchallenge; DOD and its congressional allies would make such centralization an uphill battle, to saythe least." (121) Shelby also recalls theGoldwater-Nichols precedent in urging that the IntelligenceCommunity be restructured, but cautions that the Intelligence Community should not be reformedsolely to meet the terrorist threat: " we need an Intelligence Community agile enough to evolve asthreats evolve, on a continuing basis. Hard-wiring the IC in order to fight terrorists, I shouldemphasize, is precisely the wrong answer, because such an approach would surely leave usunprepared for the next major threat, whatever it turns out to be." (122) National Commission on Terrorist Attacks Upon the United States (The 9/11 Commission), 2004 Established by the Intelligence Authorization Act for FY2003 ( P.L. 107-306 ), the 9/11 Commission, chaired by former New Jersey Governor Thomas H. Kean, undertook a lengthyinvestigation of the "facts and circumstances relating to the terrorist attacks of September 11, 2001." Although the Commission's mandate extended beyond intelligence and law enforcement issues, anumber of principal recommendations, made public on July 22, 2004 address the organization of theIntelligence Community. The Commission argues that with current authorities the DCI is: responsible for community performance but lacks the three authorities critical for any agency head or chief executive officer: (1) control over purse strings,(2) the ability to hire or fire senior managers, and (3) the ability to set standards for the informationinfrastructure and personnel. (123) The 9/11 Commission recommends the establishment of a National Counterterrorism Center (NCTC), responsible for both joint operational planning and joint intelligence, and the position ofa Director of National Intelligence. In addition to overseeing various intelligence centers, the DNIwould manage the National Foreign Intelligence Program and oversee the agencies that contributeto it. The Community Management Staff would report to the DNI. The DNI would manage theagencies with the help of three deputies, each of whom would also hold a key position in one of thecomponent agencies. A deputy for foreign intelligence would be the now-separate head of the CIA,a deputy for defense intelligence would be the Under Secretary of Defense for Intelligence, and thedeputy for homeland intelligence would be either an FBI or Department of Homeland Security(DHS) official. The DNI would not have responsibilities for intelligence programs affecting onlyDefense Department consumers. The report does not describe how the person serving simultaneouslyas the DNI's assistant for defense intelligence and as an Under Secretary of Defense would resolveany differing guidance from the DNI and the Secretary of Defense. The 9/11 Commission alsorecommends a separate intelligence appropriation act the total of which would be made public. (124) Conclusion The efforts of committees, commissions and individuals to encourage restructuring of the U.S.Intelligence Community have led to numerous changes through internal agency direction,presidential directives and executive orders, and new statutes. The general trend has been towardsmore thorough oversight both by the executive branch and by congressional committees. Theposition of the DCI has been considerably strengthened and DCIs have been given greater staff andauthority to exert influence on all parts of the Community. They have not, however, been given"line" authority over agencies other than the CIA, and the influence of the Defense Departmentremains pervasive. Some have argued that, in the light of the Intelligence Community's inability toprovide warning of the September 2001 attacks on the World Trade Center and the Pentagon andinaccurate intelligence estimates about Iraqi weapons of mass destruction, the need for reorganizingthe Intelligence Community has become self-evident. Others argue that many of the reforms thathave been proposed could make matters worse. The issue appears to be moving higher on thecongressional agenda. Specific legislation to reorganize the nation's intelligence effort, including S. 2845 , is currently under consideration and the 9/11 Commission's recommendationsare receiving widespread interest.

Proposals for the reorganization of the United States Intelligence Community have repeatedly emerged from commissions and committees created by either the executive or legislative branches. The heretofore limited authority of Directors of Central Intelligence and the great influence of theDepartments of State and Defense have inhibited the emergence of major reorganization plans fromwithin the Intelligence Community itself. Proposals to reorganize the Intelligence Community emerged in the period immediately following passage of the National Security Act of 1947 (P.L. 80-253) that established the positionof Director of Central Intelligence (DCI) and the Central Intelligence Agency (CIA). Recommendations have ranged from adjustments in the DCI's budgetary responsibilities to theactual dissolution of the CIA and returning its functions to other departments. The goals underlyingsuch proposals have reflected trends in American foreign policy and the international environmentas well as domestic concerns about governmental accountability. In the face of a hostile Soviet Union, early intelligence reorganization proposals were more concerned with questions of efficiency. In the Cold War context of the 1950s, a number ofrecommendations sought aggressively to enhance U.S. covert action and counterintelligencecapabilities. The chairman of one committee charged with investigating the nation's intelligencecapabilities, Army General James H. Doolittle, argued that sacrificing America's sense of "fair play"was wholly justified in the struggle to prevent Soviet world domination. Following the failed invasion of Cuba at the Bay of Pigs, the unsuccessful results of intervention in Vietnam, and the Watergate scandal, investigations by congressional committeesfocused on the propriety of a wide range of heretofore accepted intelligence activities that includedassassinations and some domestic surveillance of U.S. citizens. Some forcefully questioned theviability of secret intelligence agencies within a democratic society. These investigations resultedin much closer congressional oversight and a more exacting legal framework for intelligenceactivities. At the same time, the growth in technical intelligence capabilities led to an enhanced --but by no means predominant -- leadership role for the DCI in determining community-widebudgets and priorities. With the end of the Cold War, emerging security concerns, including transnational terrorism, narcotics trafficking, and proliferation of weapons of mass destruction, faced the United States. Some statutory changes were made in the mid-1990s, but their results were not far-reaching. In theaftermath of the September 11, 2001 attacks and the Iraq War, some observers urge reconsideringthe intelligence organization. The 9/11 Commission has specifically recommended theestablishment of a National Intelligence Director to manage the national intelligence program. Current intelligence organization issues can be usefully addressed with an awareness of argumentspro and con that were raised by earlier investigators; this recommendation has been incorporated ina number of bills, including S. 2845 . This report will be updated as circumstanceswarrant.

Background The Anti-Spyware Coalition (ASC) defines spyware as "technologies deployed without appropriate user consent and/or implemented in ways that impair user control over (1) material changes that affect their user experience, privacy, or system security; (2) use of their system resources, including what programs are installed on their computers; and/or (3) collection, use, and distribution of their personal or other sensitive information. The main issue for Congress over spyware is whether to enact new legislation specifically addressing spyware, or to rely on industry self-regulation and enforcement actions by the Federal Trade Commission (FTC) and the Department of Justice under existing law. Opponents of new legislation argue that industry self-regulation and enforcement of existing laws are sufficient. They worry that further legislation could have unintended consequences that, for example, limit the development of new technologies that could have beneficial uses. Supporters of new legislation believe that current laws are inadequate, as evidenced by the growth in spyware incidents. Advocates of legislation want specific laws to stop spyware. For example, they want software providers to be required to obtain the consent of an authorized user of a computer ("opt-in") before any software is downloaded onto that computer. Skeptics contend that spyware is difficult to define and consequently legislation could have unintended consequences, and that legislation is likely to be ineffective. One argument is that the "bad actors" are not likely to obey any opt-in requirement, but are difficult to locate and prosecute. Also, some are overseas and not subject to U.S. law. Other arguments are that one member of a household (a child, for example) might unwittingly opt-in to spyware that others in the family would know to decline, or that users might not read through a lengthy licensing agreement to ascertain precisely what they are accepting. In many ways, the debate over how to cope with spyware parallels the controversy that led to unsolicited commercial electronic mail ("spam") legislation. Whether to enact a new law, or rely on enforcement of existing law and industry self-regulation, were the cornerstones of that debate as well. Congress chose to pass the CAN-SPAM Act ( P.L. 108-187 ). Questions remain about that law's effectiveness. Such reports fuel the argument that spyware legislation similarly cannot stop the threat. In the case of spam, FTC officials emphasized that consumers should not expect any legislation to solve the spam problem—that consumer education and technological advancements also are needed. The same is true for spyware. Software programs that include spyware may be sold or available for free ("freeware"). They may be on a disk or other media, downloaded from the Internet, or downloaded when opening an attachment to an electronic mail (e-mail) message. Typically, users have no knowledge that spyware is on their computers. Because the spyware is resident on the computer's hard drive, it can generate pop-up ads, for example, even when the computer is not connected to the Internet. One example of spyware is software products that include, as part of the software itself, a method by which information is collected about the use of the computer on which the software is installed, such as web browsing habits. Some of these products may collect personally identifiable information (PII). When the computer is connected to the Internet, the software periodically relays the information back to another party, such as the software manufacturer or a marketing company. Another oft-cited example of spyware is "adware," which may cause advertisements to suddenly appear on the user's monitor—called "pop-up" ads. In some cases, the adware uses information that the software obtained by tracking a user's web browsing habits to determine shopping preferences, for example. Some adware companies, however, insist that adware is not necessarily spyware, because the user may have permitted it to be downloaded onto the computer because it provides desirable benefits. Spyware also can refer to "keylogging" software that records a person's keystrokes. All typed information thus can be obtained by another party, even if the author modifies or deletes what was written, or if the characters do not appear on the monitor (such as when entering a password). Commercial key logging software has been available for some time. In the context of the spyware debate, the concern is that such software can record credit card numbers and other personally identifiable information that consumers type when using Internet-based shopping and financial services, and transmit that information to someone else. Thus it could contribute to identity theft. Spyware remains difficult to define, however, in spite of the work done by groups such as the ASC and government agencies such as the Federal Trade Commission (FTC). As discussed below, this lack of agreement is often cited by opponents of legislation as a reason not to legislate. Opponents of anti-spyware legislation argue that without a widely agreed-upon definition, legislation could have unintended consequences, banning current or future technologies and activities that, in fact, could be beneficial. Some of these software applications, including adware and keylogging software, do, in fact, have legitimate uses. The question is whether the user has given consent for it to be installed. A report on spyware law enforcement by the Center for Democracy and Technology (CDT) summarizes active and resolved spyware cases at the federal and state levels. Additionally, the FTC maintains its own list of cases. FTC Advice to Consumers The FTC has consumer information on spyware that includes a link to file a complaint with the commission through its "OnGuard Online" website. The FTC has also issued a consumer alert about spyware that lists warning signs that might indicate a computer is infected with spyware. The FTC alert listed the following clues: a barrage of pop-up ads a hijacked browser—that is, a browser that takes you to sites other than those you type into the address box a sudden or repeated change in your computer's Internet home page new and unexpected toolbars new and unexpected icons on the system tray at the bottom of your computer screen keys that don't work (for example, the "Tab" key that might not work when you try to move to the next field in a web form) random error messages sluggish or downright slow performance when opening programs or saving files. The FTC alert also offered preventive actions consumers can take: update your operating system and web browser software download free software only from sites you know and trust don't install any software without knowing exactly what it is minimize "drive-by" downloads by ensuring that your browser's security setting is high enough to detect unauthorized downloads don't click on any links within pop-up windows don't click on links in spam that claim to offer anti-spyware software install a personal firewall to stop uninvited users from accessing your computer. Finally, the FTC alert advised consumers who think their computers are infected to get an anti-spyware program from a vendor they know and trust; set it to scan on a regular basis, at startup and at least once a week; and delete any software programs detected by the anti-spyware program that the consumer does not want. State Laws In March 2004, Utah became the first state to enact spyware legislation. According to the National Conference of State Legislatures, by January 2009, at least 15 states had enacted spyware legislation: Alaska, Arizona, Arkansas, California, Georgia, Illinois, Indiana, Iowa, Louisiana, Nevada, New Hampshire, Rhode Island, Texas, Utah, and Washington. Legislative Action—112th Congress No legislative action has been taken at this time. Legislative Action—111th Congress No legislative action on spyware. Legislative Action—110th Congress During the 110 th Congress, two bills were introduced in the House of Representatives and one bill was introduced in the Senate; the House held two hearings. H.R. 964—Securely Protect Yourself Against Cyber Trespass Act The "SPY ACT" was introduced by Representative Towns on February 8, 2007, and a hearing on it was held by the Committee on Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection on March 15, 2007. This bill would make it unlawful to engage in unfair or deceptive acts or practices to take unsolicited control of computer, modify computer settings, collect personally identifiable information, induce the owner or authorized user of the computer to disclose personally identifiable information, induce the unsolicited installation of computer software, and/or remove or disable a security, anti-spyware, or anti-virus technology. This bill would also require the FTC to submit two reports to Congress. The first report would be on the use of cookies in the delivery or display of advertising; the second would be on the extent to which information collection programs were installed and in use at the time of enactment. H.R. 964 was reported by the House Committee on Energy and Commerce on May 24, 2007, and referred to the Senate Committee on Commerce, Science, and Transportation on June 7, 2007. No further action was taken. H.R. 1525—Internet Spyware Prevention Act The "I-SPY" Act was introduced by Representative Lofgren on March 14, 2007, and a hearing on it was held by the Committee on the Judiciary Subcommittee on Crime, Terrorism, and Homeland Security on May 1, 2007. This bill would amend the federal criminal code to impose a fine and/or prison term of up to five years for intentionally accessing a protected computer without appropriate authorization by causing a computer program or code to be copied onto the protected computer and intentionally using that program or code in furtherance of another federal criminal offense. The bill would impose a fine and/or prison term of up to two years if the unauthorized access was for the purpose of—— intentionally obtaining or transmitting personal information with intent to defraud or injure a person or cause damage to a protected computer intentionally impairing the security protection of a protected computer with the intent to defraud or injure a person or damage such computer. H.R. 1525 was reported by House Committee on the Judiciary, where it was reported on May 21, 2007, and then referred to the Senate Committee on the Judiciary on May 23, 2007. No further action was taken. S. 1625—Counter Spy Act The Counter Spy Act was introduced by Senator Pryor on June14, 2007. This bill would prohibit unauthorized installation on a protected computer of "software that takes control of the computer, modifies the computer's settings, or prevents the user's efforts to block installation of, disable, or uninstall software." It also would prohibit the installation of "software that collects sensitive personal information without first providing clear and conspicuous disclosure ... and obtaining the user's consent. Additionally, S. 1625 would prohibit installation of software that "causes advertising windows to appear (popularly known as adware) unless: (1) the source is clear and instructions are provided for uninstalling the software; or (2) the advertisements are displayed only when the user uses the software author's or publisher's website or online service." This bill was referred to the Senate Committee on Commerce, Science, and Transportation on June 14, 2007, and a hearing was held on June 11, 2008. No further action was taken. Additional Reading Federal Trade Commission "Microsite" on Spyware [web page]. Available online at http://www.ftc.gov/ bcp/ edu/ microsites/ spyware/ index.html . Anti-Spyware Coalition [web page]. Available online at http://www.antispywarecoalition.org . Appendix. Bills in the 108th and 109th Congresses 109 th Congress Two bills passed the House on May 23, 2005— H.R. 29 (Bono) and H.R. 744 (Goodlatte)—both of which were very similar to legislation that passed the House in the 108 th Congress. Three bills were introduced in the Senate— S. 687 (Burns), which is similar to legislation that was considered in 2004, but did not reach the floor ( S. 2145 ); S. 1004 (Allen); and S. 1608 (Smith). S. 687 and S. 1608 were ordered reported from the Senate Commerce Committee in 2005. At the markup that favorably reported S. 687 , the committee rejected Senator Allen's attempt to substitute the language of his bill ( S. 1004 ) for the text of S. 687 . S. 687 was placed on the Senate Legislative Calendar under general Orders, Calendar no. 467, on June 12, 2006. S. 1608 was referred to the House Committee on Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection, on April 19, 2006. 108 th Congress The House passed two spyware bills in the 108 th Congress— H.R. 2929 and H.R. 4661 . The Senate Commerce Committee reported S. 2145 (Burns), amended, December 9, 2004 ( S.Rept. 108-424 ). None of these bills cleared that Congress. The Senate Commerce, Science, and Transportation Committee's Subcommittee on Communications held a hearing on spyware on March 23, 2004. The House Energy and Commerce's Subcommittee on Telecommunications and the Internet held a hearing on April 29, 2004. The House passed two spyware bills ( H.R. 2929 and H.R. 4661 ) and the Senate Commerce Committee reported S. 2145 , but there was no further action.

The term "spyware" generally refers to any software that is downloaded onto a computer without the owner's or user's knowledge. Spyware may collect information about a computer user's activities and transmit that information to someone else. It may change computer settings, or cause "pop-up" advertisements to appear (in that context, it is called "adware"). Spyware may redirect a web browser to a site different from what the user intended to visit, or change the user's home page. A type of spyware called "keylogging" software records individual keystrokes, even if the author modifies or deletes what was written, or if the characters do not appear on the monitor. Thus, passwords, credit card numbers, and other personally identifiable information may be captured and relayed to unauthorized recipients. Some of these software programs have legitimate applications the computer user wants. They obtain the moniker "spyware" when they are installed surreptitiously, or perform additional functions of which the user is unaware. Users typically do not realize that spyware is on their computer. They may have unknowingly downloaded it from the Internet by clicking within a website, or it might have been included in an attachment to an electronic mail message (e-mail) or embedded in other software. The Federal Trade Commission (FTC) has produced a consumer alert on spyware. The alert provides a list of warning signs that indicate that a computer might be infected with spyware and advice on what to do if it is. Additionally, the FTC has consumer information on spyware that includes a link to file a complaint with the commission through its "OnGuard Online" website. Several states have passed spyware laws, but there was no specific federal law and no legislation introduced in the 111th Congress.

Appendix A Military Order of November 13, 2001. Detention, Treatment, and Trial of Certain Non-Citizens in the War Against Terrorism By the authority vested in me as President and as Commander in Chief of the Armed Forces of theUnited States by the Constitution and the laws of the United States of America, including theAuthorization for Use of Military Force Joint Resolution (Public Law 107-40, 115 Stat. 224) andsections 821 and 836 of title 10, United States Code, it is hereby ordered as follows: Section 1. Findings. (a) International terrorists, including members of al Qaida, have carried out attacks on United Statesdiplomatic and military personnel and facilities abroad and on citizens and property within theUnited States on a scale that has created a state of armed conflict that requires the use of the UnitedStates Armed Forces. (b) In light of grave acts of terrorism and threats of terrorism, including the terrorist attacks onSeptember 11, 2001, on the headquarters of the United States Department of Defense in the nationalcapital region, on the World Trade Center in New York, and on civilian aircraft such as inPennsylvania, I proclaimed a national emergency on September 14, 2001 (Proc. 7463, Declarationof National Emergency by Reason of Certain Terrorist Attacks). (c) Individuals acting alone and in concert involved in international terrorism possess both thecapability and the intention to undertake further terrorist attacks against the United States that, if notdetected and prevented, will cause mass deaths, mass injuries, and massive destruction of property,and may place at risk the continuity of the operations of the United States Government. (d) The ability of the United States to protect the United States and its citizens, and to help its alliesand other cooperating nations protect their nations and their citizens, from such further terroristattacks depends in significant part upon using the United States Armed Forces to identify terroristsand those who support them, to disrupt their activities, and to eliminate their ability to conduct orsupport such attacks. (e) To protect the United States and its citizens, and for the effective conduct of military operationsand prevention of terrorist attacks, it is necessary for individuals subject to this order pursuant tosection 2 hereof to be detained, and, when tried, to be tried for violations of the laws of war and otherapplicable laws by military tribunals. (f) Given the danger to the safety of the United States and the nature of international terrorism, andto the extent provided by and under this order, I find consistent with section 836 of title 10, UnitedStates Code, that it is not practicable to apply in military commissions under this order the principlesof law and the rules of evidence generally recognized in the trial of criminal cases in the UnitedStates district courts. (g) Having fully considered the magnitude of the potential deaths, injuries, and property destructionthat would result from potential acts of terrorism against the United States, and the probability thatsuch acts will occur, I have determined that an extraordinary emergency exists for national defensepurposes, that this emergency constitutes an urgent and compelling government interest, and thatissuance of this order is necessary to meet the emergency. Sec. 2. Definition and Policy . (a) The term "individual subject to this order" shall mean any individual who is not a United Statescitizen with respect to whom I determine from time to time in writing that: (1) there is reason to believe that such individual, at the relevant times, (i) is or was a member of the organization known as al Qaida; (ii) has engaged in, aided or abetted, or conspired to commit, acts of international terrorism, or actsin preparation therefor, that have caused, threaten to cause, or have as their aim to cause, injury toor adverse effects on the United States, its citizens, national security, foreign policy, or economy;or (iii) has knowingly harbored one or more individuals described in subparagraphs (i) or (ii) ofsubsection 2(a)(1) of this order; and (2) it is in the interest of the United States that such individual be subject to this order. (b) It is the policy of the United States that the Secretary of Defense shall take all necessarymeasures to ensure that any individual subject to this order is detained in accordance with section3, and, if the individual is to be tried, that such individual is tried only in accordance with section4. (c) It is further the policy of the United States that any individual subject to this order who is notalready under the control of the Secretary of Defense but who is under the control of any other officeror agent of the United States or any State shall, upon delivery of a copy of such written determinationto such officer or agent, forthwith be placed under the control of the Secretary of Defense. Sec. 3. Detention Authority of the Secretary of Defense . Any individual subject to this order shall be -- (a) detained at an appropriate location designated by the Secretary of Defense outside or within theUnited States; (b) treated humanely, without any adverse distinction based on race, color, religion, gender, birth,wealth, or any similar criteria; (c) afforded adequate food, drinking water, shelter, clothing, and medical treatment; (d) allowed the free exercise of religion consistent with the requirements of such detention; and (e) detained in accordance with such other conditions as the Secretary of Defense may prescribe. Sec. 4. Authority of the Secretary of Defense Regarding Trials of Individuals Subject to thisOrder. (a) Any individual subject to this order shall, when tried, be tried by military commission for anyand all offenses triable by military commission that such individual is alleged to have committed,and may be punished in accordance with the penalties provided under applicable law, including lifeimprisonment or death. (b) As a military function and in light of the findings in section 1, including subsection (f) thereof,the Secretary of Defense shall issue such orders and regulations, including orders for the appointmentof one or more military commissions, as may be necessary to carry out subsection (a) of this section. (c) Orders and regulations issued under subsection (b) of this section shall include, but not belimited to, rules for the conduct of the proceedings of military commissions, including pretrial, trial,and post-trial procedures, modes of proof, issuance of process, and qualifications of attorneys, whichshall at a minimum provide for -- (1) military commissions to sit at any time and any place, consistent with such guidance regardingtime and place as the Secretary of Defense may provide; (2) a full and fair trial, with the military commission sitting as the triers of both fact and law; (3) admission of such evidence as would, in the opinion of the presiding officer of the militarycommission (or instead, if any other member of the commission so requests at the time the presidingofficer renders that opinion, the opinion of the commission rendered at that time by a majority of thecommission), have probative value to a reasonable person; (4) in a manner consistent with the protection of information classified or classifiable underExecutive Order 12958 of April 17, 1995, as amended, or any successor Executive Order, protectedby statute or rule from unauthorized disclosure, or otherwise protected by law, (A) the handling of,admission into evidence of, and access to materials and information, and (B) the conduct, closureof, and access to proceedings; (5) conduct of the prosecution by one or more attorneys designated by the Secretary of Defense andconduct of the defense by attorneys for the individual subject to this order; (6) conviction only upon the concurrence of two-thirds of the members of the commission presentat the time of the vote, a majority being present; (7) sentencing only upon the concurrence of two-thirds of the members of the commission presentat the time of the vote, a majority being present; and (8) submission of the record of the trial, including any conviction or sentence, for review and finaldecision by me or by the Secretary of Defense if so designated by me for that purpose. Sec. 5. Obligation of Other Agencies to Assist the Secretary of Defense . Departments, agencies, entities, and officers of the United States shall, to the maximum extentpermitted by law, provide to the Secretary of Defense such assistance as he may request toimplement this order. Sec. 6. Additional Authorities of the Secretary of Defense. (a) As a military function and in light of the findings in section 1, the Secretary of Defense shallissue such orders and regulations as may be necessary to carry out any of the provisions of this order. (b) The Secretary of Defense may perform any of his functions or duties, and may exercise any ofthe powers provided to him under this order (other than under section 4(c)(8) hereof) in accordancewith section 113(d) of title 10, United States Code. Sec. 7. Relationship to Other Law and Forums. (a) Nothing in this order shall be construed to -- (1) authorize the disclosure of state secrets to any person not otherwise authorized to have accessto them; (2) limit the authority of the President as Commander in Chief of the Armed Forces or the powerof the President to grant reprieves and pardons; or (3) limit the lawful authority of the Secretary of Defense, any military commander, or any otherofficer or agent of the United States or of any State to detain or try any person who is not anindividual subject to this order. (b) With respect to any individual subject to this order -- (1) military tribunals shall have exclusive jurisdiction with respect to offenses by the individual; and (2) the individual shall not be privileged to seek any remedy or maintain any proceeding, directly orindirectly, or to have any such remedy or proceeding sought on the individual's behalf, in (i) any court of the United States, or any State thereof, (ii) any court of any foreign nation, or (iii) anyinternational tribunal. (c) This order is not intended to and does not create any right, benefit, or privilege, substantive orprocedural, enforceable at law or equity by any party, against the United States, its departments,agencies, or other entities, its officers or employees, or any other person. (d) For purposes of this order, the term "State" includes any State, district, territory, or possessionof the United States. (e) I reserve the authority to direct the Secretary of Defense, at any time hereafter, to transfer to agovernmental authority control of any individual subject to this order. Nothing in this order shallbe construed to limit the authority of any such governmental authority to prosecute any individualfor whom control is transferred. Sec. 8. Publication . This order shall be published in the Federal Register. GEORGE W. BUSH THE WHITE HOUSE, November 13, 2001. Appendix B Proclamation No. 2561. DENYING CERTAIN ENEMIES ACCESS TO THE COURTS OF THE UNITED STATES BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION WHEREAS the safety of the United States demands that all enemies who have entered uponthe territory of the United States as part of an invasion or predatory incursion, or who haveentered in order to commit sabotage, espionage or other hostile or warlike acts, should bepromptly tried in accordance with the law of war; NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President of the United States ofAmerica and Commander in Chief of the Army and Navy of the United States, by virtue of theauthority vested in me by the Constitution and the statutes of the United States, do herebyproclaim that all persons who are subjects, citizens or residents of any nation at war with theUnited States or who give obedience to or act under the direction of any such nation, and whoduring time of war enter or attempt to enter the United States or any territory or possessionthereof, through coastal or boundary defenses, and are charged with committing or attempting orpreparing to commit sabotage, espionage, hostile or warlike acts, or violations of the law of war,shall be subject to the law of war and to the jurisdiction of military tribunals; and that suchpersons shall not be privileged to seek any remedy or maintain any proceeding directly orindirectly, or to have any such remedy or proceeding sought on their behalf, in the courts of theUnited States, or of its states, territories, and possessions, except under such regulations as theAttorney General, with the approval of the Secretary of War, may from time to time prescribe. IN WITNESS WHEREOF I have hereunto set my hand and caused the seal of the United Statesof America to be affixed. DONE at the City of Washington this 2d day of July, In the year of our Lord nineteen hundredand forty-two, and of the Independence [SEAL] of the United States of America the one hundredand sixty sixth. FRANKLIN D ROOSEVELT By the President: CORDELL HULL, Secretary of State. Military Order of July 2, 1942. APPOINTMENT OF A MILITARY COMMISSION By virtue of the authority vested in me as President and as Commander in chief of the Amy andNavy, under the Constitution and statutes of the United States, and most particularly theThirty-Eighth Article of War (U.S.C., title 10, sec. 1509), 1, Franklin Delano Roosevelt, dohereby appoint as a Military Commission the following persons: Major General Frank R. McCoy, President Major General Walter S. Grant Major General Blanton Winship Major General Lorenzo D. Gasser Brigadier General Guy V. Henry Brigadier General John T. Lewis Brigadier General John T. Kennedy The prosecution shall be conducted by the Attorney General and the Judge Advocate General.The defense counsel shall be Colonel Cassius M. Dowell and Colonel Kenneth Royall. The Military Commission shall meet in Washington, D. C., on July 8th, 1942, or as soonthereafter as is practicable, to try for offenses against the law of war and the Articles of War, thefollowing persons: Ernest Peter Burger George John Dasch Herbert Hans Haupt Henry Harm Heinck Edward John Kerling Hermann Otto Neubauer Richard Quirin Werner Thiel The Commission shall have power to and shall, as occasion requires, make such rules for theconduct of the proceeding, consistent with the powers of military commissions under the Articlesof War, as it shall deem necessary for a full and fair trial of the matters before it. Such evidenceshall be admitted as would, in the opinion of the President of the Commission, have probativevalue to a reasonable man. The concurrence of at least two-thirds of the members of theCommission present shall be necessary for a conviction or sentence. The record of the trial,including any judgment or sentence, shall be transmitted directly to me for my action thereon. FRANKLIN D ROOSEVELT THE WHITE HOUSE, July 2, 1942. Military Order of January 11, 1945. GOVERNING THE ESTABLISHMENT OF MILITARY COMMISSIONS FOR THE TRIALOF CERTAIN OFFENDERS AGAINST THE LAW OF WAR AND GOVERNING THEPROCEDURE FOR SUCH COMMISSIONS By virtue of the authority vested in me as President and as Commander in Chief of the Armyand Navy, under the Constitution and statutes of the United States, and more particularly theThirty-Eighth Article of War (10 U.S.C. 1509), it is ordered as follows: 1. All persons who are subjects, citizens or residents of any nation at war with the United Statesor who give obedience to or act under the direction of any such nation, and who during time ofwar enter or attempt to enter the United States or any territory or possession thereof, throughcoastal or boundary defenses, and are charged with committing or attempting or preparing tocommit sabotage, espionage, hostile or warlike acts, or violations of the law of war, shall besubject to the law of war and to the jurisdiction of military tribunals. The commanding generalsof the several service and defense commands in the continental United States and Alaska, underthe supervision of the Secretary of War, are hereby empowered to appoint military commissionsfor the trial of such persons. 2. Each military commission so established for the trial of such persons shall have power tomake and shall make, as occasion requires, such rules for the conduct of its proceedings,consistent with the powers of military commissions under the Articles of War, as it shall deemnecessary for a full and fair trial of the matters before it: Provided, that (a) Such evidence shall be admitted as would, in the opinion of the president of thecommission, have probative value to a reasonable man; (b) The concurrence of at least two-thirds of the members of the commission present at the timethe vote is taken shall be necessary for a conviction or sentence; (c) The provisions of Article 70 of the Articles of War, relating to investigation and preliminaryhearings, shall not be deemed to apply to the proceedings; (d) The record of the trial, including any judgment or sentence, shall be promptly reviewedunder the procedures established in Article 501/2 of the Articles of War. FRANKLIN D ROOSEVELT THE WHITE HOUSE, January 11, 1945.

On November 13, 2001, President Bush signed a Military Order pertaining to the detention,treatment, and trial of certain non-citizens as part of the war against terrorism. The order makesclear that the President views the crisis that began on the morning of September 11 as an attack "ona scale that has created a state of armed conflict that requires the use of the United States ArmedForces." The order finds that the effective conduct of military operations and prevention of militaryattacks make it necessary to detain certain non-citizens and if necessary, to try them "for violationsof the laws of war and other applicable laws by military tribunals." The unprecedented nature of the September attacks and the magnitude of damage and lossof life they caused have led a number of officials and commentators to assert that the acts are not justcriminal acts, they are "acts of war." The President's Military Order makes it apparent that he plansto treat the attacks as acts of war rather than criminal acts. The distinction may have more thanrhetorical significance. Treating the attacks as violations of the international law of war could allowthe United States to prosecute those responsible as war criminals, trying them by special militarycommission rather than in federal court. The purpose of this report is to identify some of the legal and practical implications oftreating the terrorist acts as war crimes and of applying the law of war rather than criminal statutesto prosecute the alleged perpetrators. The report will first present an outline of the sources andprinciples of the law of war, including a discussion of whether and how it might apply to the currentterrorist crisis. A brief explanation of the background issues and arguments surrounding the use ofmilitary commissions will follow. The report will then explore the legal bases and implications ofapplying the law of war under United States law, summarize precedent for its application by militarycommissions, and provide an analysis of the President's Military Order of November 13, 2001. Finally, the report discusses considerations for establishing rules of procedure and evidence thatcomport with international standards.

What Is Data Mining? Data mining involves the use of sophisticated data analysis tools to discover previously unknown, valid patterns and relationships in large data sets. These tools can include statistical models, mathematical algorithms, and machine learning methods (algorithms that improve their performance automatically through experience, such as neural networks or decision trees). Consequently, data mining consists of more than collecting and managing data, it also includes analysis and prediction. Data mining can be performed on data represented in quantitative, textual, or multimedia forms. Data mining applications can use a variety of parameters to examine the data. They include association (patterns where one event is connected to another event, such as purchasing a pen and purchasing paper), sequence or path analysis (patterns where one event leads to another event, such as the birth of a child and purchasing diapers), classification (identification of new patterns, such as coincidences between duct tape purchases and plastic sheeting purchases), clustering (finding and visually documenting groups of previously unknown facts, such as geographic location and brand preferences), and forecasting (discovering patterns from which one can make reasonable predictions regarding future activities, such as the prediction that people who join an athletic club may take exercise classes). As an application, compared to other data analysis applications, such as structured queries (used in many commercial databases) or statistical analysis software, data mining represents a difference of kind rather than degree . Many simpler analytical tools utilize a verification-based approach, where the user develops a hypothesis and then tests the data to prove or disprove the hypothesis. For example, a user might hypothesize that a customer who buys a hammer, will also buy a box of nails. The effectiveness of this approach can be limited by the creativity of the user to develop various hypotheses, as well as the structure of the software being used. In contrast, data mining utilizes a discovery approach, in which algorithms can be used to examine several multidimensional data relationships simultaneously, identifying those that are unique or frequently represented. For example, a hardware store may compare their customers' tool purchases with home ownership, type of automobile driven, age, occupation, income, and/or distance between residence and the store. As a result of its complex capabilities, two precursors are important for a successful data mining exercise; a clear formulation of the problem to be solved, and access to the relevant data. Reflecting this conceptualization of data mining, some observers consider data mining to be just one step in a larger process known as knowledge discovery in databases (KDD). Other steps in the KDD process, in progressive order, include data cleaning, data integration, data selection, data transformation, (data mining), pattern evaluation, and knowledge presentation. A number of advances in technology and business processes have contributed to a growing interest in data mining in both the public and private sectors. Some of these changes include the growth of computer networks, which can be used to connect databases; the development of enhanced search-related techniques such as neural networks and advanced algorithms; the spread of the client/server computing model, allowing users to access centralized data resources from the desktop; and an increased ability to combine data from disparate sources into a single searchable source. In addition to these improved data management tools, the increased availability of information and the decreasing costs of storing it have also played a role. Over the past several years there has been a rapid increase in the volume of information collected and stored, with some observers suggesting that the quantity of the world's data approximately doubles every year. At the same time, the costs of data storage have decreased significantly from dollars per megabyte to pennies per megabyte. Similarly, computing power has continued to double every 18-24 months, while the relative cost of computing power has continued to decrease. Data mining has become increasingly common in both the public and private sectors. Organizations use data mining as a tool to survey customer information, reduce fraud and waste, and assist in medical research. However, the proliferation of data mining has raised some implementation and oversight issues as well. These include concerns about the quality of the data being analyzed, the interoperability of the databases and software between agencies, and potential infringements on privacy. Also, there are some concerns that the limitations of data mining are being overlooked as agencies work to emphasize their homeland security initiatives. Limitations of Data Mining as a Terrorist Detection Tool While data mining products can be very powerful tools, they are not self-sufficient applications. To be successful, data mining requires skilled technical and analytical specialists who can structure the analysis and interpret the output that is created. Consequently, the limitations of data mining are primarily data or personnel-related, rather than technology-related. Although data mining can help reveal patterns and relationships, it does not tell the user the value or significance of these patterns. These types of determinations must be made by the user. Similarly, the validity of the patterns discovered is dependent on how they compare to "real world" circumstances. For example, to assess the validity of a data mining application designed to identify potential terrorist suspects in a large pool of individuals, the user may test the model using data that includes information about known terrorists. However, while possibly re-affirming a particular profile, it does not necessarily mean that the application will identify a suspect whose behavior significantly deviates from the original model. Another limitation of data mining is that while it can identify connections between behaviors and/or variables, it does not necessarily identify a causal relationship. For example, an application may identify that a pattern of behavior, such as the propensity to purchase airline tickets just shortly before the flight is scheduled to depart, is related to characteristics such as income, level of education, and Internet use. However, that does not necessarily indicate that the ticket purchasing behavior is caused by one or more of these variables. In fact, the individual's behavior could be affected by some additional variable(s) such as occupation (the need to make trips on short notice), family status (a sick relative needing care), or a hobby (taking advantage of last minute discounts to visit new destinations). Beyond these specific limitations, some researchers suggest that the circumstances surrounding our knowledge of terrorism make data mining an ill-suited tool for identifying (predicting) potential terrorists before an activity occurs. Successful "predictive data mining" requires a significant number of known instances of a particular behavior in order to develop valid predictive models. For example, data mining used to predict types of consumer behavior (i.e., the likelihood of someone shopping at a particular store, the potential of a credit card usage being fraudulent) may be based on as many as millions of previous instances of the same particular behavior. Moreover, such a robust data set can still lead to false positives. In contrast, as a CATO Institute report suggests that the relatively small number of terrorist incidents or attempts each year are too few and individually unique "to enable the creation of valid predictive models." Data Mining Uses Data mining is used for a variety of purposes in both the private and public sectors. Industries such as banking, insurance, medicine, and retailing commonly use data mining to reduce costs, enhance research, and increase sales. For example, the insurance and banking industries use data mining applications to detect fraud and assist in risk assessment (e.g., credit scoring). Using customer data collected over several years, companies can develop models that predict whether a customer is a good credit risk, or whether an accident claim may be fraudulent and should be investigated more closely. The medical community sometimes uses data mining to help predict the effectiveness of a procedure or medicine. Pharmaceutical firms use data mining of chemical compounds and genetic material to help guide research on new treatments for diseases. Retailers can use information collected through affinity programs (e.g., shoppers' club cards, frequent flyer points, contests) to assess the effectiveness of product selection and placement decisions, coupon offers, and which products are often purchased together. Companies such as telephone service providers and music clubs can use data mining to create a "churn analysis," to assess which customers are likely to remain as subscribers and which ones are likely to switch to a competitor. In the public sector, data mining applications were initially used as a means to detect fraud and waste, but they have grown also to be used for purposes such as measuring and improving program performance. It has been reported that data mining has helped the federal government recover millions of dollars in fraudulent Medicare payments. The Justice Department has been able to use data mining to assess crime patterns and adjust resource allotments accordingly. Similarly, the Department of Veterans Affairs has used data mining to help predict demographic changes in the constituency it serves so that it can better estimate its budgetary needs. Another example is the Federal Aviation Administration, which uses data mining to review plane crash data to recognize common defects and recommend precautionary measures. In addition, data mining has been increasingly cited as an important tool for homeland security efforts. Some observers suggest that data mining should be used as a means to identify terrorist activities, such as money transfers and communications, and to identify and track individual terrorists themselves, such as through travel and immigration records. Initiatives that have attracted significant attention include the now-discontinued Terrorism Information Awareness (TIA) project conducted by the Defense Advanced Research Projects Agency (DARPA), and the now-canceled Computer-Assisted Passenger Prescreening System II (CAPPS II) that was being developed by the Transportation Security Administration (TSA). CAPPS II is being replaced by a new program called Secure Flight. Other initiatives that have been the subject of congressional interest include the Able Danger program and data collection and analysis projects being conducted by the National Security Agency (NSA). Terrorism Information Awareness (TIA) Program In the immediate aftermath of the September 11, 2001, terrorist attacks, many questions were raised about the country's intelligence tools and capabilities, as well as the government's ability to detect other so-called "sleeper cells," if, indeed, they existed. One response to these concerns was the creation of the Information Awareness Office (IAO) at the Defense Advanced Research Projects Agency (DARPA) in January 2002. The role of IAO was "in part to bring together, under the leadership of one technical office director, several existing DARPA programs focused on applying information technology to combat terrorist threats." The mission statement for IAO suggested that the emphasis on these technology programs was to "counter asymmetric threats by achieving total information awareness useful for preemption, national security warning, and national security decision making." To that end, the TIA project was to focus on three specific areas of research, anticipated to be conducted over five years, to develop technologies that would assist in the detection of terrorist groups planning attacks against American interests, both inside and outside the country. The three areas of research and their purposes were described in a DOD Inspector General report as: … language translation, data search with pattern recognition and privacy protection, and advanced collaborative and decision support tools. Language translation technology would enable the rapid analysis of foreign languages, both spoken and written, and allow analysts to quickly search the translated materials for clues about emerging threats. The data search, pattern recognition, and privacy protection technologies would permit analysts to search vast quantities of data for patterns that suggest terrorist activity while at the same time controlling access to the data, enforcing laws and policies, and ensuring detection of misuse of the information obtained. The collaborative reasoning and decision support technologies would allow analysts from different agencies to share data. Each part had the potential to improve the data mining capabilities of agencies that adopt the technology. Automated rapid language translation could allow analysts to search and monitor foreign language documents and transmissions more quickly than currently possible. Improved search and pattern recognition technologies may enable more comprehensive and thorough mining of transactional data, such as passport and visa applications, car rentals, driver license renewals, criminal records, and airline ticket purchases. Improved collaboration and decision support tools might facilitate the search and coordination activities being conducted by different agencies and levels of government. In public statements DARPA frequently referred to the TIA program as a research and development project designed to create experimental prototype tools, and that the research agency would only use "data that is legally available and obtainable by the U.S. Government." DARPA further emphasized that these tools could be adopted and used by other agencies, and that DARPA itself would not be engaging in any actual-use data mining applications, although it could "support production of a scalable leave-behind system prototype." In addition, some of the technology projects being carried out in association with the TIA program did not involve data mining. However, the TIA program's overall emphasis on collecting, tracking, and analyzing data trails left by individuals served to generate significant and vocal opposition soon after John Poindexter made a presentation on TIA at the DARPATech 2002 Conference in August 2002. Critics of the TIA program were further incensed by two administrative aspects of the project. The first involved the Director of IAO, Dr. John M. Poindexter. Poindexter, a retired Admiral, was, until that time, perhaps most well-known for his alleged role in the Iran-contra scandal during the Reagan Administration. His involvement with the program caused many in the civil liberties community to question the true motives behind TIA. The second source of contention involved TIA's original logo, which depicted an "all-seeing" eye atop of a pyramid looking down over the globe, accompanied by the Latin phrase scientia est potentia (knowledge is power). Although DARPA eventually removed the logo from its website, it left a lasting impression. The continued negative publicity surrounding the TIA program contributed to the introduction of a number of bills in Congress that eventually led to the program's dissolution. Among these bills was S. 188 , the Data-Mining Moratorium Act of 2003, which, if passed, would have imposed a moratorium on the implementation of data mining under the TIA program by the Department of Defense, as well as any similar program by the Department of Homeland Security. An amendment included in the Omnibus Appropriations Act for Fiscal Year 2003 ( P.L. 108-7 ) required the Director of Central Intelligence, the Secretary of Defense, and the Attorney General to submit a joint report to Congress within 90 days providing details about the TIA program. Funding for TIA as a whole was prohibited with the passage of the FY2004 Department of Defense Appropriations Act ( P.L. 108-87 ) in September 2003. However, Section 8131 of the law allowed unspecified subcomponents of the TIA initiative to be funded as part of DOD's classified budget, subject to the provisions of the National Foreign Intelligence Program, which restricts the processing and analysis of information on U.S. citizens. Computer-Assisted Passenger Prescreening System (CAPPS II) Similar to TIA, the CAPPS II project represented a direct response to the September 11, 2001, terrorist attacks. With the images of airliners flying into buildings fresh in people's minds, air travel was now widely viewed not only as a critically vulnerable terrorist target, but also as a weapon for inflicting larger harm. The CAPPS II initiative was intended to replace the original CAPPS, currently being used. Spurred, in part, by the growing number of airplane bombings, the existing CAPPS (originally called CAPS) was developed through a grant provided by the Federal Aviation Administration (FAA) to Northwest Airlines, with a prototype system tested in 1996. In 1997, other major carriers also began work on screening systems, and, by 1998, most of the U.S.-based airlines had voluntarily implemented CAPS, with the remaining few working toward implementation. Also, during this time, the White House Commission on Aviation Safety and Security (sometimes referred to as the Gore Commission) released its final report in February 1997. Included in the commission's report was a recommendation that the United States implement automated passenger profiling for its airports. On April 19, 1999, the FAA issued a notice of proposed rulemaking (NPRM) regarding the security of checked baggage on flights within the United States (docket no. FAA-1999-5536). As part of this still-pending rule, domestic flights would be required to utilize "the FAA-approved computer-assisted passenger screening (CAPS) system to select passengers whose checked baggage must be subjected to additional security measures." The current CAPPS system is a rule-based system that uses the information provided by the passenger when purchasing the ticket to determine if the passenger fits into one of two categories; "selectees" requiring additional security screening, and those who do not. CAPPS also compares the passenger name to those on a list of known or suspected terrorists. CAPPS II was described by TSA as "an enhanced system to confirm the identities of passengers and to identify foreign terrorists or persons with terrorist connections before they can board U.S. aircraft." CAPPS II would have sent information provided by the passenger in the passengers name record (PNR), including full name, address, phone number, and date of birth, to commercial data providers for comparison to authenticate the identity of the passenger. The commercial data provider would have then transmitted a numerical score back to TSA indicating a particular risk level. Passengers with a "green" score would have undergone "normal screening," while passengers with a "yellow" score would have undergone additional screening. Passengers with a "red" score would not have been allowed to board the flight, and would have received "the attention of law enforcement." While drawing on information from commercial databases, TSA had stated that it would not see the actual information used to calculate the scores, and that it would not retain the traveler's information. TSA had planned to test the system at selected airports during spring 2004. However, CAPPS II encountered a number of obstacles to implementation. One obstacle involved obtaining the required data to test the system. Several high-profile debacles resulting in class-action lawsuits have made the U.S.-based airlines very wary of voluntarily providing passenger information. In early 2003, Delta Airlines was to begin testing CAPPS II using its customers' passenger data at three airports across the country. However, Delta became the target of a vociferous boycott campaign, raising further concerns about CAPPS II generally. In September 2003, it was revealed that JetBlue shared private passenger information in September 2002 with Torch Concepts, a defense contractor, which was testing a data mining application for the U.S. Army. The information shared reportedly included itineraries, names, addresses, and phone numbers for 1.5 million passengers. In January 2004, it was reported that Northwest Airlines provided personal information on millions of its passengers to the National Aeronautics and Space Administration (NASA) from October to December 2001 for an airline security-related data mining experiment. In April 2004, it was revealed that American Airlines agreed to provide private passenger data on 1.2 million of its customers to TSA in June 2002, although the information was sent instead to four companies competing to win a contract with TSA. Further instances of data being provided for the purpose of testing CAPPS II were brought to light during a Senate Committee on Government Affairs confirmation hearing on June 23, 2004. In his answers to the committee, the acting director of TSA, David M. Stone, stated that during 2002 and 2003 four airlines; Delta, Continental, America West, and Frontier, and two travel reservation companies; Galileo International and Sabre Holdings, provided passenger records to TSA and/or its contractors. Concerns about privacy protections had also dissuaded the European Union (EU) from providing any data to TSA to test CAPPS II. However, in May 2004, the EU signed an agreement with the United States that would have allowed PNR data for flights originating from the EU to be used in testing CAPPS II, but only after TSA was authorized to use domestic data as well. As part of the agreement, the EU data was to be retained for only three-and-a-half years (unless it is part of a law enforcement action), only 34 of the 39 elements of the PNR were to be accessed by authorities, and there were to be yearly joint DHS-EU reviews of the implementation of the agreement. Another obstacle was the perception of mission creep. CAPPS II was originally intended to just screen for high-risk passengers who may pose a threat to safe air travel. However, in an August 1, 2003, Federal Register notice, TSA stated that CAPPS II could also be used to identify individuals with outstanding state or federal arrest warrants, as well as identify both foreign and domestic terrorists (not just foreign terrorists). The notice also states that CAPPS II could be "linked with the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program" to identify individuals who are in the country illegally (e.g., individuals with expired visas, illegal aliens, etc.). In response to critics who cited these possible uses as examples of mission creep, TSA claimed that the suggested uses were consistent with the goals of improving aviation security. Several other concerns had also been raised, including the length of time passenger information was to be retained, who would have access to the information, the accuracy of the commercial data being used to authenticate a passenger's identity, the creation of procedures to allow passengers the opportunity to correct data errors in their records, and the ability of the system to detect attempts by individuals to use identity theft to board a plane undetected. Secure Flight In August 2004, TSA announced that the CAPPS II program was being canceled and would be replaced with a new system called Secure Flight. In the Department of Homeland Security Appropriations Act, 2005 ( P.L. 108-334 ), Congress included a provision (Sec. 522) prohibiting the use of appropriated funds for "deployment or implementation, on other than a test basis," of CAPPS II, Secure Flight, "or other follow on/successor programs," until GAO has certified that such a system has met all of the privacy requirements enumerated in a February 2004 GAO report, can accommodate any unique air transportation needs as it relates to interstate transportation, and that "appropriate life-cycle cost estimates, and expenditure and program plans exist." GAO's certification report was delivered to Congress in March 2005. In its report, GAO found that while "TSA is making progress in addressing key areas of congressional interest ... TSA has not yet completed these efforts or fully addressed these areas, due largely to the current stage of the program's development." In follow-up reports in February 2006 and June 2006, GAO reiterated that while TSA continued to make progress, the Secure Flight program still suffered from systems development and program management problems, preventing it from meeting its congressionally mandated privacy requirements. In early 2006 TSA suspended development of Secure Flight in order to "rebaseline" or reassess the program. In December 2006, the DHS Privacy Office released a report comparing TSA's published privacy notices with its actual practices regarding Secure Flight. The DHS Privacy Office found that there were discrepancies related to data testing and retention, due in part because the privacy notices "were drafted before the testing program had been designed fully." However, the report also points out that material changes in a federal program's design that have an impact on the collection, use, and maintenance of personally identifiable information of American citizens are required to be announced in Privacy Act system notices and privacy impact assessments. In a February 2007 interview, it was reported that TSA Administrator Kip Hawley stated that while TSA has developed a means to improve the accuracy, privacy, and reliability of Secure Flight, it would take approximately one-and-a-half years to complete. This would be followed by an additional year of testing, leading to an anticipated implementation in 2010. On August 23, 2007, TSA published a notice of proposed rulemaking (NPRM) for implementing Secure Flight, as well as an NPRM proposing Privacy Act exemptions for Secure Flight, in the Federal Register . A Privacy Act System of Records Notice (SORN) was also published in the same edition of the Federal Register . In addition, a Privacy Impact Assessment (PIA) for Secure Flight was posted on the TSA website. Along with the Secure Flight NPRM, on August 23, 2007, TSA published a related but separate final rule regarding the Advance Passenger Information System (APIS) administered by U.S. Customs and Border Protection (CBP) for screening passengers of international flights departing from or arriving to the United States. TSA states We propose that, when the Secure Flight rule becomes final, aircraft operators would submit passenger information to DHS through a single DHS portal for both the Secure Flight and APIS programs. This would allow DHS to integrate the watch list matching component of APIS into Secure Flight, resulting in one DHS system responsible for watch list matching for all aviation passengers. According to the August 23, 2007 Secure Flight NPRM, in accordance with the Intelligence Reform and Terrorism Prevention Act (IRTPA), "TSA would receive passenger and certain non-traveler information, conduct watch list matching against the No Fly and Selectee portions of the Federal Government's consolidated terrorist watch list, and transmit boarding pass printing instructions back to aircraft operators." Currently, air carriers are responsible for comparing passenger information to that on government watch lists. The NPRM states that TSA would collect Secure Flight Passenger Data that includes a combination of required and optional information. Passengers would be required to provide their full names, "as it appears on a verifying identity document held by that individual." In addition, passengers would be asked, but not required, to provide their date of birth, gender, Redress Number or known traveler number. However, the NPRM does propose circumstances in which aircraft operators would be required to provide the optional information to TSA if it already has obtained that information "in the ordinary course of business." The NPRM states If a covered aircraft operator were to input data required to be requested from individuals into the system where it stores SFPD—such as data from a passenger profile stored by the aircraft operator in the ordinary course of business—the aircraft operator would be required to include that data as part of the SFPD transmitted to TSA, even though the individual did not provide that information at the time of reservation. In addition, aircraft operations would be required to provide TSA, if available, a passenger's passport information, and "certain non-personally identifiable data fields" including itinerary information, reservation control number, record sequence number, record type, passenger update indicator, and traveler reference number. Secure Flight would not utilize commercial data to verify identities, nor would it use algorithms to assign risk scores to individuals. In the NPRM TSA proposes a tiered data retention schedule. The purpose for retaining the records would be to facilitate a redress process, expedite future travel, and investigate and document terrorist events. Under this schedule, the records for "individuals not identified as potential matches by the automated matching tool would be retained for seven days" after the completion of directional travel. The records for individuals identified as "potential matches" would be retained for seven years following the completion of directional travel. The records of individuals identified as "confirmed matches" would be retained for 99 years. This original NPRM included a 60-day comment period, ending on October 22, 2007. However, in response to deadline extension requests received, on October 24, 2007, TSA published a notice in the Federal Register extending the public comment period an additional 30 days, ending November 21, 2007. On November 9, 2007, TSA published a final SORN and a final rule regarding Privacy Act exemptions for Secure Flight. Multistate Anti-Terrorism Information Exchange (MATRIX) Pilot Project Similar to TIA and CAPPS II, which were born out of an initial reaction to concerns about terrorism, the impetus and initial work on MATRIX grew out of the September 11, 2001 terrorist attacks. MATRIX was initially developed by Seisint, a Florida-based information products company, in an effort to facilitate collaborative information sharing and factual data analysis. At the outset of the project, MATRIX included a component Seisint called the High Terrorist Factor (HTF). Within days of the terrorist attacks, based on an analysis of information that included "age and gender, what they did with their drivers license, either pilots or associations to pilots, proximity to 'dirty' addresses/phone numbers, investigational data, how they shipped; how they received, social security number anomalies, credit history, and ethnicity," Seisint generated a list of 120,000 names with high HTF scores, or so-called terrorism quotients. Seisint provided this list to the Federal Bureau of Investigation (FBI), the Immigration and Naturalization Service (INS), the United States Secret Service (USSS), and the Florida Department of Law Enforcement (FDLE), which, according to a January 2003 presentation, made by the company, led to "several arrests within one week" and "scores of other arrests." Although the HTF scoring system appeared to attract the interest of officials, this feature was reportedly dropped from MATRIX because it relied on intelligence data not normally available to the law enforcement community and concerns about privacy abuses. However, some critics of MATRIX continued to raise questions about HTF, citing the lack of any publicly available official documentation verifying such a decision. As a pilot project, MATRIX was administered through a collaborative effort between Seisint, the FDLE, and the Institute for Intergovernmental Research (IIR), a "Florida-based nonprofit research and training organization, [that] specializes in law enforcement, juvenile justice, and criminal justice issues." The Florida Department of Law Enforcement (FDLE) served as the "Security Agent" for MATRIX, administering control over which agencies and individuals had access to the system. FDLE was also a participant state in MATRIX. IIR was responsible for administrative support, and was the grantee for federal funds received for MATRIX. The analytical core of the MATRIX pilot project was an application called Factual Analysis Criminal Threat Solution (FACTS). FACTS was described as a "technological, investigative tool allowing query-based searches of available state and public records in the data reference repository." The FACTS application allowed an authorized user to search "dynamically combined records from disparate datasets" based on partial information, and will "assemble" the results. The data reference repository used with FACTS represented the amalgamation of over 3.9 billion public records collected from thousands of sources. Some of the data contained in FACTS included FAA pilot licenses and aircraft ownership records, property ownership records, information on vessels registered with the Coast Guard, state sexual offenders lists, federal terrorist watch lists, corporation filings, Uniform Commercial Code filings, bankruptcy filings, state-issued professional licenses, criminal history information, department of corrections information and photo images, driver's license information and photo images, motor vehicle registration information, and information from commercial sources that "are generally available to the public or legally permissible under federal law." The data reference repository purportedly excluded data such as telemarketing call lists, direct mail mailing lists, airline reservations or travel records, frequent flyer/hotel stay program membership or activity, magazine subscriptions, information about purchases made at retailers or over the Internet, telephone calling logs or records, credit or debit card numbers, mortgage or car payment information, bank account numbers or balance information, birth certificates, marriage licenses, divorce decrees, or utility bill payment information. Participating law enforcement agencies utilized this information sharing and data mining resource over the Regional Information Sharing Systems (RISS) secure intranet (RISSNET). The RISS Program is an established system of six regional centers that are used to "share intelligence and coordinate efforts against criminal networks that operate in many locations across jurisdictional lines." The RISS Program is used to combat traditional law enforcement targets, such as drug trafficking and violent crime, as well as other activities, such as terrorism and cybercrime. According to its website, RISS has been in operation for nearly 25 years, and has "member agencies in all 50 states, the District of Columbia, U.S. territories, Australia, Canada, and England." Some critics of MATRIX suggested that the original intentions and design of the pilot project echoed those of DARPA's highly criticized TIA program. However, while it is difficult to ascribe intention, an ongoing series of problems did appear to have affected the trajectory of the project. In August 2003, Hank Asher, the founder of Seisint, resigned from the company's board of directors after questions about his criminal history were raised during contract negotiations between Seisint and the Florida Department of Law Enforcement. In the 1980s, Asher was allegedly a pilot in several drug smuggling cases. However, he was reportedly never charged in the cases in exchange for his testimony at state and federal trials. Similar concerns had surfaced in 1999 when the FBI and the U.S. Drug Enforcement Agency (DEA) reportedly cancelled contracts with an earlier company Asher founded, DBT Online, Inc. Some civil liberties organizations also raised concerns about law enforcement actions being taken based on algorithms and analytical criteria developed by a private corporation, in this case Seisint, without any public or legislative input. Questions also were raised about the level of involvement of the federal government, particularly the Department of Homeland Security and the Department of Justice, in a project that is ostensibly focused on supporting state-based information sharing. It has been reported that the MATRIX pilot project has received a total of $12 million in federal funding—$8 million from the Office of Domestic Preparedness (ODP) at the Department of Homeland Security (DHS), and $4 million from the Bureau of Justice Assistance (BJA) at the Department of Justice (DOJ). The MATRIX pilot project also suffered some setbacks in recruiting states to participate. The lack of participation can be especially troubling for a networked information sharing project such as MATRIX because, as Metcalfe's Law suggests, "the power of the network increases exponentially by the number of computers connected to it." While as many as 16 states were reported to have either participated or seriously considered participating in MATRIX, several chose to withdraw, leaving a total of four states (Connecticut, Florida, Ohio, and Pennsylvania) at the conclusion of the pilot on April 15, 2005. State officials cited a variety of reasons for not participating in MATRIX, including costs, concerns about violating state privacy laws, and duplication of existing resources. In its news release announcing the conclusion of the pilot, the FDLE stated that as a proof-of-concept pilot study from July 2003 to April 2005, MATRIX had achieved many "operational successes." Among the statistics cited, the news release stated that Between July 2003 and April 2005, there have been 1,866,202 queries to the FACTS application. As of April 8, 2005, there were 963 law enforcement users accessing FACTS. FACTS assisted a variety of investigations. On average, cases pertained to the following: Fraud—22.6% Robbery—18.8% Sex Crime Investigations—8.6% Larceny and Theft—8.3% Extortion/Blackmail—7.0% Burglary/Breaking and Entering—6.8% Stolen Property—6.2% Terrorism/National Security—2.6% Other—19.1% (e.g., assault, arson, narcotics, homicide) It was also announced that while the pilot study would not be continued, due to a lack of additional federal funding, that Florida and other participating states were "independently negotiating the continued use of the FACTS application for use within their individual state[s]." Other Data Mining Initiatives Able Danger In summer 2005, news reports began to appear regarding a data mining initiative that had been carried out by the U.S. Army's Land Information Warfare Agency (LIWA) in 1999-2000. The initiative, referred to as Able Danger, had reportedly been requested by the U.S. Special Operations Command (SOCOM) as part of larger effort to develop a plan to combat transnational terrorism. Because the details of Able Danger remain classified, little is known about the program. However, in a briefing to reporters, the Department of Defense characterized Able Danger as a demonstration project to test analytical methods and technology on very large amounts of data. The project involved using link analysis to identify underlying connections and associations between individuals who otherwise appear to have no outward connection with one another. The link analysis used both classified and open source data, totaling a reported 2.5 terabytes. All of this data, which included information on U.S. persons, was reportedly deleted in April 2000 due to U.S. Army regulations requiring information on U.S. persons be destroyed after a project ends or becomes inactive. Interest in Able Danger was largely driven by controversy over allegations that the data mining analysis had resulted in the identification of Mohammed Atta, one of the 9/11 hijackers, as a terrorist suspect before the attacks took place. While some individuals who had been involved in Able Danger were reportedly prepared to testify that they had seen either his name and/or picture on a chart prior to the attacks, the identification claim was strongly disputed by others. On September 21, 2005, the Senate Committee on the Judiciary held a hearing on Able Danger to consider how the data could or should have been shared with other agencies, and whether the destruction of the data was in fact required by the relevant regulations. While the Department of Defense directed the individuals involved in Able Danger not to testify at the hearing, testimony was taken from the attorney of one of the individuals, as well as others not directly involved with the project. On February 15, 2006, the House Committee on Armed Services Subcommittee on Strategic Forces and Subcommittee on Terrorism, Unconventional Threats and Capabilities held a joint hearing on Able Danger. The first half of the hearing was held in open session while the second half of the hearing was held in closed session to allow for the discussion of classified information. Witnesses testifying during the open session included Stephen Cambone, Undersecretary of Defense for Intelligence; Erik Kleinsmith; Anthony Shaffer, and J.D. Smith. In September 2006, a Department of Defense Inspector General report regarding Able Danger was released. The investigation examined allegations of mismanagement of the Able Danger program and reprisals against Lieutenant Colonel (LTC) Anthony Shaffer, a member of the U.S. Army Reserve and civilian employee of the Defense Intelligence Agency (DIA). The DoD Inspector General "found some procedural oversights concerning the DIA handling of LTC Shaffer's office contents and his Officer Evaluation Reports." However, the investigation found that The evidence did not support assertions that Able Danger identified the September 11, 2001, terrorists nearly a year before the attack, that Able Danger team members were prohibited from sharing information with law enforcement authorities, or that DoD officials reprised against LTC Shaffer for his disclosures regarding Able Danger. In December 2006, the then-Chairman and then-Vice Chairman of the Senate Select Committee on Intelligence, Senator Roberts and Senator Rockefeller respectively, released a letter summarizing the findings of a review of Able Danger conducted by Committee staff. According to the letter, the results of the review, begun in August 2005, "were confirmed in all respects by the DoD Inspector General investigation of the Able Danger program (Case Number H05L9790521)." The letter further stated that the review "revealed no evidence to support the underlying Able Danger allegations" and that the Committee considered the matter "closed." Automated Targeting System (ATS) On November 2, 2006, DHS posted a System of Records Notice (SORN) in the Federal Register regarding the deployment of the Automated Targeting System (ATS), to screen travelers entering the United States by car, plane, ship, or rail. Originally developed to help identify potential cargo threats, ATS is a module of the Treasury Enforcement Communications System (TECS). TECS is described as an "overarching law enforcement information collection, targeting, and sharing environment." ATS is run by the Bureau of Customs and Border Protection (CPB). The Federal Register notice states that "ATS builds a risk assessment for cargo, conveyances, and travelers based on criteria and rules developed by CPB." The notice further states that "ATS both collects information directly, and derives other information from various systems." Information collected may be retained for up to forty years "to cover the potentially active lifespan of individuals associated with terrorism or other criminal activities." According to a November 22, 2006 privacy impact assessment, ATS itself is composed of six modules: ATS-Inbound—inbound cargo and conveyances (rail, truck, ship, and air) ATS-Outbound—outbound cargo and conveyances (rail, truck, ship, and air) ATS-Passenger (ATS-P)—travelers and conveyances (air, ship, and rail) ATS-Land (ATS-L)—private vehicles arriving by land ATS-International (ATS-I)—cargo targeting for CPB's collaboration with foreign customs authorities ATS-Trend Analysis and Analytical Selectivity Program (ATS-TAP) (analytical module) According to DHS, "ATS historically was covered by the SORN for TECS." The November 2, 2006 SORN was "solely to provide increased noticed and transparency to the public about ATS" and "did not describe any new collection of information." However, the disclosure raised a number of issues about various facets of the program, including proposed exemptions from the Privacy Act; opportunities for citizens to correct errors in the records; how the risk assessments are created; if any previous testing has been conducted; and the effectiveness of the system. In its July 6, 2007 report to Congress, the DHS Privacy Office stated that of the six modules that compose ATS, only two—ATS Inbound and ATS Outbound (which became operational in 1997)—"engage in data mining to provide decision support analysis for targeting of cargo for suspicious activity." In contrast, the DHS Privacy Office report states that the ATS Passenger module does not meet the definition of data mining referred to in H.Rept. 109-699 (this definition is discussed in more detail in "Legislation in the 109 th Congress," below). Whereas the ATS Passenger module calls for a search or examination of a traveler based on the traveler's personally identifying travel documents, the data mining definition in H.Rept. 109-699 only includes a search that "does not use a specific individual's personal identifiers to acquire information concerning that individual." On August 6, 2007, the Privacy Office of the Department of Homeland Security published a notice of proposed rulemaking (NPRM) proposing Privacy Act exemptions for the Automated Targeting System, in the Federal Register . A Privacy Act System of Records Notice (SORN) was also published in the same edition of the Federal Register . In addition, a revised Privacy Impact Assessment (PIA) for ATS was posted on the DHS website. According to the NPRM, ATS-P module records exempt from the Privacy Act would include "the risk assessment analyses and business confidential information received in the PNR from the air and vessel carriers." Records or information obtained from other systems of records that are exempt from certain provisions of the Privacy Act would retain their exemption in ATS. In the NPRM, DHS states that the exemptions are needed "to protect information relating to law enforcement investigations from disclosures to subjects of investigations and others who could interfere with investigatory and law enforcement activities." The August 6, 2007 SORN is a revised version of the November 2, 2006 SORN "which responds to those comments [received in response to the November 2006 SORN], makes certain amendments with regard to the retention period and access provisions of the prior notice, and provides further notice and transparency to the public about the functionality of ATS." The changes include Reducing the "general retention period for data maintained in ATS" from 40 to 15 years, and adding a requirement that users obtain supervisory approval to access archived data in the last eight years of the retention period. Allowing "persons whose PNR data has been collected and maintained in ATS-P [to] have administrative access to that data under the Privacy Act." Individuals will also be able to "seek to correct factual inaccuracies contained in their PNR data, as it is maintained by CBP." Adding booking agents as a category of people from whom information is obtained, in acknowledgment that booking agents' identities are included in itinerary information. Amending the categories of people covered by ATS "to include persons whose international itineraries cause their flight to stop in the United States, either to refuel or permit a transfer, and crewmembers on flights that overfly or transit through U.S. airspace." Clarifying "the categories of PNR data collected and maintained in ATS-P to more accurately reflect the type of data collected from air carriers." Removing "two of the routine uses included in the earlier version of the SORN—those pertaining to using ATS in background checks." This revised SORN became effective on September 5, 2007. National Security Agency (NSA) and the Terrorist Surveillance Program In December 2005 news reports appeared for the first time revealing the existence of a classified NSA terrorist surveillance program, dating back to at least 2002, involving the domestic collection, analysis, and sharing of telephone call information. Controversy over the program raised congressional concerns about both the prevalence of homeland security data mining and the capacity of the country's intelligence and law enforcement agencies to adequately analyze and share counterterrorism information. The Senate Committee on the Judiciary held two hearings regarding the issue on February 6 and February 28, 2006. Although details about the program are classified, statements by President Bush and Administration officials following the initial revelation of the program suggested that the NSA terrorist surveillance program focused only on international calls, with a specific goal of targeting the communications of al Qaeda and related terrorist groups, and affiliated individuals. It was also suggested that the program was reviewed and reauthorized on a regular basis and that key Members of Congress had been briefed about the program. In his weekly radio address on December 17, 2005, President Bush stated: In the weeks following the terrorist attacks on our nation, I authorized the National Security Agency, consistent with U.S. law and the Constitution, to intercept the international communications of people with known links to al Qaeda and related terrorist organizations. Before we intercept these communications, the government must have information that establishes a clear link to these terrorist networks. President Bush also stated during his radio address: The activities I authorized are reviewed approximately every 45 days. Each review is based on a fresh intelligence assessment of terrorist threats to the continuity of our government and the threat of catastrophic damage to our homeland. During each assessment, previous activities under the authorization are reviewed. The review includes approval by our nation's top legal officials, including the Attorney General and the Counsel to the President. I have reauthorized this program more than 30 times since the September the 11 th attacks, and I intend to do so for as long as our nation faces a continuing threat from al Qaeda and related groups. In a January 27, 2006, public release statement, the Department of Justice stated: The NSA program is narrowly focused, aimed only at international calls and targeted at al Qaeda and related groups. Safeguards are in place to protect the civil liberties of ordinary Americans. The program only applies to communications where one party is located outside of the United States. The NSA terrorist surveillance program described by the President is only focused on members of Al Qaeda and affiliated groups. Communications are only intercepted if there is a reasonable basis to believe that one party to the communication is a member of al Qaeda, affiliated with al Qaeda, or a member of an organization affiliated with al Qaeda. The program is designed to target a key tactic of al Qaeda: infiltrating foreign agents into the United States and controlling their movements through electronic communications, just as it did leading up to the September 11 attacks. The NSA activities are reviewed and reauthorized approximately every 45 days. In addition, the General Counsel and Inspector General of the NSA monitor the program to ensure that it is operating properly and that civil liberties are protected, and the intelligence agents involved receive extensive training. On February 6, 2006, in his written statement for a Senate Committee on the Judiciary hearing, U.S. Attorney General Gonzalez stated: The terrorist surveillance program targets communications where one party to the communication is outside the U.S. and the government has "reasonable grounds to believe" that at least one party to the communication is a member or agent of al Qaeda, or an affiliated terrorist organization. This program is reviewed and reauthorized by the President approximately every 45 days. The Congressional leadership, including the leaders of the Intelligence Committees of both Houses of Congress, has been briefed about this program more than a dozen times since 2001. The program provides the United States with the early warning system we so desperately needed on September 10 th . In May 2006 news reports alleged additional details regarding the NSA terrorist surveillance program, renewing concerns about the possible existence of inappropriately authorized domestic surveillance. According to these reports, following the September 11, 2001 attacks, the NSA contracted with AT&T, Verizon, and BellSouth to collect information about domestic telephone calls handled by these companies. The NSA, in turn, reportedly used this information to conduct "social network analysis" to map relationships between people based on their communications. It remains unclear precisely what information, if any, was collected and provided to the NSA. Some reports suggest that personally identifiable information (i.e., names, addresses, etc.) were not included. It also has been reported that the content of the calls (what was spoken) was not collected. Since the emergence of these news reports, BellSouth has issued a public statement saying that according to an internal review conducted by the company, "no such [alleged] contract exists" and that the company has "not provided bulk customer calling records to the NSA." Similarly, Verizon has issued a public statement saying that due to the classified nature of the NSA program, "Verizon cannot and will not confirm or deny whether it has any relationship to the classified NSA program," but that "Verizon's wireless and wireline companies did not provide to NSA customer records or call data, local or otherwise." Together, AT&T, Verizon, and BellSouth are the three largest telecommunications companies in the United States, serving more than 200 million customers, accounting for hundreds of billions of calls each year. In a January 17, 2007 letter to the Senate Committee on the Judiciary, then-Attorney General Gonzalez wrote that: a Judge of the Foreign Intelligence Surveillance Court issued orders authorizing the Government to target for collection international communications into or out of the United States where there is probable cause to believe that one of the communicants is a member or agent of al Qaeda or an associated terrorist organization. As a result of these orders, any electronic surveillance that was occurring as part of the Terrorist Surveillance Program will now be conducted subject to the approval of the Foreign Intelligence Surveillance Court. The letter further stated that "the President has determined not to reauthorize the Terrorist Surveillance Program when the current authorization expires." The program and the alleged involvement of telecommunications companies has been the subject of several lawsuits. For a discussion of these legal issues, see CRS Report RL33424, Government Access to Phone Calling Activity and Related Records: Legal Authorities , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. In July 2008, Congress passed and the President signed into law H.R. 6304 , the FISA Amendments Act of 2008 ( P.L. 110-261 ). Among its provisions, Title VIII of the act provides a measure of protection from civil actions to telecommunications companies that provided assistance to government counterterrorism surveillance activities between September 11, 2001, and January 17, 2007. For a discussion of this legislation, see CRS Report RL34279, The Foreign Intelligence Surveillance Act: An Overview of Selected Issues , by [author name scrubbed], and CRS Report RL33539, Intelligence Issues for Congress , by [author name scrubbed] Novel Intelligence from Massive Data (NIDM) Program As part of its efforts to better utilize the overwhelming flow of information it collects, NSA has reportedly been supporting the development of new technology and data management techniques by funding grants given by the Advanced Research Development Activity (ARDA). ARDA is an intelligence community (IC) organization whose mission is described as "to sponsor high-risk, high-payoff research designed to leverage leading edge technology to solve some of the most critical problems facing the Intelligence Community (IC)." ARDA's research support is organized into various technology "thrusts" representing the most critical areas of development. Some of ARDA's research thrusts include Information Exploitation, Quantum Information Science, Global Infosystems Access, Novel Intelligence from Massive Data, and Advanced Information Assurance. The Novel Intelligence from Massive Data (NIMD) program focuses on the development of data mining and analysis tools to be used in working with massive data. Novel intelligence refers to "actionable information not previously known." Massive data refers to data that has characteristics that are especially challenging to common data analysis tools and methods. These characteristics can include unusual volume, breadth (heterogeneity), and complexity. Data sets that are one petabyte (one quadrillion bytes) or larger are considered to be "massive." Smaller data sets that contain items in a wide variety of formats, or are very heterogeneous (i.e., unstructured text, spoken text, audio, video, graphs, diagrams, images, maps, equations, chemical formulas, tables, etc.) can also be considered "massive." According to ARDA's website (no longer available) "some intelligence data sources grow at a rate of four petabytes per month now, and the rate of growth is increasing." With the continued proliferation of both the means and volume of electronic communications, it is expected that the need for more sophisticated tools will intensify. Whereas some observers once predicted that the NSA was in danger of becoming proverbially deaf due to the spreading use of encrypted communications, it appears that NSA may now be at greater risk of being "drowned" in information. Data Mining Issues As data mining initiatives continue to evolve, there are several issues Congress may decide to consider related to implementation and oversight. These issues include, but are not limited to, data quality, interoperability, mission creep, and privacy. As with other aspects of data mining, while technological capabilities are important, other factors also influence the success of a project's outcome. Data Quality Data quality is a multifaceted issue that represents one of the biggest challenges for data mining. Data quality refers to the accuracy and completeness of the data. Data quality can also be affected by the structure and consistency of the data being analyzed. The presence of duplicate records, the lack of data standards, the timeliness of updates, and human error can significantly impact the effectiveness of the more complex data mining techniques, which are sensitive to subtle differences that may exist in the data. To improve data quality, it is sometimes necessary to "clean" the data, which can involve the removal of duplicate records, normalizing the values used to represent information in the database (e.g., ensuring that "no" is represented as a 0 throughout the database, and not sometimes as a 0, sometimes as an N, etc.), accounting for missing data points, removing unneeded data fields, identifying anomalous data points (e.g., an individual whose age is shown as 142 years), and standardizing data formats (e.g., changing dates so they all include MM/DD/YYYY). Interoperability Related to data quality, is the issue of interoperability of different databases and data mining software. Interoperability refers to the ability of a computer system and/or data to work with other systems or data using common standards or processes. Interoperability is a critical part of the larger efforts to improve interagency collaboration and information sharing through e-government and homeland security initiatives. For data mining, interoperability of databases and software is important to enable the search and analysis of multiple databases simultaneously, and to help ensure the compatibility of data mining activities of different agencies. Data mining projects that are trying to take advantage of existing legacy databases or that are initiating first-time collaborative efforts with other agencies or levels of government (e.g., police departments in different states) may experience interoperability problems. Similarly, as agencies move forward with the creation of new databases and information sharing efforts, they will need to address interoperability issues during their planning stages to better ensure the effectiveness of their data mining projects. Mission Creep Mission creep is one of the leading risks of data mining cited by civil libertarians, and represents how control over one's information can be a tenuous proposition. Mission creep refers to the use of data for purposes other than that for which the data was originally collected. This can occur regardless of whether the data was provided voluntarily by the individual or was collected through other means. Efforts to fight terrorism can, at times, take on an acute sense of urgency. This urgency can create pressure on both data holders and officials who access the data. To leave an available resource unused may appear to some as being negligent. Data holders may feel obligated to make any information available that could be used to prevent a future attack or track a known terrorist. Similarly, government officials responsible for ensuring the safety of others may be pressured to use and/or combine existing databases to identify potential threats. Unlike physical searches, or the detention of individuals, accessing information for purposes other than originally intended may appear to be a victimless or harmless exercise. However, such information use can lead to unintended outcomes and produce misleading results. One of the primary reasons for misleading results is inaccurate data. All data collection efforts suffer accuracy concerns to some degree. Ensuring the accuracy of information can require costly protocols that may not be cost effective if the data is not of inherently high economic value. In well-managed data mining projects, the original data collecting organization is likely to be aware of the data's limitations and account for these limitations accordingly. However, such awareness may not be communicated or heeded when data is used for other purposes. For example, the accuracy of information collected through a shopper's club card may suffer for a variety of reasons, including the lack of identity authentication when a card is issued, cashiers using their own cards for customers who do not have one, and/or customers who use multiple cards. For the purposes of marketing to consumers, the impact of these inaccuracies is negligible to the individual. If a government agency were to use that information to target individuals based on food purchases associated with particular religious observances though, an outcome based on inaccurate information could be, at the least, a waste of resources by the government agency, and an unpleasant experience for the misidentified individual. As the March 2004 TAPAC report observes, the potential wide reuse of data suggests that concerns about mission creep can extend beyond privacy to the protection of civil rights in the event that information is used for "targeting an individual solely on the basis of religion or expression, or using information in a way that would violate the constitutional guarantee against self-incrimination." Privacy As additional information sharing and data mining initiatives have been announced, increased attention has focused on the implications for privacy. Concerns about privacy focus both on actual projects proposed, as well as concerns about the potential for data mining applications to be expanded beyond their original purposes (mission creep). For example, some experts suggest that anti-terrorism data mining applications might also be useful for combating other types of crime as well. So far there has been little consensus about how data mining should be carried out, with several competing points of view being debated. Some observers contend that tradeoffs may need to be made regarding privacy to ensure security. Other observers suggest that existing laws and regulations regarding privacy protections are adequate, and that these initiatives do not pose any threats to privacy. Still other observers argue that not enough is known about how data mining projects will be carried out, and that greater oversight is needed. There is also some disagreement over how privacy concerns should be addressed. Some observers suggest that technical solutions are adequate. In contrast, some privacy advocates argue in favor of creating clearer policies and exercising stronger oversight. As data mining efforts move forward, Congress may consider a variety of questions including, the degree to which government agencies should use and mix commercial data with government data, whether data sources are being used for purposes other than those for which they were originally designed, and the possible application of the Privacy Act to these initiatives. Legislation in the 108th Congress During the 108 th Congress, a number of legislative proposals were introduced that would restrict data mining activities by some parts of the federal government, and/or increase the reporting requirements of such projects to Congress. For example, on January 16, 2003, Senator Feingold introduced S. 188 the Data-Mining Moratorium Act of 2003, which would have imposed a moratorium on the implementation of data mining under the Total Information Awareness program (now referred to as the Terrorism Information Awareness project) by the Department of Defense, as well as any similar program by the Department of Homeland Security. S. 188 was referred to the Committee on the Judiciary. On January 23, 2003, Senator Wyden introduced S.Amdt. 59 , an amendment to H.J.Res. 2 , the Omnibus Appropriations Act for Fiscal Year 2003. As passed in its final form as part of the omnibus spending bill ( P.L. 108-7 ) on February 13, 2003, and signed by the President on February 20, 2003, the amendment requires the Director of Central Intelligence, the Secretary of Defense, and the Attorney General to submit a joint report to Congress within 90 days providing details about the TIA program. Some of the information required includes spending schedules, likely effectiveness of the program, likely impact on privacy and civil liberties, and any laws and regulations that may need to be changed to fully deploy TIA. If the report was not submitted within 90 days, funding for the TIA program could have been discontinued. Funding for TIA was later discontinued in Section 8131 of the FY2004 Department of Defense Appropriations Act ( P.L. 108-87 ), signed into law on September 30, 2003. On March 13, 2003, Senator Wyden introduced an amendment to S. 165 , the Air Cargo Security Act, requiring the Secretary of Homeland Security to submit a report to Congress within 90 days providing information about the impact of CAPPS II on privacy and civil liberties. The amendment was passed by the Committee on Commerce, Science, and Transportation, and the bill was forwarded for consideration by the full Senate ( S.Rept. 108-38 ). In May 2003, S. 165 was passed by the Senate with the Wyden amendment included and was sent to the House where it was referred to the Committee on Transportation and Infrastructure. Funding restrictions on CAPPS II were included in section 519 of the FY2004 Department of Homeland Security Appropriations Act ( P.L. 108-90 ), signed into law October 1, 2003. This provision included restrictions on the "deployment or implementation, on other than a test basis, of the Computer-Assisted Passenger Prescreening System (CAPPS II)," pending the completion of a GAO report regarding the efficacy, accuracy, and security of CAPPS II, as well as the existence of a system of an appeals process for individuals identified as a potential threat by the system. In its report delivered to Congress in February 2004, GAO reported that "As of January 1, 2004, TSA has not fully addressed seven of the eight CAPPS II issues identified by the Congress as key areas of interest." The one issue GAO determined that TSA had addressed is the establishment of an internal oversight board. GAO attributed the incomplete progress on these issues partly to the "early stage of the system's development." On March 25, 2003, the House Committee on Government Reform Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the Census held a hearing on the current and future possibilities of data mining. The witnesses, drawn from federal and state government, industry, and academia, highlighted a number of perceived strengths and weaknesses of data mining, as well as the still-evolving nature of the technology and practices behind data mining. While data mining was alternatively described by some witnesses as a process, and by other witnesses as a productivity tool, there appeared to be a general consensus that the challenges facing the future development and success of government data mining applications were related less to technological concerns than to other issues such as data integrity, security, and privacy. On May 6 and May 20, 2003 the Subcommittee also held hearings on the potential opportunities and challenges for using factual data analysis for national security purposes. On July 29, 2003, Senator Wyden introduced S. 1484 , The Citizens' Protection in Federal Databases Act, which was referred to the Committee on the Judiciary. Among its provisions, S. 1484 would have required the Attorney General, the Secretary of Defense, the Secretary of Homeland Security, the Secretary of the Treasury, the Director of Central Intelligence, and the Director of the Federal Bureau of Investigation to submit to Congress a report containing information regarding the purposes, type of data, costs, contract durations, research methodologies, and other details before obligating or spending any funds on commercially available databases. S. 1484 would also have set restrictions on the conduct of searches or analysis of databases "based solely on a hypothetical scenario or hypothetical supposition of who may commit a crime or pose a threat to national security." On July 31, 2003, Senator Feingold introduced S. 1544 , the Data-Mining Reporting Act of 2003, which was referred to the Committee on the Judiciary. Among its provisions, S. 1544 would have required any department or agency engaged in data mining to submit a public report to Congress regarding these activities. These reports would have been required to include a variety of details about the data mining project, including a description of the technology and data to be used, a discussion of how the technology will be used and when it will be deployed, an assessment of the expected efficacy of the data mining project, a privacy impact assessment, an analysis of the relevant laws and regulations that would govern the project, and a discussion of procedures for informing individuals their personal information will be used and allowing them to opt out, or an explanation of why such procedures are not in place. Also on July 31, 2003, Senator Murkowski introduced S. 1552 , the Protecting the Rights of Individuals Act, which was referred to the Committee on the Judiciary. Among its provisions, section 7 of S. 1552 would have imposed a moratorium on data mining by any federal department or agency "except pursuant to a law specifically authorizing such data-mining program or activity by such department or agency." It also would have required The head of each department or agency of the Federal Government that engages or plans to engage in any activities relating to the development or use of a data-mining program or activity shall submit to Congress, and make available to the public, a report on such activities. On May 5, 2004, Representative McDermott introduced H.R. 4290 , the Data-Mining Reporting Act of 2004, which was referred to the House Committee on Government Reform Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the Census. H.R. 4290 would have required each department or agency of the Federal Government that is engaged in any activity or use or develop data-mining technology shall each submit a public report to Congress on all such activities of the department or agency under the jurisdiction of that official. A similar provision was included in H.R. 4591 / S. 2528 , the Civil Liberties Restoration Act of 2004. S. 2528 was introduced by Senator Kennedy on June 16, 2004 and referred to the Committee on the Judiciary. H.R. 4591 was introduced by Representative Berman on June 16, 2004 and referred to the Committee on the Judiciary and the Permanent Select Committee on Intelligence. Legislation in the 109th Congress Data mining continued to be a subject of interest to Congress in the 109 th Congress. On April 6, 2005, H.R. 1502 , the Civil Liberties Restoration Act of 2005, was introduced by Representative Berman and was referred to the Committee on the Judiciary , the Permanent Select Committee on Intelligence, and the Committee on Homeland Security. Section 402, Data-Mining Report, of H.R. 1502 would have required that The Head of each department or agency of the Federal Government that is engaged in any activity to use or develop data-mining technology shall each submit a public report to Congress on all such activities of the department or agency under the jurisdiction of that official. As part of their content, these reports would have been required to provide, for each data mining activity covered by H.R. 1502 , information regarding the technology and data being used; information on how the technology would be used and the target dates for deployment; an assessment of the likely efficacy of the data mining technology; an assessment of the likely impact of the activity on privacy and civil liberties; a list and analysis of the laws and regulations that would apply to the data mining activity and whether these laws and regulations would need to be modified to allow the data mining activity to be implemented; information on the policies, procedures, and guidelines that would be developed and applied to protect the privacy and due process rights of individuals, and ensure that only accurate information is collected and used; and information on how individuals whose information is being used in the data mining activity will be notified of the use of their information, and, if applicable, what options will be available for individual to opt-out of the activity. These reports would have been due to Congress no later than 90 days after the enactment of H.R. 1502 , and would have been required to be updated annually to include "any new data-mining technologies." On June 6, 2005, S. 1169 , the Federal Agency Data-Mining Reporting Act of 2005 was introduced by Senator Feingold, and was referred to the Senate Committee on the Judiciary. Among its provisions, S. 1169 would have required any department or agency engaged in data mining to submit a public report to Congress regarding these activities. These reports would have been required to include a variety of details about the data mining project, including a description of the technology and data to be used, a discussion of the plans and goals for using the technology when it will be deployed, an assessment of the expected efficacy of the data mining project, a privacy impact assessment, an analysis of the relevant laws and regulations that would govern the project, and a discussion of procedures for informing individuals their personal information will be used and allowing them to opt out, or an explanation of why such procedures are not in place. On July 11, 2005, H.R. 3199 , the USA PATRIOT Improvement and Reauthorization Act of 2005 was introduced. On July 21, 2005, Representative Berman introduced H.Amdt. 497 to H.R. 3199 , which would required the Attorney General to submit a report to Congress on the data mining initiatives of the Department of Justice and other departments and agencies as well. The provision stated, in part; The Attorney General shall collect the information described in paragraph (2) from the head of each department or agency of the Federal Government that is engaged in any activity to use or develop data-mining technology and shall report to Congress on all such activities. H.Amdt. 497 was passed on July 21, 2005 by a 261-165 recorded vote and appeared as Section 132 of H.R. 3199 . Also on this day, H.R. 3199 was passed by the House and sent to the Senate. On July 29, 2005, the Senate passed an amended version of H.R. 3199 . The Senate version did not contain a comparable provision on data mining. The bill went to a House-Senate conference in November 2005. Section 126 of the conference report ( H.Rept. 109-333 ) filed on December 8, 2005 included a provision for a report on data mining by the Department of Justice alone, rather than other departments and agencies as well. The provision stated, in part: Not later than one year after the date of enactment of this Act, the Attorney General shall submit to Congress a report on any initiative of the Department of Justice that uses or is intended to develop pattern-based data mining technology... The bill was signed into law as P.L. 109-177 on March 9, 2006. On October 6, 2005, H.R. 4009 , the Department of Homeland Security Reform Act of 2005, was introduced by Representative Thompson, and was referred to the Committee on Homeland Security, the Permanent Select Committee on Intelligence, and the Committee on Transportation and Infrastructure. Section 203(c)(16) would have directed the Chief Intelligence Officer, as established in Section 203(a): To establish and utilize, in conjunction with the Chief Information Officer of the Department, a secure communications and information technology infrastructure, including data-mining and other advanced analytical tools, in order to access, receive, and analyze data and information in furtherance of the responsibilities under this section, and to disseminate information acquired and analyzed by the Department, as appropriate. On December 6, 2005, H.R. 4437 , the Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 was introduced by Representative Sensenbrenner and was referred to the Committee on the Judiciary and the Committee on Homeland Security. On December 8, 2005, the Committee on the Judiciary held a markup session and ordered an amended version of H.R. 4437 to be reported. On December 13, 2005, the Committee on Homeland Security discharged the bill, which was subsequently referred to and discharged from the Committee on Education and the Workforce and the Committee on Ways and Means. On December 16, 2005, H.R. 4437 was passed by the House and sent to the Senate, where it was referred to the Committee on the Judiciary. Section 1305, Authority of the Office of Security and Investigations to Detect and Investigate Immigration Benefits Fraud, of H.R. 4437 would have granted the Office of Security and Investigations of the United States Citizenship and Immigration Services at the Department of Homeland Security the authority to: (1) to conduct fraud detection operations, including data mining and analysis; (2) to investigate any criminal or noncriminal allegations of violations of the Immigration and Nationality Act or title 18, United States Code, that Immigration and Customs Enforcement declines to investigate; (3) to turn over to a United States Attorney for prosecution evidence that tends to establish such violations; and (4) to engage in information sharing, partnerships, and other collaborative efforts with any— (A) Federal, State, or local law enforcement entity; (B) foreign partners; or (C) entity within the intelligence community (as defined in section 3(4) of the National Security Act of 1947 (50 U.S.C. 401a(4)). On July 12, 2006, Senator Feingold introduced S.Amdt. 4562 to H.R. 5441 , the Homeland Security Department FY2007 appropriations bill. S.Amdt. 4562 is substantively similar to S. 1169 , although only applies to departments and agencies within the Department of Homeland Security, rather than the entire federal government. S.Amdt. 4562 was agreed to by unanimous consent and was included in the Senate-passed version of H.R. 5441 as Section 549. According to the conference report ( H.Rept. 109-699 ) Section 549 was deleted from the final bill that was passed into law ( P.L. 109-295 ). However, the conference report also included a statement on data mining by the conference managers expressing concern about the development and use of data mining technology and; "direct[s] the DHS Privacy Officer to submit a report consistent with the terms and conditions listed in section 549 of the Senate bill. The conferees expect the report to include information on how it has implemented the recommendation laid out in the Department's data mining report received July 18, 2006." Legislation and Hearings in the 110th Congress Data mining has been the subject of some of the earliest proposed bills and hearings of the 110 th Congress. On January 10, 2007, S. 236 , the Federal Agency Data-Mining Reporting Act of 2007 was introduced by Senator Feingold and Senator Sununu, and was referred to the Senate Committee on the Judiciary. Among its provisions, S. 236 would require any department or agency engaged in data mining to submit a public report to Congress regarding these activities. These reports would be required to include a variety of details about the data mining project, including a description of the technology and data to be used, a discussion of the plans and goals for using the technology when it will be deployed, an assessment of the expected efficacy of the data mining project, a privacy impact assessment, an analysis of the relevant laws and regulations that would govern the project, and a discussion of procedures for informing individuals their personal information will be used and allowing them to opt out, or an explanation of why such procedures are not in place. Also in the Senate, the Committee on the Judiciary held a hearing on January 10, 2007 entitled "Balancing Privacy and Security: The Privacy Implications of Government Data Mining Programs." The witnesses included a former Member of Congress and several individuals from research centers and think tanks. Collectively, they highlighted a number of perceived strengths and weaknesses of data mining, as well as the continually evolving nature of the technology and practices behind data mining. The witnesses also addressed the inherent challenge of simultaneously protecting the nation from terrorism while also protecting civil liberties. On February 28, 2007, Senator Reid introduced S.Amdt. 275 to S. 4 the Improving America's Security by Implementing Unfinished Recommendations of the 9/11 Commission Act of 2007. Section 504 of this amendment, entitled the Federal Agency Data Mining Report Act of 2007, was identical to S. 236 , as introduced. During the Senate floor debates held on S. 4 in early March 2007, several amendments to the data mining section of S. 4 were introduced. On March 6, 2007, Senator Kyl introduced S.Amdt. 357 to S.Amdt. 275 of S. 4 . The purpose of S.Amdt. 357 was described as "to amend the data-mining reporting requirement to protect existing patents, trade secrets, and confidential business processes, and to adopt a narrower definition of data mining in order to exclude routine computer searches." Later on March 6, 2007, Senator Kyl offered a modification to S.Amdt. 357 that used definitions of data mining and database very similar to those that appear in P.L. 109-177 the USA PATRIOT Improvement and Reauthorization Act of 2005, and that slightly changed the original language of S.Amdt. 357 regarding protection of patents and other proprietary business information. On March 8, 2007, Senator Feingold introduced S.Amdt. 429 to S.Amdt. 275 . S.Amdt. 429 is very similar to S. 236 , as introduced, with a few differences. One difference is that the initial description used to partially define data mining is changed to include "a program involving pattern-based queries, searches, or other analyses of 1 or more electronic databases...." Another difference is that the data mining reporting requirement excludes data mining initiatives that are solely for "the detection of fraud, waste, or abuse in a Government agency or program; or the security of a Government computer system." Another difference is the inclusion of language requiring that the data mining reports be "produced in coordination with the privacy officer of that department or agency." S.Amdt. 429 also includes language detailing the types of information that should be included in the classified annexes of the data mining reports (i.e., classified information, law enforcement sensitive information, proprietary business information, and trade secrets), and states that such classified annexes should not be made available to the public. Later on March 8, 2007, Senator Feingold introduced S.Amdt. 441 to S.Amdt. 357 . S.Amdt. 441 is substantively the same as S.Amdt. 429 , but with a technical modification. On March 13, 2007, S.Amdt. 441 was agreed to by unanimous consent, and S.Amdt. 357 , as modified, and as amended by S.Amdt. 441 was agreed to by unanimous consent. Also on March 13, 2007, S. 4 passed the Senate by a 60-38 vote. The data mining provision appears as Section 604 in S. 4 . As originally passed by the House in January 2007, the House version of S. 4 , H.R. 1 , did not contain a comparable provision on data mining. On March 21, 2007, the House Committee on Appropriations Subcommittee on Homeland Security held a hearing entitled "Privacy and Civil Rights in Homeland Security." The witnesses included Hugo Teufel III, the Chief Privacy Officer at DHS; Daniel Sutherland of the Office of Civil Rights and Civil Liberties at DHS; and the Government Accountability Office (GAO). Collectively they addressed some of the data mining activities being carried out by DHS, in particular the use of the Analysis, Dissemination, Visualization, Insight, and Semantic Enhancement (ADVISE) data mining tool, and the precautions taken by DHS to protect citizens' privacy and civil liberties. On April 12, 2007, the Senate Committee on the Judiciary voted to approve a revised version of S. 236 , the Data Mining Act of 2007. On June 4, 2007, the Committee reported the bill. With one exception, this revised version of S. 236 is substantively identical to data mining provision passed as Section 604 in S. 4 , and later as Section 804 of P.L. 110-53 in July 2007 (discussed below). As passed by the Committee, S. 236 includes a provision regarding penalties for the unauthorized disclosure of classified information contained in the annex of any reports submitted to Congress. On June 15, 2007, the House of Representatives passed H.R. 2638 , concerning FY2008 appropriations for the Department of Homeland Security. The accompanying House Report ( H.Rept. 110-181 ) includes language prohibiting funding for the Analysis, Dissemination, Visualization, Insight, and Semantic Enhancement (ADVISE) data mining program until DHS has completed a privacy impact assessment for the program. ADVISE is alternatively described as a technology framework, or a tool, for analyzing and visually representing large amounts of data. ADVISE is being developed by the Directorate for Science and Technology at DHS. The accompanying Senate Report ( S.Rept. 110-84 ) for S. 1644 , concerning FY2008 DHS appropriations, also includes similar language recommending that no funding be allocated for ADVISE until a program plan and privacy impact assessment is completed. On July 9, 2007, the Senate took up H.R. 1 , struck all language following the enacting clause, substituted the language of S. 4 as amended, and passed the bill by unanimous consent. Differences between H.R. 1 and S. 4 were resolved in conference later that month. The data mining provision that appeared as Section 604 in S. 4 was retained as Section 804 in the agreed upon bill. On July 26, 2007, the Senate agreed to the conference report ( H.Rept. 110-259 ) in a 85-8 vote. On July 27, 2007, the House agreed to the conference report in a 371-40 vote. On August 3, 2007, the bill was signed into law by the President as P.L. 110-53 . For Further Reading CRS Report RL32802, Homeland Security: Air Passenger Prescreening and Counterterrorism , by [author name scrubbed] and William Krouse. Out of print; available from author ([phone number scrubbed]). CRS Report RL32536, The Multi-State Anti-Terrorism Information Exchange (MATRIX) Pilot Project , by [author name scrubbed] (pdf). CRS Report RL30671, Personal Privacy Protection: The Legislative Response , by [author name scrubbed]. Out of print; available from author ([phone number scrubbed]). CRS Report RL31730, Privacy: Total Information Awareness Programs and Related Information Access, Collection, and Protection Laws , by [author name scrubbed]. CRS Report RL31786, Total Information Awareness Programs: Funding, Composition, and Oversight Issues , by [author name scrubbed]. DARPA, Report to Congress Regarding the Terrorism Information Awareness Program , May 20, 2003, http://www.eff.org/Privacy/TIA/TIA-report.pdf . Department of Defense, Office of the Inspector General, Information Technology Management: Terrorism Information Awareness Program (D-2004-033) , December 12, 2003 http://www.dodig.osd.mil/audit/reports/FY04/04-033.pdf . Department of Homeland Security, Office of the Inspector General, Survey of DHS Data Mining Activities (OIG-06-56) , August 2006 http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_06-56_Aug06.pdf . Department of Homeland Security, Office of Legislative Affairs, Letter Report Pursuant to Section 804 of the Implementing Recommendations of the 9/11 Commission Act of 2007 , February 11, 2008, http://www.dhs.gov/xlibrary/assets/privacy/privacy_rpt_datamining_2008.pdf . Department of Homeland Security, Privacy Office, 2007 Data Mining Report: DHS Privacy Office Response to H.Rept. 109-699 , July 6, 2007, http://www.dhs.gov/xlibrary/assets/privacy/privacy_rpt_datamining_2007.pdf . Department of Homeland Security, Privacy Office, Report to the Public on the Transportation Security Administration ' s Secure Flight Program and Privacy Recommendations , December 2006, http://www.dhs.gov/xlibrary/assets/privacy/privacy-secure-flight-122006.pdf . Department of Homeland Security, Privacy Office, Report to the Public Concerning the Multistate Anti-Terrorism Information Exchange (MATRIX) Pilot Project , December 2006, http://www.dhs.gov/xlibrary/assets/privacy/privacy-secure-flight-122006.pdf . Jeff Jonas and Jim Harper, Effective Counterterrorism and the Limited Role of Predictive Data Mining , CATO Institute Policy Analysis No. 584, December 11, 2006 http://www.cato.org/pubs/pas/pa584.pdf . Office of the Director of National Intelligence, Data Mining Report , February 15,2008, http://www.dni.gov/reports/data_mining_report_feb08.pdf .

Data mining has become one of the key features of many homeland security initiatives. Often used as a means for detecting fraud, assessing risk, and product retailing, data mining involves the use of data analysis tools to discover previously unknown, valid patterns and relationships in large data sets. In the context of homeland security, data mining can be a potential means to identify terrorist activities, such as money transfers and communications, and to identify and track individual terrorists themselves, such as through travel and immigration records. While data mining represents a significant advance in the type of analytical tools currently available, there are limitations to its capability. One limitation is that although data mining can help reveal patterns and relationships, it does not tell the user the value or significance of these patterns. These types of determinations must be made by the user. A second limitation is that while data mining can identify connections between behaviors and/or variables, it does not necessarily identify a causal relationship. Successful data mining still requires skilled technical and analytical specialists who can structure the analysis and interpret the output. Data mining is becoming increasingly common in both the private and public sectors. Industries such as banking, insurance, medicine, and retailing commonly use data mining to reduce costs, enhance research, and increase sales. In the public sector, data mining applications initially were used as a means to detect fraud and waste, but have grown to also be used for purposes such as measuring and improving program performance. However, some of the homeland security data mining applications represent a significant expansion in the quantity and scope of data to be analyzed. Some efforts that have attracted a higher level of congressional interest include the Terrorism Information Awareness (TIA) project (now-discontinued) and the Computer-Assisted Passenger Prescreening System II (CAPPS II) project (now-canceled and replaced by Secure Flight). Other initiatives that have been the subject of congressional interest include the Multi-State Anti-Terrorism Information Exchange (MATRIX), the Able Danger program, the Automated Targeting System (ATS), and data collection and analysis projects being conducted by the National Security Agency (NSA). As with other aspects of data mining, while technological capabilities are important, there are other implementation and oversight issues that can influence the success of a project's outcome. One issue is data quality, which refers to the accuracy and completeness of the data being analyzed. A second issue is the interoperability of the data mining software and databases being used by different agencies. A third issue is mission creep, or the use of data for purposes other than for which the data were originally collected. A fourth issue is privacy. Questions that may be considered include the degree to which government agencies should use and mix commercial data with government data, whether data sources are being used for purposes other than those for which they were originally designed, and possible application of the Privacy Act to these initiatives. It is anticipated that congressional oversight of data mining projects will grow as data mining efforts continue to evolve. This report will be updated as events warrant.

Introduction After a period of diplomatic rancor earlier in the decade, Japan and China have demonstrably improved their bilateral relationship since 2006. Sino-Japanese relations over the past ten years have followed a remarkable trajectory: from a disastrous Japan visit by former Chinese President Jiang Zemin in 1998 to Hu Jintao's well-orchestrated and highly successful visit to Tokyo in May 2008. The emerging détente has expanded to include breakthrough agreements on territorial disputes, various high-level exchanges, and reciprocal port calls by naval vessels. Despite the rollercoaster of political and diplomatic ties, other aspects of the relationship have remained relatively consistent. China-Japan economic interdependence has grown as trade and investment flows have surged over the past decade. China-Japan economic ties serve as an anchor for the overall bilateral relationship, and the two nations and have become the key players in a robust East Asian trade and investment network. On the other hand, military strategists in each country remain wary of the other's motives. Beijing is suspicious of any moves that hint at Japan developing a more assertive and active security posture, and Japanese defense planners note with alarm China's burgeoning military modernization. Japanese defense documents have publicly declared their concern with Beijing's lack of transparency and apparently aggressive military spending over the past several years. In addition, occasional incursions by Chinese vessels into Japan's territorial waters have kept tension high at times despite the overall improving relations. The détente, pursued with vigor by leaders in both Beijing and Tokyo, follows an exceedingly tense period in the relationship under former Japanese Prime Minister Junichiro Koizumi (2001-2006). Koizumi's annual visits to the controversial Yasukuni Shrine, which honors Japan's war dead—including several convicted Class A war criminals—particularly rankled Beijing. The visits, together with changes to Japanese history textbooks that critics claim whitewash Japan's wartime behavior, led to large, sometimes violent anti-Japan protests in Chinese cities that damaged Japanese diplomatic posts. Since 2006, political leaders on both sides—even those whose rhetoric was the most vehement—appear to have concluded that political accommodation is the best course, at least temporarily. The fact that this trend has survived several political transitions in Tokyo is particularly promising. Many analysts contend that the short- to medium-term outlook is remarkably stable, but acknowledge that fundamental distrust and disagreements over history could threaten ties in the longer term. In short, it appears that these disputes have created a firm ceiling for Chinese-Japanese relations; the question is if this recent détente points to the establishment of a new, higher floor. The durability of the recent détente could have significant implications for U.S. interests. U.S. interests in the region are generally well served by pragmatic Sino-Japanese accommodation. Equanimity in the Tokyo-Beijing relationship not only fosters stability and prosperity, but also allows the United States to avoid choosing sides on delicate issues, particularly those related to history. During the tension of the Koizumi years, U.S. officials voiced fears—both publicly and privately—that the discord was harmful to regional stability. Multilateral efforts such as the Six-Party Talks on North Korea's nuclear program can be complicated by acute bilateral tension among the participants. On the other hand, some U.S. officials and analysts who view China as a security threat find the recent détente somewhat disconcerting. Although this tends to be a minority view among influential policymakers, this school of thought advocates building up Japan's military capability to deter any of China's strategic ambitions. This camp encourages Japan to move past some of restrictions placed on its military, including Article 9, the so-called peace clause of the Japanese constitution, authored by U.S. officials during the post-war occupation. The chance for Japan and China to grow too close for U.S. interests appears, at this point, remote. Historical grievances and contemporary distrust, combined with the inherent tension of two major powers competing in the same region, seem to preclude the possibility of a more exclusive political partnership between Tokyo and Beijing that could marginalize U.S. interests. Moreover, despite some signs of drift in the U.S.-Japan alliance, the American security commitment to Japan appears to remain fundamentally solid. In the event of a conflict in the Taiwan Straits, Japan would almost definitely play a role in a U.S. military response. The presence of 47,000 U.S. troops in Japan (65% of them stationed in Okinawa, geographically proximate to Taiwan) implies that a U.S. counter-attack could be staged from Japan. To many security analysts, Taiwan's status as a potential flashpoint for conflict between China and the United States provides a fairly reliable bulwark for the U.S.-Japan relationship despite periodic bilateral tension. China's and Japan's Regional Strategies In the post-Cold War environment and into the 21 st century, both Japan and China have reassessed their bilateral and regional strategies and likely will continue to do so in light of continuing global changes. Each country figures as an important calculation in these ongoing strategic reassessments, as does the United States. China China's overriding primary goal is sustainable economic development at home. In pursuit of it, Beijing has placed a high priority on maintaining a "peaceful international environment" both regionally and globally. Smooth ties with the United States and Japan are thought to figure prominently in Beijing's foreign policy calculations, on the theory that even the appearance of a more overt pursuit of its interests could prompt responses from Washington and Tokyo that would be detrimental to its own continued development. Concern about China, for instance, could lead the United States to strengthen its alliance with Japan, or could convince Japan to strengthen its own defense resources. In addition, Beijing now sees itself facing new national security challenges in the post-Cold War environment. Among these challenges are the demise of the Soviet Union and international communism, the surge in U.S. global power, and pro-independence activism on Taiwan. Beijing appears suspicious about the extent of Japan's own regional ambitions—for example, its territorial claims in the East China Sea—and the degree to which these may adversely impact China's economic and political interests. Chinese leaders are especially concerned about the potential role of Japan—both directly and as host to U.S. military forces—in the event of a conflict involving China's claims on Taiwan. Japan Despite its status as a world economic superpower, Japan is struggling to adjust to increasingly challenging domestic and geopolitical realities. Domestically, the economy is struggling in the current global downturn, after an extended period of stagnation in the 1990s. In its first real experiment with divided government, the political process is uncertain and somewhat paralyzed. Demographically, concerns about a shrinking labor force have grown more acute, driven by Japan's combination of a low birth rate, strict immigration practices, and a rapidly-ageing population. Outside its borders, Japan cannot ignore China's skyrocketing economic growth and political clout. Its impressive GDP per capita and admirable standard of living for its citizens notwithstanding, Japan sees the enormous challenges ahead. Tokyo's strategy appears to be to maintain its close security ties with the United States, re-assert itself as a crucial trading partner for other Asian nations, and avoid counterproductive spats with Beijing, its main regional competitor. Japan also would like to raise its global profile in order to be recognized for its generous provision of foreign aid and other contributions to international development. In 2004, Japan accelerated its longstanding efforts to become a permanent member of the United Nations Security Council by forming a coalition with Germany, India, and Brazil (the so-called "G-4") to achieve non-veto membership for all four countries. Though the Bush Administration backed Japan's bid, it did not support the G-4 proposal, and Security Council reform efforts have stalled. Japan is the second-largest contributor to the U.N. regular budget, paying more than 20% of the total, more than twice the percentage paid by the third-largest contributor. Overcoming Beijing's traditional opposition to permanent membership for Japan is a key obstacle to realizing this eventual goal. Historical Background Brief Summary of Sino-Japan Relations China's relationship with Japan is complex and long-standing, dating back at least to the first century A.D. when China's greater size, advanced achievements, and more prominent culture served as both model and rival to its smaller neighbor. Geographic proximity brought the two countries into constant contact over the centuries through maritime trade, cultural contacts, periodic military battles, regional rivalries, and economic exchanges. Much of Japanese development—including its culture, religion, form of writing, and philosophical tradition—was greatly influenced by comparable traditions in a more developed and more influential dynastic China. This relationship of Chinese dominance changed in the late 19 th century, when Japan's growing militarism and imperial ambition enabled it to gain a series of military victories and impose punitive economic arrangements over the weakened Qing Dynasty and the government that replaced it, that of the Republic of China (ROC). In addition to requiring China to pay huge indemnities, Japan's victories included the annexation of Taiwan (after the 1894-1895 Sino-Japanese War), acquisitions in China's Shandong Province, occupation of Manchuria, and full-scale invasion of the Chinese mainland. By the end of World War II, Japan's military campaigns and conquests in China had left a legacy of bitterness that continues to affect Sino-Japanese relations into the 21 st century. In 1949, Mao Zedong's communist forces triumphed in the civil war with the ROC government. Mao established the People's Republic of China (PRC) on the mainland, and the government of the ROC fled to Taiwan, an island off the south China coast. Japan-PRC relations since then have consisted of attempts at economic and political engagement mixed with periods of renewed tension and confrontation. On the "engagement" side, Japan has provided significant economic development aid to the PRC since 1979 through concessional loan programs, and its trade with the PRC broadened to $237 billion in 2007. Both countries have engaged in high-level summitry, and both participate in the Six-Party Talks and in regional groupings such as the Asia Pacific Economic Cooperation forum (APEC) and the East Asia Summit (EAS). However, confrontations have arisen periodically over a number of lingering issues. The U.S. Role Occupation after World War II After Japan's unconditional surrender to Allied Forces on August 15, 1945, decisions made by the United States played a significant role both in Japan's post-war construction specifically and in the structure of East Asia more generally. Rather than dividing the main Japanese islands among the Allied Powers, the United States appointed General Douglas MacArthur as Supreme Commander of the Allied Powers (SCAP) to supervise a unified (primarily American) occupation. For occupation purposes, outlying Japanese possessions were divided among other Allied Powers. Taiwan and the Pescadores were assigned to the Republic of China, a decision that took on greater significance four years later, when the ROC government fled to Taiwan after the communist victory on mainland China. Among other efforts to rebuild Japan, SCAP established a post-war constitution (1947) that established a parliamentary system of government for Japan. Article 9 of the constitution, drafted by Americans during the Japanese occupation, outlaws war as a "sovereign right" of Japan and prohibits "the right of belligerency." The prevailing interpretation of the constitution also forbids "collective self-defense," although there is political movement in Japan today toward reconsidering this restriction. Under the ban on collective self-defense, the Japanese Self-Defense Forces (SDF—the official name for the Japanese military) can only respond to an attack on Japan and cannot defend an ally if that ally is attacked. Although occupation officials initially set distinct goals of thoroughly demilitarizing Japan, as confrontation with the Soviet Union materialized, the goals of the occupation shifted to building Japan up as a strategic bulwark against the perceived communist threat. On September 8, 1951, (after the beginning of the Korean War), the United States and Japan signed the Mutual Security Treaty, which allowed the United States to station troops on Japan for Japan's defense. The occupation of Japan officially ended on April 28, 1952, when most of Japan again became an independent, self-ruled country. Two years later, both countries built on the 1951 treaty by signing the Mutual Defense Assistance Agreement (which entered into force May 1, 1954). The agreement permitted the United States to station military forces on Japan to provide for regional security and obliged Japan to re-arm for self-defense purposes only. Finally, on January 19, 1960, both countries entered into a defense alliance in a new agreement that revised the 1951 treaty, the Treaty of Mutual Cooperation and Security. The 1960 treaty obliged both parties to assist each other in resisting an armed attack on territories under Japanese administration. Japan's military alliance with the United States became an additional factor affecting Sino-Japanese relations. The "Nixon Shock" For decades after the PRC communist victory over ROC military forces in 1949, Japan followed the U.S. lead in having no official political relations with the PRC and in recognizing the ROC government on Taiwan as the legitimate government of China. Still, through the 1950s, Japan's unofficial economic contacts with the PRC broadened, including a number of private agreements (sanctioned by the two governments) to enhance mutual trade. The PRC suspended these trade arrangements for several years in 1958 in a possible attempt to pressure Japan (unsuccessfully) for full political recognition. Japan-PRC trade improved in 1962 with the negotiation of new trade arrangements, but Japan's expanding trade with the PRC met with objections from Taiwan, which considered it out of step with Tokyo's recognition of the ROC government. As a result, in 1964 Taiwan suspended new government purchases from Japan for six months. In July 1971, reportedly without first informing Japan, U.S. President Richard Nixon announced that he would visit the PRC in 1972 to seek normalized relations between the United States and China. The announcement came to be known in Japan as the "Nixon Shock," and it quickly prompted a reassessment of Japanese policy toward the PRC on the mainland and the ROC on Taiwan. Discussions to establish Sino-Japanese diplomatic relations began in December 1971, and on September 29, 1972, both countries signed the "Joint Communique of Government of Japan and Government of People's Republic of China," establishing mutual diplomatic relations, six years before the United States and China took this step. The period that followed from 1971 until the fall of the Soviet Union in 1991 was a time of significant rapprochement in Sino-Japanese relations (as it was in Sino-U.S. relations). In addition to substantial bilateral re-engagement, Japan offered China substantial aid and investment and transferred much-needed technology. Sino-Japanese Post-Cold War Relations The demise of the Soviet Union prompted a reassessment of overall global relationships and brought new challenges to Sino-Japanese relations. While growing Sino-Japanese economic interdependence served as what one study called a "shock absorber" for many of these challenges, the adaptation to post-Cold War realities proved problematic. In Japan's eyes, China began to appear less as a supplicant for Japanese aid and investment and more as a regional rival to Japan's own interests. It also was not hard for Tokyo to infer that China's expanding military force modernization, while fostering capabilities aimed at the island of Taiwan, had the same disturbing implications for Japan and other island nations in the region. The potential dangers were brought home pointedly during the 1995-1996 Taiwan missile crisis, when China conducted live-fire missile exercises opposite the Taiwan coast. Tokyo's growing suspicions of Beijing were returned in kind. China increasingly saw itself as a replacement focus of the U.S.-Japan alliance—an alliance which not only did not fade away after the fall of the Soviet Union but which both countries acted to strengthen after the Taiwan missile crisis in 1996. China also became concerned over what it saw as a change in the alliance's focus, away from Japan's defense and toward Taiwan's status and other broader (but vague) regional security issues. Some of the U.S.-Japan initiatives that concerned Beijing included the 1996 U.S.-Japan Joint Declaration on Security, in which both parties reaffirmed their alliance; the 1997 Review of the Guidelines for U.S.-Japan Defense Cooperation, which avowed mutual cooperation not just in Japan's defense but "in areas surrounding Japan," although without mentioning Taiwan; and the 2005 Joint Statement of the U.S.-Japan Security Consultative Committee, which for the first time mentioned both countries' concerns that the Taiwan issue be resolved peacefully through dialogue. These and other tensions continued to plague Sino-Japanese relations until the new period of détente began in 2006. Taiwan's Role Current controversy over the status of Taiwan is in part a legacy issue of Japan's 19 th and 20 th century militarization. After the 1894-1895 Sino-Japanese War, Japan acquired the island of Taiwan "in perpetuity" from the Republic of China, turning it into a Japanese colony, called Formosa, and investing heavily in the island's development. Although not a part of Japan's World War II conquests, the Japanese colony of Formosa nevertheless came under Allied Power occupation after Japan's defeat and unconditional surrender. This decision was set forth in the "Cairo Declaration" of December 1, 1943, issued after a meeting by U.S. President Franklin Roosevelt, ROC President Chiang Kai-shek, and British Prime Minister Winston Churchill. Among other things, the Cairo Declaration stated: It is [the Allied Powers] purpose that Japan shall be stripped of all the islands in the Pacific which she has seized or occupied since the beginning of the first World War in 1914, and that all the territories Japan has stolen from the Chinese, such as Manchuria, Formosa, and The Pescadores, shall be restored to the Republic of China. Japan will also be expelled from all other territories which she has taken by violence and greed. In keeping with the Cairo Declaration, after Japan's defeat in 1945, Taiwan and the Pescadores were assigned to the Republic of China for purposes of post-war occupation. Taiwan was still under this occupation four years later, when the ROC government fled to Taiwan after the communist victory in the civil war on mainland China. The formal state of war between Japan and the Allied Powers was ended by the 1951 Treaty of Peace with Japan (also known as the San Francisco Peace Treaty.) Article 2(b) of that treaty stated that "Japan renounces all right, title, and claim to Formosa and the Pescadores," but the treaty mentioned nothing about Taiwan's new sovereign status. The failure to specify Taiwan's sovereignty in this treaty, the specific reference to Formosa's return to the ROC in the Cairo Declaration, and the ROC's physical occupation of the island after 1949 all contributed to future controversy over Taiwan's political status. Tiananmen Sanctions In the aftermath of China's Tiananmen Square crackdown in 1989, Japan demonstrated more independence from the U.S. position in imposing sanctions against the PRC government. It appeared to follow the U.S. lead—most notably, the suspension of the $5.57 billion six-year concessional loan program that Japan had announced for China in 1988. At the same time, Japan also withdrew all Japanese "experts" working on various projects in China and announced a review of Japan's Export-Import Bank policies toward China. While these steps seemed to be severe sanctions, the effects were mitigated by the fact that the concessional loan program was not scheduled to begin until April 1990. In addition, Japanese rhetoric toward China throughout much of 1989 was somewhat muted; Japanese officials rejected use of the term "sanctions" in referring to its actions toward China, and Prime Minister Sosuke Uno publicly stated that imposing sanctions against China "is very impolite to a neighboring country." Japanese officials at the time also criticized some steps taken by the United States as overly punitive against China, capable of deepening China's isolation. Japan also sought to moderate the position of G-7 countries toward China at the G-7 economic summit in Houston in July 1990. Japan's War History Since the conclusion of World War II, the sharpest confrontations between Japan and China have arisen over Japan's wartime history and the differing ways in which both countries perceive it. China routinely protested former Japanese Prime Minister Junichiro Koizumi's annual visits to the Yasukuni Shrine, where war criminals are also enshrined. (See later section on the controversial visits.) After Koizumi first visited the shrine in 2001, China used the issue to justify its refusal to engage in bilateral summitry, except as part of multilateral meetings. PRC officials have criticized Japanese history textbooks which they say appear to minimize or even to deny Japan's wartime atrocities. China also has declared that the periodic statements of Japanese senior leaders apologizing for Japan's wartime aggression are insufficient; Beijing points to the Yasukuni Shrine visits and history textbooks as examples of actions that seem incompatible with those conciliatory statements. Outline of Détente 2006 - Present Against this background of historical division but increasing economic interdependence, Japan and China have undergone a remarkable reversal from the tension of the Koizumi years (2001-2006). This section outlines the motivations and most prominent aspects of the reconciliation of the past few years. Tokyo's Motivations Japanese leaders appear to have been shaken by the hostile turn of relations under Koizumi and determined to set the relationship on a stronger course. Despite its suspicion of China's long-term intentions, Tokyo has many reasons to pursue better ties with its biggest neighbor. Chief among them is facilitating continued robust trade relations; increased exports to China was one of the main reasons that Japan's economy began to recover since 2000. Although security planners may eye China's military modernization with alarm, security specialists also recognize the need to avoid bilateral tension that could lead to an armed conflict—for example, in the contested Senkaku/Diaoyutai islands—if proper safeguards are not in place. Broader regional—and even global—considerations may also be at play for Japan: for example, the importance of garnering some degree of support for Tokyo's priorities in the Six-Party Talks and even ultimately for Japan's bid for a permanent seat on the UN Security Council. Beijing's Motivations Better relations with Japan are thought to be an important calculation in the premium that PRC leaders have placed on maintaining a stable regional environment conducive to national economic development. China's economic interests are well served by being able to cooperate effectively with Japan on trade, investment, energy efficiency, environmental protection, fisheries, and other issues of mutual importance. But PRC leaders also are thought by some to be playing a hedging game in relations with Japan. They are thought perhaps to be seeking to nudge Japan out of its orbit as a U.S. ally, or at least to make more difficult Tokyo's choices between advancing future PRC or U.S. interests. Beijing may calculate that increasing Tokyo's decision dilemmas could remove or minimize Japan as a potential factor in the event of a future Taiwan contingency. But this requires a delicate balance, as Beijing is thought to be more comfortable living with a U.S.-Japan alliance than with a fully militarized Japan. Yasukuni Shrine Issue Evolves Over the past ten years, the most consistently divisive issue between Japan and China has involved the visits of high-level Japanese officials to the Yasukuni Shrine, a Shinto shrine that honors Japanese soldiers who died in war. Those enshrined include several Class A war criminals who were convicted by the International Military Tribunal for the Far East following Japan's defeat in World War II. While Japanese defenders of the practice claim leaders are simply paying respects to all of Japan's war dead, Chinese and other Asian leaders claim the ritual disregards the brutality of Japan's imperial conquests. When former Prime Minister Koizumi visited the shrine annually during his tenure—including the last visit on the sensitive date of August 15, the anniversary of Japan's surrender to the Allied Forces—Chinese leaders emphasized repeatedly that the visits constituted a stumbling block in moving political relations forward. Since the war criminals were enshrined in 1978, four Japanese prime ministers have visited the shrine. Objections were first raised by Japan's neighbors in 1984 when Prime Minister Yasuhiro Nakasone went, after which he discontinued the practice. Koizumi's hand-picked successor, Shinzo Abe, had voiced support for the shrine visits before assuming office, but refrained from visiting during his year-long tenure. Abe did pay a low-profile visit to Yasukuni shortly before assuming the premiership, and remained non-committal on his future plans to the press. Despite Abe's rhetoric, relations with China almost immediately brightened and he made an early trip to Beijing that was viewed as successful. Abe's successor Yasuo Fukuda pledged not to visit the shrine before becoming prime minister, explicitly explaining his decision as based on considering the feelings of other countries. His declaration may have been the most effective measure to improve the atmosphere between Tokyo and Beijing and likely set the stage for the considerable advancement in relations. Chinese leaders were quick to praise Fukuda's statements on Yasukuni. Given the success in improving relations, Japanese politicians appear to want to avoid provoking Beijing by visiting Yasukuni. In the past, current Prime Minister Taro Aso suggested that the emperor should visit the shrine, as well as defended other politicians' visits. However, he indicated that as Prime Minister he would not pay respects at Yasukuni. At times, he has also been a supporter of transforming Yasukuni into a secular, state-run institution to commemorate the war dead. Ichiro Ozawa, head of the Democratic Party of Japan, has criticized past prime minister's visits to the shrine because of the damaging effect on ties with China. High-Level Visits Perhaps nothing is more emblematic of Japan and China's shifting relations than the trajectory of top-level leaders' visits. In a 1998 visit to Tokyo that was considered a public relations disaster, Chinese President Jiang Zemin openly scolded Japanese officials for failing to appropriately acknowledge imperial Japan's war-time aggression. With the exception of a Koizumi visit to Beijing early in his tenure, Chinese and Japanese leaders did not have an official summit during Koizumi's five years in office. (Koizumi did hold several sideline meetings with China's leaders at various international fora.) Chinese leaders explicitly stated that they would resume bilateral summits if Koizumi ceased visiting the Yasukuni Shrine. Shortly after assuming office, Abe visited Beijing in October 2006 to indicate his determination to improve ties. Chinese Premier Wen Jiabao reciprocated with an April 2007 visit to Japan, including a historic address to the Japanese Diet (parliament). Fukuda, seen as more friendly to Beijing than Abe, was then warmly welcomed in Beijing in December 2007, building on his predecessor's success. The détente climaxed with Chinese President Hu Jintao's carefully orchestrated visit in May 2008, the first by a Chinese leader to Japan in a decade. The heads of state summit was heavy on symbolism, if thin on concrete substance. Notably absent from the Chinese leader's statements was a call for Japan to apologize for historical grievances, and both sides emphasized a "forward-looking" friendship. The two leaders agreed to hold annual summits, cooperate on environmental technology, and enhance cultural exchanges. Significance of East China Sea Agreement Following PRC President Hu Jintao's visit to Japan in May 2008, China and Japan announced a "consensus" on joint exploration for oil in the resource-rich East China Sea, as well as an "understanding" on Japanese participation, under PRC jurisdiction, in development of one of the area's proven gas reserves, the Chunxiao gas field. Some hailed the agreement as a "remarkable improvement" that would "remove a major obstacle" in Sino-Japanese relations. According to another view, the agreement allows Japan a face-saving way to participate in energy development in a disputed area while not requiring the PRC to accept Japan's claims that a "median line" divides the East China Sea into Japanese- and Chinese-owned areas. On the surface, the East China Sea agreement appears to lay the groundwork for addressing an area that has been the focus of years of competing Sino-Japanese territorial claims and tense stand-offs. Still, a number of potential obstacles could hamper future progress. Each country has put its own spin on the agreement, for instance, with China quickly clarifying that it is not a "joint development" project (as Japan claims) but a "co-operative development" venture, which Beijing describes as "a very different thing." According to the PRC side, private Japanese investment will have to recognize PRC sovereignty over the Chunxiao gas field and will be conducted in accordance with Chinese laws. Details also remain sketchy on how the cooperation will move forward and on how revenues will be shared. Neither side has compromised on its core definition concerning its own sovereignty rights in the East China Sea, leaving this thorny issue as something still to be determined. Future Sino-Japanese cooperation under the East China Sea agreement will have to navigate multiple minefields of nationalistic sentiments—sentiments which at times appear outside the control of the involved governments. Such sentiments erupted after June 10, 2008, when a Japanese patrol boat in the East China Sea collided with and sank a fishing vessel from Taiwan, whose government also maintains sovereignty claims in the disputed area. Taiwan responded by recalling its representative to Japan, and the following week a boat of Taiwan activists, accompanied by Taiwan patrol boats, entered Japanese waters in the disputed area in apparent protest of the collision. PRC nationalist sentiments also surged after the agreement was announced, with a small protest outside the Japanese Embassy in Beijing and online commentary criticizing PRC officials for allegedly "selling out" China's interests to Japan. Sichuan Earthquake Relief After China was struck by a devastating earthquake in Sichuan province in May 2008, Japan immediately offered condolences and reportedly pledged $5 million in emergency aid in supplies as well as provision of satellite imagery of the quake zone. In the weeks after the quake, Japan announced an additional $5 million in assistance in addition to tents and other supplies. Tokyo also dispatched a group of 60 earthquake rescue experts, the first foreign team that Beijing accepted, and subsequently sent medical personnel to aid earthquake survivors. In addition to Beijing's official acceptance of Japanese aid, some news accounts reported that Japanese assistance was welcomed and met with gratitude by the Chinese people in the quake zone. But lingering historical sensitivities affected the scope and delivery of some Japanese aid. One initial plan to have Japanese Air Self Defense Forces C-130 transports carry supplies into China was shelved, apparently out of fears that Chinese citizens would react to the first arrival of Japanese military planes in China since World War II. Supplies ultimately were ferried in by commercial aircraft. Military to Military Relations Even modest improvements in the defense relations between China and Japan are notable given the history of warfare—and particularly China's widespread accusations of the exceptional brutality of Japanese imperial forces during Japan's invasion and occupation of China. After Koizumi's second visit to the Yasukuni Shrine in April 2002, China protested by canceling a scheduled visit to Beijing by Japan's Defense Agency chief Gen Nakatani and a call by Chinese warships to Tokyo port. From that point forward until Koizumi left office, military-to-military relations were essentially frozen. Since 2007, military affairs between the two countries have improved alongside the warming up of Sino-Japanese relations. In November 2007, a Chinese missile destroyer visited the port of Tokyo, becoming the first Chinese warship to make a port call to Japan. In return, a Japanese Maritime Self-Defense Force (MSDF) destroyer paid a call to the Chinese southern port of Zhanjiang in June 2008. In September 2008, Chinese air force general Xu Qiliang became the first commander of the People's Liberation Army (PLA) Air Force to visit Japan since 2001. He met with Japanese Defense Minister Yoshimasa Hayashi and agreed that there was a need to enhance bilateral defense exchanges. Despite these improvements, there is a limit to how far military exchanges can go, particularly when exposed to the public spotlight. The tentative steps toward cooperation between the two militaries has taken place against a backdrop of occasional intrusions by Chinese vessels into Japan's territory, although the reported incidence of naval incursions appear to have declined in the past few years. Japan-China Economic Ties: The Main Anchor for the Relationship The China-Japan economic relationship has become one of the most dynamic and important bilateral economic relationships in the 21 st century. It combines the world's second largest national economy (Japan) with one of the world's fastest growing and potentially largest economies (China). The two economies have become the world's largest net savers and, thus, potential sources of credit to the rest of the globe. China and Japan are the largest and second largest holders of foreign exchange reserves. How the two countries conduct their economic relations will likely have important implications for East Asia and the rest of the world and, therefore, for the United States. The economic relationship is a critical part of the overall China-Japan relationship. While political and national security relations have made relations volatile through the years, economic ties have provided stability. China and Japan have grown more economically inter-dependent, which has provided great incentive for them to pursue better relations. The economic relationship has broadened and deepened over the last two decades and has become more complex. Modern China-Japan economic relations developed at first very slowly after World War II as the two countries dealt with the legacies of Japan's colonial occupation of China and of the war. They were hampered also in the 1960s and 1970s as the two countries were on opposite sides of the Cold War, during which Japan largely followed U.S. policy, and because China's severely centralized economic system was not conducive to liberalized foreign trade and investment. The climate for economic ties vastly improved first with Japan's diplomatic recognition of China in 1972, following the U.S. opening to China with the visit of President Nixon. Even more importantly, major economic reforms that China's leadership introduced beginning in the late 1970s included opening the Chinese economy to foreign trade and investment. While the economic relationship improved over the years, it has still experienced periods of turmoil but has stabilized in the last few years as the two countries have become more closely intertwined economically. An Overview of the Bilateral Economic Relationship Table 1 presents comparative economic data to place the China-Japan relationship in perspective. These data indicate some significant contrasts between the two economies. For example, China's economy has grown substantially faster (albeit from a much lower base) than Japan's during the 1997-2007 period—9.5% per year on average for China compared to 1.2% for Japan. The comparative figures for total gross domestic product (GDP) reflect the results of the rapid growth. While Japan is still a larger economy in nominal terms, China appears to be catching up. In 2007, China's total GDP was $3.2 trillion compared to Japan's $4.4 trillion. However, China's economy is larger if measured in terms of purchasing power parity (PPP)—$7.3 trillion for China compared to $4.3 trillion for Japan. A more accurate measure of the relative state of two economies is the standard of living in each country. One measure of standard of living is the per capita GDP and a comparison of the two countries suggests that, as impressive as China's progress has been, it still has far to go to "catch up" with Japan. In 2007, China's nominal per capita GDP stood at $5,480 in PPP terms. On the other hand, Japan's nominal GDP was $33,630 in PPP terms. According to this measurement, China's standard of living is only 16.3% of Japan's. In addition, China carries a 9.2% unemployment rate compared to Japan's 3.8%, and labor costs in China are far below those in Japan—$1.73/hour compared to $19.59/hour. The labor cost differentials suggest an economic complementarity that would help shape the bilateral economic relationship, namely one economy (China) with a large pool of unskilled and low-skilled labor linking up with another economy (Japan) with a small and diminishing pool of highly-skilled, high-cost labor. China-Japan Trade Ties A significant element of the China-Japan economic relationship has been the growth of bilateral merchandise trade. As Table 2 and Figure 1 show, from 1980 to 2007 total China-Japan trade increased significantly with both Japanese exports to China (Chinese imports from Japan) and Japanese imports from China (Chinese exports to Japan) rising substantially. As Table 2 and Figure 1 indicate, Japanese imports from China have exceeded exports to China since the mid-1980s. Not only has China-Japan trade grown in absolute terms, but also in relative terms. The China and Japan trade relationship has tightened as they have become more important to one another as trading partners. In 1995, China accounted for 10.0% of Japan imports and was the second largest source of imports next to the United States. By 2007, China had replaced the United States in the first position and accounted for 20.6% of Japan's imports. Similarly, in 1995, China accounted for 5.3% of Japanese exports and was Japan's fifth largest export market; but, by 2007, it was the second largest market (next to the United States) accounting for 15.3% of Japanese exports. On the other hand, while Japan is an important trade partner for China, its relative importance has declined over the years, as China has forged closer ties with other East Asian economies and with the United States. In 1995, Japan ranked first as a source of China's imports and accounted for 22.0% of total Chinese imports; but, in 2007, while still number one, Japan's share of Chinese imports had declined to 14.0%. During the same period, Japan's share of Chinese exports declined from 19.1% in 1995 to 8.4% in 2007, and Japan declined from the second most important export market to the third, having been displaced first by the United States then by Hong Kong. The commodity composition of China-Japan trade has changed over time reflecting shifts in the structure of the trading relationship. In the early 1980s, when China had just begun its economic reform program, a large portion of China's exports to Japan consisted of raw materials with manufactured goods accounting for only a small portion. In 1980, for example, mineral fuels accounted for 54.9% of China's exports to Japan and manufactured goods accounted for 22.6%. By 2000, the share manufactured goods had increased to 82.1% while the share of mineral fuels had declined to 3.9%. Within the category of manufactured goods, the type of products that Japan imports from China have changed significantly reflecting the growing sophistication of Chinese manufacturing and the decline– or offshoring– of Japanese labor-intensive manufacturing. In 1994, 32.7% of Japanese imports from China consisted of basic, low-skilled labor-intensive manufactured goods, including, woven apparel, knit ware, and footwear. By 2007, the share of those products declined to 17.2%. On the other hand, in 1994, technology- advanced goods, such as machinery and electrical machinery accounted for 8.6% of Japanese imports from China and for 36.6% of imports by 2007. Other products that Japan imports from China include toys, furniture, plastics, iron and steel products, and mineral fuels. Throughout this period a major portion of Japan's exports to China consisted of electrical machinery and machinery—44.5% combined in 2007. The intra-industry trade between the two countries is an indication of the emerging character of China-Japan trade: Japanese exports to China are dominated by shipments of parts, including integrated circuits, car parts, and digital camera components that are assembled in China by foreign owned firms including Japanese firms, and then exported to Japan as finished goods. These products include business equipment, computers, and audiovisual equipment. Other Japanese exports to China include iron and steel products, cars, and organic chemicals. Bilateral China-Japan trade in services has increased and is another element integrating the two economies. Total Japan-China trade in services increased around 125% between 2000 and 2006, and has increased particularly rapidly since 2003, as indicated by Figure 2 and Table 3 . The balance of trade has shifted over that brief period as well. From 2000 to 2005 China's exports of services to Japan exceeded its imports probably because of surges in Japanese tourism to China. However, the gap diminished over time and in 2006 (latest data available) Japanese exports of services to China slightly exceeded its imports. Future data will determine if this trend will continue. It seems likely that the total bilateral trade in services will continue to grow, especially as China's economy continues to advance. Foreign Direct Investment Increased Japanese foreign investment in China has become one of the more significant elements of the China-Japan economic relationship. China has become more open to foreign investment particularly in the last decade. China-based affiliates of foreign multinational firms are significant sources of China's exports and imports and have allowed China to develop as a center of regional production networks throughout East Asia. In 2007, 57% of Chinese exports and 58% of Chinese imports originated with foreign-invested firms in China. Before the mid-1980s, Japanese investors were reluctant to invest in China as political instability in China and Chinese government restrictions, burdensome taxation, corruption, and an unskilled local labor force tainted the investment climate. Japanese direct investments in China picked up in the mid-to-late 1980s and into the early 1990s. Chinese economic reforms made foreign investment more acceptable, and the increase in labor costs in Japan made domestic Japanese production more expensive, causing Japanese producers to take advantage of low-wage labor in China by shifting production to China and other East Asian countries. As Figure 3 indicates, FDI flows dipped between 1995 and 1999 because China had imposed some restrictions on foreign investment and made some other changes in economic policies. In addition, during this period, East Asia had experienced a financial crisis and Japan was in the midst of a long recession. As the figure above shows, since 1999, Japanese FDI has soared. According to Chinese official data that measures FDI accumulated from 1979 to 2007, Japan is the second largest source of non-overseas Chinese (primarily Hong Kong and Taiwan) FDI, with cumulative foreign direct investments of $61.2 billion. As the graph in Figure 3 shows, Japanese FDI in China has dipped somewhat since 2006. Among the factors causing the decline were an increase in the cost of investing in China, caused in part by a gradual but substantial appreciation of the renminbi, and an insertion of more country risk in Japanese investor strategies. Chinese official data also show that Japanese and other foreign-owned companies in China are becoming important platforms for trade through their global supply chains. In 2006, $86.1 billion in imports into China from Japan were to foreign-owned (presumably Japanese-owned) companies, or about 75% of total Chinese imports from Japan. In 2006, foreign-owned companies in China exported $61.1 billion in merchandise to Japan, or about 68% of total Chinese exports to Japan. In 2006, around 70% of the products imported by foreign-owned firms in China were mechanical and electrical products, such as integrated circuits, parts for televisions and other electrical appliances, and computer parts. In 2006, 63% of exports by foreign-owned companies in China consisted of machinery and transportation equipment. These figures suggest that those companies (including Japanese-owned companies) assemble parts into finished goods for export. The increase in trade and foreign investment between China and Japan appears to have benefitted both countries. China has benefitted from the technology and know-how that Japanese foreign investment conveys as indicated by shifts in Chinese exports from low-skilled production of apparel and footwear to exports of machinery and transportation equipment. Japanese producers have benefitted from the lower production costs that foreign investment in China provides. However, some in Japan have expressed concerns that relocation of production to China signifies a "hollowing out" of Japan's manufacturing base. Such arguments could become stronger as Chinese labor becomes more skilled, and locally-based Chinese firms adapt foreign technology and become more independent and competitive. Multilateral and Regional Frameworks for the Relationship China and Japan are members of the major multilateral trade and international financial organizations, including the World Trade Organization (WTO), the International Monetary Fund (IMF), the Asian Development Bank (ADB) and the World Bank. These provide a venue for cooperation, channels for financial assistance, and mutually agreed upon rules for bilateral trade. Japan and China also participate together in the ASEAN+3 (Japan, China, and South Korea) group designed to facilitate trade among the member countries. They both also support the formation of an East Asian FTA to include the ASEAN+3 members plus Australia, New Zealand, and India. At the same time, China and Japan appear to be using FTAs as vehicles to compete with another for influence in the region. For example, both countries have entered into free trade agreements (FTAs) with ASEAN. China was the first to launch an initiative by proposing a China-ASEAN FTA in November 2001. Japan followed soon after by launching its own initiative in early 2002 first with agreements with some of the more advanced members of ASEAN (Thailand, Malaysia, and the Philippines) followed later by agreements with the other ASEAN members, although with less success. At this writing, the parallel negotiations of China and Japan on viable FTAs with ASEAN appear to be stalled as the partner countries have resisted making concessions on some key issues such as intellectual property rights (IPR) and government procurement. Japan's focus in forming FTAs has been primarily to forge commercial ties, especially to secure access for Japanese investments. China's motives in FTAs have also included expanding its political influence in the region. However, a sign of enhanced cooperation occurred on December 13, 2008 in Dazaifu, Japan, when the leaders of China, Japan, and South Korea met to address issues pertaining to the global financial crisis. The three countries reached agreement on only a few items, including an increase in credit lines to South Korea to help address some of the affects of the crisis. However, the fact the unprecedented meeting took place at all was widely considered important. Potential Complications and Issues for U.S. Policy U.S. Interests and Regional Rivalry Versus Cooperation Maintenance of stronger relations between Japan and China serves U.S. interests by ensuring a degree of stability in the Asia-Pacific, particularly if other areas, such as the Korean Peninsula, threaten a disruption. This stability, in turn, fosters more robust trade and prosperity, which generally serves U.S. global priorities. Regional initiatives are also likely to fare better if the two largest Asian powers are amenable to cooperation. Prospects for success in the Six-Party Talks, for example, are better if the forum avoids becoming a platform for Chinese-Japanese tension. Further, Chinese accommodation of Japanese interests in other regional organizations—including those that do not include the United States such as the East Asia Summit—may help to promote democratic values that the United States and Japan share. On the other hand, if Sino-Japanese ties grow closer, there is some chance that Toky could adopt positions that move it closer to Beijing on particular issues. Japan, along with Australia, tends to be the most reliable U.S. ally at such Asian fora. However, Japan's own interests appear at this point to be far more closely aligned with Washington's, and therefore this threat appears fairly small at this point. Significantly, better communication between Tokyo and Beijing may help diffuse territorial issues and minimize potentially explosive miscommunication. A military clash between the two Asian giants involving one of the remote islands at the heart of territorial disputes could force the U.S. military to decide whether to intervene on Japan's behalf. U.S. and Japanese officials have given mixed answers when questioned about whether the U.S. military would engage if armed conflict were to occur over one of the territories in question. Former Deputy Secretary of State Richard Armitage asserted in 2004 that the U.S.-Japan treaty extends to the Senkaku Islands, but official guidance from the Departments of State and Defense declare that the U.S. government does not take a position on the question of sovereignty of the islands. The apparent determination to bring China into the international system would obviously be derailed by direct U.S. military confrontation with China. A question facing U.S. policymakers is how much the United States should engage in mediating the Sino-Japanese relationship. Certainly both powers are influenced by U.S. policy and opinion, although it is not clear that U.S. suggestions would actually alter policy. Although President Bush reportedly mentioned U.S. concerns about tension with China over the Yasukuni Shrine visits to Koizumi in 2006, in general the United States has not been particularly active in the evolving relationship. Many analysts warn of the danger of U.S. officials getting entangled in thorny historical issues that have no easy resolution. Regional Balance of Power Issues One key policy issue for the United States is how to address U.S.-China-Japan relations in balance-of-power terms. Views in the United States differ somewhat on this point. Some see China's growing power as not just a challenge, but a threat to U.S. regional and global interests. Chinese leaders, these observers argue, see conforming to international norms as a strategy to employ while China is still weak; in reality, Beijing seeks at least to erode and at best to supplant U.S. international power and influence. In pursuit of this strategy, according to this view, Chinese leaders may be probing potential rifts in the U.S.-Japan alliance and expanding China's economic interconnections with Japan, seeking to complicate or raise the costs of Japan's policy choices where U.S. and PRC interests diverge. These observers argue that the United States should seek to counter this PRC strategy. For instance, the United States should avoid sitting on the policy sidelines or acting as a balancing agent between Japan and China, and instead should "unleash" Japan from some of the more restrictive confines of the U.S. security umbrella. For example, they say, U.S. policymakers could encourage Tokyo to develop a more muscular regional policy and a more robust military posture to provide a counterbalance to growing Chinese power. Other observers stress that the U.S.-Japan alliance is an important foundation of U.S. strength and influence in Asia. While a passive approach between China and Japan may be counter to U.S. interests, these observers say, it would be a mistake for the United States to encourage enmity or dissension between Tokyo and Beijing as a counterweight to growing PRC power and influence. The way to deal with growing Chinese power, according to this view, is to strengthen and expand upon the U.S.-Japan alliance, helping to increase Japan's power and capabilities and knitting Tokyo more seamlessly into the U.S. regional presence. The Sino-Japan Bilateral Economic Relationship and U.S. Interests In economic terms, China and Japan are very important to the United States. Japan is the second largest national economy in the world and China is among the fastest growing economy in the world. Japan has been an important U.S. trade partner for a long time, and China has rapidly emerged as a critical partner. They are, respectively, the fourth and third largest markets for U.S. exports and the second and fourth largest sources of U.S. imports. Most important, perhaps, China and Japan are the largest and second largest, respectively, foreign holders of U.S. government debt in the form of U.S. Treasury securities, valued at $585.0 billion and $573.2 billion, respectively, as of the end of September 2008. (They both far exceed the United Kingdom which was third with $338.4 billion.) Japan and China, therefore, each play an important role in financing the U.S. national debt, a factor that becomes increasingly significant as the projected U. S. national debt soars in the wake of the global financial crisis. The two countries also hold the world's largest volumes of foreign exchange reserves and, therefore, have a major influence in the global capital markets. As of the end of September 2008, Japan had $969.2 billion in foreign exchange reserves and China had $1.9 trillion. Because Japan and China are each economically important to the United States, how they conduct their bilateral economic relationship could have significant implications for the United States. The China-Japan economic relationship can be viewed as both an opportunity and as a challenge to U.S. interests. It can be an opportunity if the relationship promotes trade liberalization and foreign investment and, in so doing, leads to economic growth and opportunities for U.S. firms. In this regard, the United States and Japan share an interest in encouraging China to fulfill its WTO commitments to adhere to the multilateral rules on trade; to enforce the rights of foreign holders of intellectual property in China; to ensure that goods produced in and exported from China are safe and of good quality; and to encourage China to welcome foreign investment by maintaining a transparent regulatory regime that does not discriminate against foreign investors. The bilateral economic relationship could operate against U.S. interests if the two countries try, through bilateral or regional trade agreements, to exclude U.S. exporters and investors from the region. In addition, some import-sensitive U.S. firms and industries view the closer economic relationship between China and Japan as possibly giving Japanese producers a competitive advantage over them by using low-wage Chinese labor to produce goods that are then exported to the United States. Fragility of Détente and Public Sentiment Regional analysts, while optimistic about the immediate future of Sino-Japanese relations, remain cautious about the ultimate stability of the relationship. The emotional element of the history issues that divide the countries is significant, and many observers warn that raw feelings could re-surface at any provocation. Promisingly, however, leaders in both Tokyo and Beijing appear to be quick to address any possible lightening rod. In November 2008, the chief of staff of the Japan Air Self Defense Force, Toshio Tamogami, was fired for entering and winning an essay contest with a piece that spoke admiringly of Japan's role in World War II. Prime Minister Aso—himself considered by some to be somewhat of a revisionist—terminated Tamogami's service upon the essay's release, indicating to many that Tokyo was concerned about damaging the positive relations with Beijing. The government re-iterated its official position of remorse for war-time suffering. The official reconciliation may be challenged by sentiment among the Japanese public, some political groups, and the military. In early 2008, several packages of "gyoza" meat dumplings imported into Japan from China that contained a toxic pesticide sickened scores of people. Although Chinese and Japanese officials reportedly reacted quickly, the incident renewed long-standing concerns among the Japanese public about the safety and hygiene practices for Chinese products. Further, some conservative nationalist voices in Japan have criticized the Tokyo government for being too "soft" on Beijing and practicing "kow-tow diplomacy." Anti-Japanese sentiment among the Chinese public also creates a stiff headwind for any efforts at Sino-Japanese reconciliation. In 2007, there were reports of a public outcry about the proposed official choice of a national bird (the Red-Crowned Crane, also known as the "Japanese Crane"). Chinese fans booed the Japan team during the Japanese national anthem at the 2008 East Asian Cup games. Later, after the Japanese team defeated the Chinese team, a group of fans burned the Japanese flag and jeered the Japanese team. The Taiwan Factor Although Japan's official ties with Taiwan were broken in 1972 when Tokyo normalized relations with the PRC, unofficial links have remained strong despite these periodic disputes. Japan's official ties with Taiwan were particularly close under former President Lee Teng-hui (1988-2000), when the Kuomintang (KMT, or Nationalist Party) had close contacts with Japan's ruling Liberal Democratic Party (LDP). The Tokyo-Taipei relationship also has not been hurt by issues surrounding Japan's historical legacy in Asia, a subject toxic to Tokyo-Beijing relations. But on an entirely different level, Taiwan also is a potentially important factor in the U.S.-Japan alliance. While Japan continues to recognize the PRC and not Taiwan, as a host to U.S. military facilities, Tokyo could become involved in any U.S.-China conflict over Taiwan. In 2005, for instance, the United States and Japan declared for the first time that Taiwan is a mutual security concern, implying a new Japanese willingness to confront China over Taiwan. Territorial Disputes Remain Sensitive Taiwan also factors into Sino-Japan territorial disputes, such as in competing claims over the eight uninhabited Senkaku Islands (called the Diaoyutai islands in Chinese) and the Ryukyu Islands (the largest of which is Okinawa) in the East China Sea. (See map at end of this report.) Japan, the PRC, and the ROC government on Taiwan all have had long-standing claims in these waters. Chinese claims to the Senkakus date back to the 14 th century, when Ming Dynasty fishing vessels frequented the islands. Taiwan makes the same claims as the PRC does to these islands—that they belong to China—but its claims are based on the Taiwan government's pre-civil war status as the Republic of China on the mainland. On this issue, both the Taiwan and PRC governments find themselves in the unusual position of being on the same side opposite Japan, as both make their territorial claims on behalf of the Chinese nation. These competing claims can raise unusual problems affecting not only Japan-China-Taiwan relations but also U.S. policy. In June 2008, for instance, lingering conflict over the Senkaku/Diaoyutais produced a crisis in Japan-Taiwan relations when a Taiwanese fishing boat sank after it collided with a Japanese patrol boat near the islands. Taiwan strongly protested the incident, recalled its envoy to Japan, and issued a statement affirming ROC sovereignty over the Senkaku/Diaoyutais. The incident riled Taiwan's relations with the PRC government, which also protested to Japan over the collision on the grounds that both the Senkaku/Diaoyutais and Taiwan are sovereign Chinese territory. The Taiwan Ministry of Foreign Affairs refuted Beijing's protest, saying that the PRC had jurisdiction over neither Taiwan nor the Senkaku/Diaoyutais. The United States declined to get involved in this dispute. Apart from complications posed by Taiwan's territorial claims, the Senkaku/Diaoyutais pose additional problems for the PRC's relations with Japan. Japan's claim to the Senkaku/Diaoyutais dates from January of 1895, during the Sino-Japanese War, when the Chinese Emperor agreed to cede the islands to Japan. In the 1951 Treaty of Peace with Japan after World War II, the United States assumed control over both island groups. In a 1953 proclamation, U.S. officials responsible for administering the Ryukyus broadly defined the region under U.S. control to include the Senkaku/Diaoyutais. Thus, in 1971, when the United States signed the Okinawa Reversion Treaty with Japan, returning to Japan the areas and territories being administered by the United States, the Senkaku/Diaoyutais were included, thus giving the United States a recurring bit part in the ongoing drama over the Senkaku/Diaoyutais and the Ryukyu Islands (the largest of which is Okinawa, host of a U.S. military base.) Although there is some ambiguity, the U.S.-Japan Security Treaty appears to say that the an attack on the Senkaku/Diaoyutais would require a U.S. response. Sino-Japanese disputes also include areas of high oil and gas potential, such as the Chunxiao Gas Field. Sino-Japanese territorial claims have continued to clash since the 1990s. PRC oceanographic research and other vessels repeatedly have entered jointly claimed areas, apparently to conduct marine research on natural resources. This reportedly has included preliminary drilling for mineral deposits on the ocean floor. PRC fishing vessels also have been active. Periodically, PRC naval vessels and fighter aircraft have entered the disputed region. In 1992 and 1993, Chinese naval vessels fired warning shots at Japanese civilian ships. Japan launched fighters from bases in the Ryukyu Islands in August 1995 when PRC fighters entered Japan's air identification zone around the Senkaku/Diaoyutais. The August 1995 incident and particularly heavy PRC ship activities in early 1996 led to an escalation of tensions between Japan and the PRC lasting until the end of 1996. The PRC's occupation of Mischief Reef in the South China Sea in early 1995 also increased Japanese suspicions. The Japanese government also has had to deal with the actions of Japanese right-wing groups. These groups periodically send members to the Senkaku/Diaoyutais where they have implanted markers, flags, and even erected a small lighthouse. The rightist groups sometime act in response to heavy PRC ship traffic near the islands. Other times, they act without alleged PRC provocations. Beijing considers their actions as a provocation and has issued diplomatic protests to Japan demanding that the Japanese government prevent such activities. The Japanese government replies that the government is limited in its right to interfere with the activities of Japanese citizens. Ongoing Military Concerns Despite the promising developments in Sino-Japanese détente, including in the military-to-military realm, there are strong indications of lingering mutual suspicion among the defense communities in both capitals. Japanese press outlets have reported repeated naval incursions by Chinese vessels and submarines into Japanese territorial waters. In July 2004, Japan's Maritime Self-Dense Forces website reported 12 occasions of PRC naval incursions into Japan's exclusive economic zone in the East China Sea in that month alone and 28 during the year up to that time. In November 2004, an unidentified nuclear submarine, later discovered to be Chinese, entered Japanese territorial waters near the Sakishima island chain off Okinawa, initiating a two-day chase. Most of these incidents have occurred in waters or around islands claimed by both countries. The reports appear to have dwindled since 2006, but Japanese military officials remain concerned that China's military modernization and lack of transparency make Japan increasingly vulnerable. At the same time, Japan's military ambitions and upgrades alarm some defense observers in China, who feel threatened by indications of increased cooperation between Japan's military with other regional militaries. In the past several years, Asia Pacific powers have pursued some modest development of trilateral and quadrilateral security architecture involving the United States, Japan, Australia, and India. Although the efforts have not yet developed into major initiatives, some diplomatic meetings and military exercises were held to explore the idea. China often complained about these activities, suspicious of strategic encirclement by surrounding maritime powers. Wariness on both sides of the relationship remain a serious obstacle to genuine cooperation between China and Japan. Timeline of Major Events in Sino-Japanese Relations, August 2001 - September 2008 Sources: Jiji Press, Kyodo News, Nikkei Weekly, New York Times, BBC, Washington Post, Defense of Japan, Agence France Presse, Yomiuri Shimbun, Xinhua News Agency, People's Daily 8/13/01 —Japanese Prime Minister Junichiro Koizumi pays homage at the Yasukuni shrine dedicated to the country's war dead, including war criminals, provoking protests from China and South Korea. The Chinese Foreign Ministry says in a statement that Koizumi's visit has damaged the political foundation of Sino-Japanese relations and insulted the feelings of Chinese and other Asian people. 8/31/01 —Chinese Ambassador to Japan Wu Dawei says that Sino-Japanese relations are facing their "toughest situation" since the two countries normalized ties nearly 30 years ago due to history, trade and Taiwan issues. In a press conference, Wu criticizes Japan for issuing a visa to former Taiwan President Lee Teng-hui, who visited Japan in April for medical treatment. He also criticizes Japanese textbooks and Koizumi's Yasukuni visit. 10/8/01 —Koizumi meets with Chinese President Jiang Zemin in China and tries to ease Chinese concerns over Japan's policy of sending troops of its Self-Defense Forces for logistical support for antiterrorist operations by the United States. Koizumi and Jiang agree to cooperate with each other toward the 30 th anniversary of the restoration of diplomatic relations between the two countries next year. 4/21/02 —Koizumi pays a surprise visit to Yasukuni Shrine, and Chinese Vice Foreign Minister Li Zhaoxing quickly summons Japanese Ambassador Koreshige Anami to express China's "strong dissatisfaction." China puts off a visit later in the month to Beijing by Japan's Defense Agency chief Gen Nakatani and a call by Chinese warships to Tokyo port in May in order to protest Koizumi's visit. 8/15/02 —Five cabinet members visit the Yasukuni shrine to pay respects to the Japanese war dead on the anniversary of Japan's WWII surrender. Koizumi does not attend and instead had visited the Chidorigafuchi national memorial in Tokyo for the unknown dead earlier in the week. 11/15/02 —Hu Jintao assumes office as President of China. 1/14/03 —Koizumi visits Yasukuni Shrine for the third time. Chinese Vice Foreign Minister Yang Wenchang quickly expresses China's "strong displeasure and indignation" over the visit to Japanese ambassador Anami. 8/15/03 —Four cabinet ministers attend but Koizumi does not visit Yasukuni Shrine on the day marking Japan's World War II surrender. Chinese Foreign Minister Li Zhaoxing praises Koizumi. 3/30/04 —Chinese activists land on Uotsuri Island, the largest of Japan's Senakaku islands. The House of Representatives Committee on Security unanimously adopts a resolution emphasizing Japan's sovereignty over the East China Sea islands. The activists are arrested by Japanese officials and deported to China. 8/7/04 —China and Japan face each other at the Asia Cup final. Chinese fans burn Japanese flags, yell "Kill! Kill! Kill!" and shout various insults at the Japanese spectators. Japan wins 3-1, leading to weeping Chinese fans and riots. Thousands of police are on hand, including riot troops in black body armor and special tactical units. Earlier in the tournament, in Chongqing, hostile Chinese fans booed the Japanese team throughout the games and surrounded the Japanese team's bus after one match. 11/10/04 —An unidentified nuclear submarine, later discovered to be Chinese, enters Japanese territorial waters near the Sakishima island chain off Okinawa, initiating a two-day chase. Japan's navy goes on alert for the first time in five years. Japan accuses China of violating its sovereign rights and demands a formal apology. Beijing expresses regret over the incident, saying that the sub was on routine maneuvers and that it made the incursion due to a technical error. 11/21/04 —Koizumi and Hu meet in a Japan-China summit in Santiago, Chile. The leaders agree to develop economic and cultural bilateral ties, which are important for themselves and also for other parts of the world, and pledge to make efforts for the resumption of multilateral talks over North Korea's nuclear ambitions. 1/6/05 —Despite strong protests from China, Japan grants Taiwanese president Lee Teng-hui a weeklong visit to Japan. China postpones a visit by a group of Japanese lawmakers, claiming that the request was not made to protest Lee's visit and that more time is needed to prepare for the trip. 4/5/05— The Japanese Ministry of Education, Culture, Sports, Science and Technology approves new editions of middle school textbooks that China says glosses over Japan's World War II record. Anti-Japan demonstrations occur in Chendu, Sichuan province, and Shenzhen, Guangdong province. Millions of mainlanders sign a petition against Tokyo's UN bid on the Security Council. Protestors attack Japanese owned or funded stores and boycott Japanese products. 4/9/05 —Anti-Japan demonstrations continue in cities across China. 10,000 people march in Beijing to voice their anger at the textbooks, the city's biggest protest since 1999. Protestors stone the Japanese Embassy and the ambassador's residence. 4/17/05 —Protestors hurl stones and eggs at the Japanese Consulate General building in Shanghai. Some 2,000 people take part in anti-Japanese demonstrations in Shenyang and 10,000 in Shenzhen. 4/20-4/21/05 —China orders an end to anti-Japanese protects. Senior foreign diplomats are dispatched to all cities where protests occurred to calm sentiments and stress the importance of stability and observance of law. Officials urge its leaders to meet with Japanese leaders later this week. 4/24/05 —Hu and Koizumi meet for a 46-minute talk at the Asian-African summit in Indonesia in hopes of improving relations. One day earlier, Koizumi had apologized for Japan's World War II aggression while addressing representatives of more than 100 countries at the summit. 5/24/05 —Chinese Vice Premier Wu Yi abruptly cancels a meeting with Koizumi, citing pressing domestic issues in China. China's official Xinhua New Agency says China was extremely dissatisfied with remarks repeatedly made by Japanese leaders on visiting Yasukuni Shrine. China's Assistant Foreign Minister Shen Guofang tells Reuters that a "good atmosphere" is needed for Wu Yi to visit. Japanese ministers criticize the cancellation and lack of an apology. 9/9/05— Five Chinese naval vessels, including a missile destroyer, are seen navigating near the Chunxiao gas field in the East China Sea. 10/16/05— Koizumi visits the Yasukuni Shrine for the fifth time, sparking more protests from China, South Korea, and other Asian countries. China cancels Japanese Foreign Minister Nobutaka Machimura's visit to China scheduled for late October. Koizumi has repeatedly said that he visits in order to mourn the dead and to vow that Japan shall never wage war again. In response to criticisms, he has said that "other countries should not intervene on how (Japan) should pay tribute" to the dead. 10/25/05— Chinese Vice Foreign Minister Wu Dawei says that it would be "very difficult" to hold Sino-Japanese summits on the sidelines of upcoming international meetings in the future, due to Koizumi most recent visit to the Yasukuni Shrine. While past Yasukuni visits have stopped meetings by Japanese and Chinese leaders to their reciprocal countries, they have held talks on the sidelines of international meetings in third countries instead. 3/23/06 —Japan delays a decision on providing further yen loans to China because of the two countries' worsening relations. Japan's aid has little financial importance but the delay is a symbolic gesture. Tokyo has given billions of dollars in loans for Chinese infrastructure projects over the past two decades but its aid has declined in recent years as China's economy has grown. 9/26/06 —Shinzo Abe takes over from Koizumi as Prime Minister of Japan. 10/06 —A Chinese Song-class submarine appears in the vicinity of the USS Kitty Hawk aircraft carrier of the United States in international waters reportedly near Okinawa. 10/8/06 —Abe makes his ice-breaking trip to Beijing, where he is greeted warmly. His visit is the first meeting between the Chinese and Japanese leaders since the Asia-Africa summit in Indonesia in April 2005 and the first bilateral summit between the leaders for five years. 1/11/07 —China conducts an anti-satellite weapon test and destroys an old Chinese weather satellite. Japan shows concern over use of space and national security and demands that China explains the test and the country's intentions. China claims that it had informed some countries including Japan and the United States about the experiment. 4/12/07 - Wen becomes the first Chinese premier to address the Japanese parliament and the first Chinese premier to visit Japan since 2000. Wen urges Japan to face up to its World War II actions but says both sides have succeeded in warming relations. 8/30/07 —Chinese Defense Minister Cao Gangchuan spends five days in Japan in talks with his counterpart Masahiko Komura. The defense chiefs agree to steps to ease military tensions such as the establishment of a military hotline and reciprocal port calls by naval vessels. 9/07 —Chinese H-6 medium-range bombers fly into the Japanese air defense identification zone over the East China Sea to advance close to the Japan-China median line. 9/25/07 —Yasuo Fukuda becomes Japan's prime minister after the abrupt resignation of Shinzo Abe. 12/27/07 —Fukuda visits Beijing. His engagements include a speech at Beijing University that is broadcast live on China Central Television, an unprecedented joint press conference with Hu, and a rare banquet hosted by the Chinese President—the first for a Japanese prime minister since the Nakasone visit in 1986. Fukuda calls for increased co-operation with China in the future and says that he will not visit the shrine while Prime Minister. 5/6-5/10/08 —Hu visits Japan and becomes the first Chinese President in over a decade to go to Japan on an official State visit. It is also the longest visit Hu has made to a single country. The imperial family holds a welcoming ceremony and banquet for Hu. In a joint press conference, Fukuda praises China on a successful Olympics, and Hu offers to lend pandas to Japan as a symbol of bilateral friendship. Hu and Fukuda also issue a joint document and agree to promote a "mutually beneficial relationship based on common strategic interests." The statement stays away from history issues and any mention of a Japanese apology while China notably recognizes Japan as a peaceful postwar country for the first time in a political document. 6/18/08 —Japan and China reach a deal for the joint development of the Shirakaba gas field, known as Chunxiao in China, in the East China Sea. The two governments agree to divide profits according to their stakes. 9/17/08 —Japanese Defense Minister Yoshimasa Hayashi and Chinese air force chief Gen. Xu Qiliang agree that there is a need to enhance bilateral defense exchanges. Xu is the first commander of the People's Liberation Army Air Force to visit Japan since 2001.

After a period of diplomatic rancor earlier this decade, Japan and China have demonstrably improved their bilateral relationship. The emerging détente includes breakthrough agreements on territorial disputes, various high-level exchanges, and reciprocal port calls by naval vessels. Over the past ten years, China-Japan economic interdependence has grown as trade and investment flows have surged. China -Japan economic ties serve as an anchor for the overall bilateral relationship and have become the center of a robust East Asian trade and investment network. On the other hand, military strategists on each side remain wary of each other's motives. Beijing is suspicious of any moves that hint at Japan developing a more active and assertive security posture, and Japanese defense planners note with alarm China's burgeoning military modernization. The durability of the recent détente could have significant implications for U.S. interests. U.S. interests in the region are generally well served by pragmatic Sino-Japanese accommodation. Equanimity in the Tokyo-Beijing relationship not only fosters stability and prosperity, but also allows the United States to avoid choosing sides on delicate issues, particularly those related to historical controversies. Multilateral efforts such as the Six-Party Talks on North Korea's nuclear weapons program can be complicated by acute bilateral tension among the participants. The history of post-war Sino-Japanese relations reveals why the relationship has been so difficult to manage for the past several decades. Japan's conquest of large swathes of China, and perceptions in China that Japan continues to downplay wartime atrocities committed by Japan's imperial forces, remain sensitive subjects. Historical grievances have framed much of the interaction between Beijing and Tokyo, including a particularly rocky period under former Prime Minister Junichiro Koizumi (2001-2006). The United States has also played a major role in shaping relations between the Asian powers through its war-time involvement, post-war occupation and reconstruction of Japan, the "Nixon Shock" of the early 1970s, and its reaction to the events in Tiananmen Square in 1989. Despite the promise of Sino-Japanese relations remaining strong in the short-to-medium term, there are multiple potential complications and issues of concern for the United States. Among these are the dynamics of economic and diplomatic rivalry in the region, the fragility of the relationship due to historical differences and skeptical public sentiment, sensitive sovereignty issues in territorial disputes, complications surrounding the Taiwan factor in East Asian geopolitics, ongoing military incursions by Chinese vessels, and suspicions in both Tokyo and Beijing. This report will be updated as warranted by events.

Water for Energy Primer Energy-Sector Water Use and Vulnerability Is Receiving Increased Attention Available projections estimate that, by 2030, U.S. water consumption will increase by 7% above the level consumed in 2005; 85% of this growth is attributed to the energy sector (including biofuels). The U.S. energy sector's use of water is significant in terms of water withdrawals and water consumption. Energy Sector: While agriculture dominates U.S. water consumption (71%), the energy sector (including biofuels, thermoelectric, and fuel production) is the second-largest consumer at 14%, and domestic and public uses are third at 7%. Multiple factors contribute to the energy sector being the fastest-growing water consumer. Biofuels produced from irrigated feedstocks play a significant role, as well as expanding production of onshore unconventional oil and natural gas and hydro-stimulation of aging wells. Electric Generation: Water dependence is a risk for hydroelectric and thermoelectric generation. During low-flow or high-heat events, water intakes and high water temperatures may harm or limit thermoelectric cooling. Thermoelectric cooling water represented 38% of freshwater withdrawn nationally in 2010 and almost 6% of water consumed nationally. Also, the withdrawal and discharge of cooling water can harm aquatic organisms. Fuel Production: Water is either an essential input or is difficult and costly to substitute; degraded water is often a waste byproduct. The potential for human-induced seismic events is receiving scientific and political attention because of concerns over the possible connection between oil and gas wastewater injection and the recent increasing frequency of earthquakes, particularly in the central and eastern United States. Efficiency and Conservation: Reducing energy demand through energy and water efficiency and more water-efficient generation (e.g., electricity from wind, photovoltaics, or natural gas) can reduce water demand. Current water efficiency incentives in fuel production include minimizing water management costs and reducing operational disruptions. Embedded Water: U.S. unconventional oil and natural gas production has expanded quickly due to the combined use of hydraulic fracturing and horizontal drilling techniques for well development. This expansion has sparked interest in the quantities of water and other inputs "embedded" in energy resources. Relevant Data and Research Are Improving; Significant Gaps Remain In 2012, the Government Accountability Office, in Energy-Water Nexus: Coordinated Federal Approach Needed to B etter Manage Energy and Water Tradeoffs , stated that "making effective policy choices will continue to be challenging without more comprehensive data and research." Improving data on water use by the energy sector is challenging for a number of reasons. For example, much of the U.S. energy sector is private; data consistency, accuracy, and currency are problematic; and it is costly to maintain high-quality data for an evolving and dispersed industry. While data challenges exist, access to relevant research and data is improving. The Department of Energy (DOE) disseminates energy-water related studies on a public online platform. DOE released a report in 2014, The Water-Energy Nexus: Challenges and Opportunities , which identified various data gaps and multiple technology research, development, and demonstration opportunities to increase the technological options available to reduce the water demands and impacts of the energy sector. The reports mentioned in the box below provide additional information on the energy-water nexus while also identifying areas needing improved understanding. While these reports differ in their focus, they each mention the stresses that climate change places on the energy-water nexus. Fuel Production Unconventional Oil and Gas Production Often Concentrates Water Use Geographically and Temporally Regional water resource opportunities and challenges for fuel production vary based on several factors, including (1) which fuel is being produced in the region, (2) the local and regional significance of its water use, and (3) regional conditions for management of wastewaters. Much of the growth in water demand for unconventional fuel production is concentrated in regions with already intense competition over water (e.g., tight gas and other unconventional production in Colorado, Eagle Ford shale gas and oil in south Texas), preexisting water concerns (e.g., groundwater decline in North Dakota before Bakken oil development), or abundant but ecologically sensitive surface water resources (e.g., Marcellus shale region in Pennsylvania and New York). The cumulative water needs of multiple drilling and fracturing operations may be locally or temporally significant. Often many shale gas, tight gas, and tight oil wells are located in close proximity to each other as a formation is developed, with many wells being drilled and fractured from the same location. Water use for these wells is concentrated in the early stages of well development, usually in the first few weeks. Once the well is producing, little or no water is required unless refracturing is performed. How much water is used for well development is highly variable both across and within formations. Data on source water remain sparse. Groundwater often is used for shale operations when it is available and access is permitted. Surface waters also are used, but may require transport by truck. In cases of limited water access, well developers also have obtained water by purchasing it from municipalities or paying individual land owners for their supplies. Available Data on Water Use Remain Problematic As of mid-2013, gaps remained in the availability of authoritative and recent data on the amounts of freshwater consumed and wastewater produced in fuel production. Available data indicate the following: The amount of water needed per unit of fuel produced—referred to as the water intensity of a fuel—ranges from conventional natural gas at the lowest end (less than 1 gallons of water per MMBtu); coal, unconventional gas, and uranium mining and enrichment next (roughly 1 to 10 gallons per MMBtu); oil next (10 to 100 gallons per MMBtu); and irrigated biofuels at the upper end (100 to 1,000 gallons per MMBtu). The water intensity of conventional and unconventional oil produced using different techniques remains poorly documented. The water intensity for hydraulically fractured wells often is less notable than the concentrated, simultaneous demand for water for hydraulic fracturing in a region where many wells are being developed concurrently. Despite the recent increase in water demand for hydraulic fracturing, water use for stimulating oil production from conventional wells through water flooding and enhanced oil recovery have represented the largest water use by the oil and gas sector in the United States. The use of these techniques is anticipated to increase; to what extent saline, wastewaters, or freshwater will be used is less clear. Limited data on production rates and quantities for many saline aquifers can be a disincentive to their use. Each fuel and production technique presents its own risks, potential water quality impacts, and wastewater issues; also, some techniques may be more water-efficient but less efficient at recovering energy resources. Data remain poor on the range of wastewater quantities and qualities derived from conventional and unconventional fuel production. Fuel Production Remains Vulnerable to Water-Related Disruptions The vulnerability of fuel production to freshwater availability is receiving attention in part because of increasing water demands (e.g., population growth) and concerns over changes to water supplies (e.g., drought and climate change). Instances of low flow and drought conditions have reduced the availability and increased the cost of water for operations in some locations (e.g., Susquehanna River basin in Virginia, West Virginia, and Pennsylvania, and Eagle Ford Shale region in Texas). No analysis is available of the risk posed by a multi-year drought in areas of intense water use for energy (e.g., North Dakota) and how to manage the risk. Fossil fuel transport also may be disrupted by water conditions, such as flood-induced pipeline breaks resulting from riverbed scouring, flood- or storm-related refinery or distribution system disruptions (e.g., Hurricane Sandy disruptions), and drought- or flood-impaired fuel transport. No analysis of energy sector transport risks is available. Wastewaters Represent Management Challenges and Some Opportunities Produced water—wastewaters (often saline) brought to the surface by oil and gas wells—represents the largest byproduct of fuel production. Approximately 2.3 billion gallons are produced daily from onshore oil and gas wells in the United States. For oil wells, this represents an average ratio of 7.6:1 of produced water to oil produced. By 2025, as a result of aging wells with decreasing oil production, the ratio is expected to average 12:1 for onshore crude oil. U.S. energy-related wastewaters are primarily from conventional oil and natural gas and coal bed methane (CBM). Research indicates that shale gas may produce less wastewater per unit of recovered gas than conventional natural gas (although water inputs during unconventional well development often exceed those for conventional natural gas, as described above). Disposal of shale wastewaters has received more attention recently than wastewaters from conventional production because of the rate of increase in shale development and its associated wastewaters in locations that are not accustomed to oil and natural gas development. Management of energy-related wastewaters is evolving rapidly, with different techniques dominating in different locations and raising concerns related to water quality and seismicity. Where deep wells for the permanent disposal of produced water are limited, producers increasingly are recycling and reusing produced water in fracturing operations. This reduces the amount of freshwater needed and relieves stress on disposal sites. At the same time, reuse of produced waters may increase the transport and handling of saline waters, potentially increasing a risk pathway for spills. The potential for human-induced seismic events associated with oil and gas wastewater injection is receiving scientific and political scrutiny in the context of the recent frequency of earthquakes, particularly in the central and eastern United States. Over 300 earthquakes of magnitude (M) 3 or greater occurred between 2010 and 2012 in the central and eastern United States, compared to an average of 21 earthquakes per year of M>3 between 1967 and 2000. The increase in seismicity seems to be correlated with the increase in the number of disposal wells, many of which are injecting wastewaters brought to the surface at shale oil and gas wells and in the use of hydraulic fracturing. Of the 30,000 injection wells in the United States used for wastewater disposal, however, only a few are correlated with seismicity of M > 3. The largest seismic events associated with injection seem to involve faulting that is deeper than the wastewater injection, suggesting that transmission of pressure into the basement rocks elevates the potential for inducing earthquakes. Recent state actions and anticipated federal actions are affecting or are anticipated to affect the management of produced water. In Texas, produced water generally is disposed through deep-well injection (often on-site) or evaporation ponds; interest in reuse is increasing as the result of limited water availability in some regions (e.g., West Texas) and recent drought conditions. In May 2013, the Texas legislature clarified liability and ownership of produced waters transferred among oil and gas operators for purposes of recycling for a beneficial reuse. Pennsylvania regulations constraining surface water disposal wastewaters from shale gas production and the limited in-state deep well-injection options have resulted in a rapid increase in the rate of produced water recycling for shale gas fracking. Operators in Pennsylvania are required to prepare a wastewater source reduction strategy to maximize recycling and reuse. In August 2013, EPA proposed to discontinue efforts to establish discharge standards for wastewaters from CBM under the agency's Effluent Guidelines Program. EPA has been unable to identify a wastewater treatment technology that would be economically achievable. The agency will continue with a rulemaking for wastewaters associated with shale gas extraction, which is expected to be proposed in 2015. Electric Grid and Generation Water availability issues, such as regional drought, low flow, or intense competition for water, can curtail hydroelectric and thermoelectric generation. Fuel and power plant choices and capital investments made in the near term are likely to establish the trajectories for electric generation's long-term water use and vulnerability. Grid-Level Drought Vulnerability Exists in Select Basins An assessment of the drought vulnerability of electricity in the western United States found the majority of basins showing limited disruption risk; also, most of this risk could be mitigated by known strategies, including maintaining excess generation and transmission capacity. While identifying broad resiliency, the western U.S. assessment revealed two regions whose electric generation was at greater risk: The Pacific Northwest was shown to be vulnerable because of its heavy reliance on hydroelectric generation. The Texas grid was vulnerable because of heavy dependence on thermoelectric generation that relied on surface water for cooling, and because of the region's vulnerability to drought and poor connections to the other U.S. grids, which reduces the ability to purchase power to offset generation curtailment. No similar assessment of grid drought vulnerability for the eastern United States has been performed. (See following section, " Thermoelectric Cooling Represents Difficult Tradeoffs ," for a discussion of electric generation in the eastern United States.) Recent drought experiences include the following: In the summer of 2011, high temperatures in Texas resulted in increased electricity demand. At the same time, the drought reduced the amount of water available for cooling electric generators. The grid operator put into effect its emergency action alert system, which at first recommended conservation by customers and later deemed customer conservation critical to avoid rotating outages. During a few days, the peak demand purchases in the real-time wholesale electricity market were at or near the market cap (i.e., $3,000 per megawatt-hour). In the end, only one Texas plant had water-curtailed generation; others were nearing curtailment when weather conditions improved. During the drought of 2012, the mid-continent electric grid avoided major drought-related disruption. Some individual power plants curtailed operations due to water access problems or water temperature issues; others pursued regulatory waivers to continue operations at higher water temperatures or made cooling system investments. Lost generation at drought-impaired facilities was offset by other generation or purchasing power from other sources on the wholesale market. Hydropower Vulnerability Has Been Initially Assessed In Section 9505 of P.L. 111-11 , Congress required the Secretary of Energy to assess the risks posed by climate change for water supply to federal hydroelectric power generators and to update the assessment every five years. The August 2013 report found: Future changes to precipitation and runoff could potentially impact hydropower generation, water quality and supply, critical species habitat, and other important water uses that indirectly affect hydropower generation. At a national level, the median decrease in annual generation at federal projects is projected to be less than 2 billion kWh (2% of total), with a relatively high climate-model uncertainty. While these estimates are similar to the recently observed variability of generation from federal hydropower and may appear to be manageable, extreme water years (both wet and dry) will pose significantly greater challenges to water managers, especially in water systems that have more limited reservoir storage and operational flexibility. For large reservoirs and reservoir systems, it is often the multi-year droughts that most harm generation, as illustrated by summer 2013 conditions in the Colorado River Basin. Thermoelectric Cooling Represents Difficult Tradeoffs More than 80% of U.S. electricity is generated at thermoelectric facilities that depend on cooling water; these facilities withdrew 117 billion gallons of freshwater and 44 billion gallons of saline water daily in 2010, representing 45% of total water withdrawals. The two common cooling methods for thermoelectric power plants are once-through cooling and evaporative cooling. Most once-through cooling is found at power plants located in the eastern United States and is associated with older facilities, or is at coastal facilities using saline waters. Newer facilities and those in more arid regions generally use evaporative cooling. DOE data indicate that 25% of proposed power plants are planning on using reclaimed wastewater for cooling, at least 22% are proposing fresh groundwater, and 17% are planning on dry cooling or generation technologies that do not require cooling. Once-through cooling, while largely non-consumptive, requires water to be continuously available for power plant operations. This reduces the ability for this water to be put toward other water uses and can make cooling operations vulnerable to low flows. Evaporative cooling withdraws much smaller volumes of water for use in a cooling tower or reservoir, where waste heat is dissipated by evaporating the cooling water. Evaporative cooling consumes more water at the facility than does once-through cooling. Cooling technologies that consume less water and use degraded water supplies may reduce freshwater use. These options include dry cooling, hybrid dry-wet cooling, cooling with fluids other than freshwater (e.g., brackish groundwater, produced waters), and emerging technologies. While hybrid and dry cooling options may reduce water consumption, they can reduce operational efficiency (potentially increasing greenhouse gas emissions) and often are more costly. Thermoelectric withdrawals were 20% less in 2010 than in 2005 for reasons including use of more water-efficient cooling technology by new power plants. However, future withdrawals associated with electric generation may grow slightly, remain steady, or decline depending on a number of factors, including reduced generation from facilities using once-through cooling (industry actions resulting from proposed federal cooling water intake regulations) or shifts in how electricity is generated (e.g., less from coal and more from certain natural gas technologies and wind). In contrast, water consumption could increase, especially if more water-consumptive cooling is adopted (e.g., evaporative cooling) and if current carbon capture technologies are added to power plants. Many Power Plants Produce Wastewaters In addition to water for cooling purposes, many power plants also use water for handling solid waste, including ash, and for operating wet flue gas desulfurization scrubbers. According to the U.S. Environmental Protection Agency (EPA), in 2009, power plants discharged 0.7 billion gallons of wastewater daily. In 2013 EPA proposed revisions to Clean Water Act rules that govern wastewater discharges from such plants. The proposed rule would reduce the use of these process waters by 19%-58%, depending on the regulatory option selected when the rule is finalized. A final rule is expected to be issued by September 2015. Policy Response Options and Considerations Policy makers at the federal, state, and local levels are deciding whether to respond to the growing water needs of the energy sector, and if so, which policy levers to use. In the United States, private entities make many of the energy sector's water decisions. Often federal entities lack authority over water use, and states have most of the water allocation authority. Instead of direct influence on water use, the public sector influences private water decisions through other routes (e.g., tax incentives, loan guarantees, permits, regulations, planning, and education). If action to manage energy-sector water issues is deemed appropriate, a range of options are available, as shown in Table 1 : minimize water use, facilitate access to water, or improve decisions and data. Energy choices represent complex tradeoffs; water use and wastewater byproducts are two of many factors to consider. For many policy makers, concerns other than water—low-cost reliable energy, energy independence and security, climate change mitigation, public health, and job creation—are more significant drivers of their positions on energy policies. Analyses quickly get complex when attempting to comprehensively evaluate energy-water tradeoffs. Some energy alternatives, such as solar photovoltaics and wind turbines, do not pose significant energy-water tradeoffs, but may pose other challenges, such as intermittent production or reduced dispatchability, which is the ability and ease with which output from an electric generation facility can be altered. Other energy tradeoffs include transport and storage. Some fuels are easier to store and use existing transport networks and multiple transport modes, while others may require new or expanded infrastructure investments (e.g., pipelines). Significantly, low-carbon energy is not necessarily low in water or environmental impact (e.g., new hydropower reservoirs, freshwater-cooled utility-scale solar), and specific carbon mitigation policies and actions may increase or decrease water consumption. Because of these complexities and the difficulty in comparing different types of impacts, analyses supporting decision-making are often incomplete. It is within this complex and confusing context that policy decisions that influence future energy and related water policies are being made.

Water and energy are critical resources that are reciprocally linked; this interdependence is often described as the water-energy nexus. Meeting energy-sector water needs, which are often large, depends upon the local availability of water for fuel production, hydropower generation, and thermoelectric power plant cooling. The U.S. energy sector's use of water is significant in terms of water withdrawals and water consumption. Thermoelectric cooling represented 38% of freshwater withdrawn nationally and 45% of all water (fresh and saline) withdrawn in 2010, and the broader energy sector's water use (including biofuels) represented around 14% of water consumed nationally. Energy-related water consumption is anticipated to continue to increase in coming decades as the result of more domestic biofuel and unconventional onshore oil and natural gas production. Policy makers at the federal, state, and local levels are faced with deciding whether to respond to the growing water needs of the energy sector, and if so, which policy levers to use (e.g., tax incentives, loan guarantees, permits, regulations, planning, or education). Many U.S. energy sector water decisions are made by private entities, and state entities have the majority of the authority over water use and allocation policies and decisions. For fuel production, water is either an essential input or is difficult and costly to substitute, and degraded water is often a waste byproduct that creates management and disposal challenges. U.S. unconventional oil and natural gas production has expanded quickly since 2008, and U.S. natural gas and coal exports may rise. This has sparked interest in the quantities of water and other inputs "embedded" in these resources, as well as the wastes produced (e.g., wastewaters from oil and natural gas extraction) and how they are reused or disposed (e.g., concerns over induced seismicity from injection of oil and natural gas wastewaters). Much of the growth in water demand for unconventional fuel production is concentrated in regions with already intense competition over water (e.g., tight gas and other unconventional production in Colorado, Eagle Ford shale gas and oil in south Texas), preexisting water concerns (e.g., groundwater decline in North Dakota before Bakken oil development), or regions with abundant, but ecologically sensitive surface water resources (e.g., Marcellus shale region in Pennsylvania and New York). Conventional hydropower accounts for approximately 8% of total U.S. net electricity generation, and more than 80% of U.S. electricity is generated at thermoelectric facilities that depend on cooling water. Water availability issues, such as regional drought, low flow, or intense competition for water, can curtail hydroelectric and thermoelectric generation. An assessment of the drought vulnerability of electricity in the western United States found broad resiliency, while also identifying the Pacific Northwest and the Texas grid at higher risk. Future withdrawals associated with electric generation may grow slightly, remain steady, or decline depending on a number of factors. These include reduced generation from facilities using once-through cooling because of compliance with proposed federal cooling water intake regulations or shifts in how electricity is generated (e.g., less from coal and more from certain natural gas technologies and wind). Energy choices represent complex tradeoffs; water use and wastewater byproducts are two of many factors to consider when making energy choices. For many policy makers, concerns other than water—low-cost reliable energy, energy independence and security, climate change mitigation, public health, and job creation—are more significant drivers of their positions on energy policies.

Introduction Federal courts may not order a defendant to pay restitution to the victims of his or her crimes unless authorized to do so. Two general statutes authorize restitution. One, 18 U.S.C. 3663, permits it for certain crimes. The second, 18 U.S.C. 3663A, requires it for other crimes. In addition, several individual restitution statutes authorize awards for particular offenses. In addition, federal courts may order restitution as a condition of probation or supervised release. Section 3664 supplies the procedure under which the restitution orders are imposed. In the case of mandatory restitution, federal courts must order victim restitution when sentencing a defendant for a felony that constitutes either a crime of violence; an offense against property, including fraud or deceit proscribed in Title 18; maintaining a drug-involved premise; animal enterprise terrorism; failure to provide child support; human trafficking; sexual abuse; sexual exploitation of children; stalking or domestic violence; copyright infringement; telemarketing fraud; or amphetamine or methamphetamine offenses. The obligation exists even if the defendant is indigent, and restitution must take the form of in-kind, lump sum, or installment payments. Moreover, a court may not avoid the obligation by issuing a restitution order and then granting the defendant remission of restitution. When not required, federal courts are permitted to order restitution for various controlled substance and aviation safety offenses, as well as for any offense proscribed in Title 18 of the United States Code for which restitution is not already mandatory. Ordinarily, restitution is available only to victims who have suffered a physical injury or financial loss as a direct and proximate consequence of the crime of conviction, and only to the extent of their losses. Background Restitution has a diverse pedigree. Grounded in fairness and often thought of as an equitable remedy, its antecedents can as easily be found in law as in equity. As its name implies, restitution restores the victim to the status quo ante, that is, making the depleted victim whole again. Restitution has been a feature of the federal system of criminal justice for over a century. In its earliest form, some federal judges claimed it as a component of their inherent authority to grant probation and suspended sentences. Then in 1916, the Supreme Court held that the lower federal courts had no inherent power to suspend sentences. Congress responded by granting the courts explicit authority to suspend sentences and to place defendants on probation. In doing so, the courts were permitted to require probationers "to pay in one or several sums a fine imposed at the time of being placed on probation and ... to make restitution or reparation to the aggrieved party or parties for actual damages or loss caused by the offense for which conviction was had, and ... to provide for the support of any person or persons for whose support" they were "legally responsible." This authority continued essentially unchanged for more than 50 years. Even though the federal courts enjoyed no other power to order restitution in a criminal case, the authority was "infrequently used and indifferently enforced." Congress found this situation unsatisfactory. Thus, in the Victim and Witness Protection Act of 1982 (VWPA), it vested federal courts with the general discretion to order restitution in any criminal case arising out of a crime proscribed in Title 18 of the United States Code or in air piracy cases. In the Violent Crime Control and Law Enforcement Act of 1994, Congress established mandatory restitution as a consequence of conviction for the federal crimes of sexual abuse, sexual exploitation of children, and domestic violence. Then, in the Mandatory Victim Restitution Act (MVRA) portion of the Antiterrorism and Effective Death Penalty Act of 1996, Congress made mandatory restitution a consequence of conviction for most of the serious federal crimes (i.e., crimes of violence and, when proscribed in Title 18 of the United States Code , crimes against property, including fraud). Constitutional Considerations Restitution's varied lineage—equitable and legal, civil and criminal—has spurred a number of constitutional challenges over the years. Some initially saw restitution as an alternative to civil litigation on behalf of the victims of crime. If this were the case, defendants claimed that they should enjoy a Seventh Amendment right to have a jury determine the facts upon which a restitution order was based. Their challenges came to naught. The Supreme Court held that the Seventh Amendment extends only to civil actions similar to those tried before a jury when the Amendment was ratified in 1791. The lower courts rejected the Seventh Amendment challenges either because they concluded that restitution was a criminal rather than a civil sanction or because, at common law, restitution was not a matter presented to a jury; in some cases, the challenges were rejected for both reasons. However, if restitution is a criminal sanction, must it observe the constitutional restrictions on sanctions, such as the proscriptions on ex post facto laws, excessive fines, and cruel and unusual punishments? If the Seventh Amendment right to a jury trial in civil cases has no bearing, what of the Sixth Amendment right to a jury trial in criminal cases? On the question of retroactive application of new laws and the ex post facto clause, there is no consensus among the lower federal appellate courts, although a majority take the position that the clause applies and, consequently, exposure to increased restitution liability may not be applied retroactively. The scant case law available on the issue indicates that the Eighth Amendment's excessive fines clause, as well as its cruel and unusual punishment clause, mark the outer bounds of the courts' restitution authority. These limitations, however, impose no real impediments. They condemn fines and punishments that are grossly disproportionate; restitution, by definition under federal law, must be precisely proportionate to the harm caused by the offense. As for the Sixth Amendment right to jury trial and the Fifth Amendment right to conviction only on proof beyond a reasonable doubt, the Supreme Court held in a series of cases beginning with Apprendi v. New Jersey and culminating in United States v. Booker , that the Sixth Amendment right to a jury trial and the Fifth Amendment right to due process require that "any fact (other than a prior conviction) which is necessary to support a sentence exceeding the maximum authorized by the facts established by a plea of guilty or a jury verdict must be admitted by the defendant or proved to a jury beyond a reasonable doubt." This might seem to pose a problem for federal restitution procedures under which restitution is determined by the court (not a jury) on the basis of a preponderance of the evidence (not beyond a reasonable doubt). Nevertheless, the lower federal appellate courts have rejected arguments that the Apprendi line of cases clouds the validity of a restitution order under such circumstances—either because they do not consider restitution a criminal sanction and thus see no Fifth or Sixth Amendment concerns or because they feel the restitution statutes fail to set the "statutory maximum" necessary to trigger Apprendi concerns. None of the other due process or equal protection challenges appear to have survived appellate scrutiny thus far. Victims The various federal restitution statutes address three questions: Who qualifies as a victim? What crimes trigger restitution authority? What type of injuries or losses does restitution cover? As originally cast, §3663 (VWPA) authorized restitution for "any victim" of any crime proscribed in title 18 of the United States Code , but did not define the term "victim." The Supreme Court read the statute narrowly and concluded that restitution might only extend to harm attributable to the crime of conviction. Congress endorsed this view almost immediately with a more explicit statement of §3663's coverage. It replicated and enlarged that statement when it enacted §3663A six years later. Sections 3663 and 3663A authorize restitution orders for the benefit of the victims of the crime of conviction, and expressly define the term "victim" (i.e., "a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered"). A victim is also someone harmed by a scheme, conspiracy, or pattern of activity that is an element of the crime of conviction. And, a victim may be someone whom the government and the defendant agree in a plea bargain is entitled to restitution. Harm is directly caused by the defendant's offense of conviction when the harm would not have occurred but for that misconduct. Directly caused harm is proximately caused when there is no attenuation between the crime and the harm; when the harm and but-for misconduct are closely, not remotely, related in time and fact. The presence of an intervening cause of the harm may suggest a want of either direct causation, or proximate causation, or both. The presence of an intervening cause will defeat an assertion of direct and proximate harm unless intervening cause is related to or a foreseeable consequence of the offense of conviction. As the Supreme Court explained in the context of one of the specialized restitution statutes, As a general matter, to say one event proximately caused another is a way of making two separate but related assertions. First, it means the former event caused the latter.... Every event has many causes, however, and only some of them are proximate.... So to say that one event was a proximate cause of another means that it was not just any cause, but one with a sufficient connection to the result. The idea of proximate cause.... is a flexible concept, that generally refers to the basic requirement that there must be some direct relation between the injury asserted and injurious conduct alleged.... Proximate cause is often explicated in terms of foreseeability or the scope of the risk created by the predicate conduct. A requirement of proximate cause thus serves, inter alia, to preclude liability in situations where the causal link between conduct and result is so attenuated that the consequence is more aptly described as mere fortuity. The definition of a victim for purposes of restitution under §§3663 and 3663A expands when the crime of conviction has as an element a conspiracy or a scheme or pattern of misconduct. In the case of conspiracy, a defendant may be compelled to make restitution both for the harm caused by his or her own misconduct and for the harm caused by the foreseeable misconduct of his or her coconspirators. As for the scheme and pattern exception, most federal crimes do not list schemes or patterns among their elements, although the mail fraud, wire fraud, and racketeering statutes do. In such cases, restitution may include the losses incurred from a different episode of the scheme than the one mentioned in the indictment. Yet the scheme must be the same; victims entitled to restitution do not include those harmed by an otherwise identical scheme but different in time or place than the crime of conviction. The courts are divided over which statutes qualify as "scheme, conspiracy or pattern" laws. Some say the scheme or pattern must be an element of the crime of conviction; it is not enough that the defendant's crime involves contrivance or repeated related criminality. Others say it is enough; the statute proscribing the crime of conviction need not use the words "scheme," or "conspiracy," or "pattern." Sections 3663 and 3663A describe, with somewhat overlapping grants of authority, the circumstances under which representatives and others may stand in the shoes of a victim. A court may also order restitution pursuant to a plea bargain for "victims" who would not otherwise qualify. Although a victim must be a "person" and governmental entities are ordinarily not considered persons, state, local, and federal governmental entities are entitled to restitution orders when they otherwise qualify as victims of a crime under §§3663 and 3663A. On the other hand, although the courts enjoy authority to order restitution paid to family members on behalf of the victims of crime, it is unclear whether the victimization of one member of a family constitutes victimization of its other members sufficient to warrant a restitution order for the benefit of a victim's family members in their own name. Other Restitution Statutes At one time, the lower federal appellate courts are divided over whether under §2259 a restitution order following conviction for possession of child pornography required the government to show that the subject of child pornography has sustained losses proximately caused by the possession offense. Thereafter, the Supreme Court concluded that "[r]estitution is therefore proper under §2259 only to the extent that the defendant's offense proximately caused a victim's losses." Crimes Although §§3663 and 3663A employ the same definition of victim , they do not authorize restitution for the same crimes. The list of crimes for which §3663 permits restitution supplements the list for which §3663A demands restitution. Section 3663A (Mandatory Restitution) The mandatory restitution of §3663A applies upon conviction for a crime of violence, as defined in §16; an offense against property under 18 U.S.C., or under §416(a) of the Controlled Substances Act (21 U.S.C. 856(a)), including any offense committed by fraud or deceit; an offense described in §1365 (relating to tampering with consumer products); or an offense under §670 (relating to theft of medical products). Section 16 describes a crime of violence as either "(a) an offense that has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or (b) any other offense that is a felony and that, by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense." As a matter of application, the courts have found that threats, extortion, assault, harboring an illegal alien, burglary, and arson are crimes of violence for purposes of §3663A and that false statement offenses are not. Elsewhere, the Supreme Court has explained that "crime of violence as defined by §16" does not include crimes committed negligently or accidently, such as driving under the influence. Other courts have said that the term "crime of violence" does not encompass possession of a pipe bomb, reckless vehicular assault, or simple misdemeanor assault, but does include such crimes as unauthorized use of a vehicle. The controlled substance offense that carries with it a restitution requirement under §3663A (21 U.S.C. 856) consists of maintaining a place where controlled substances are manufactured, stored, or used. The property damage/fraud predicate in §3663A must involve a violation proscribed under title 18 of the United States Code rather than an offense found in another title. Yet, the general conspiracy provision in title 18 can provide the necessary basis for a mandatory restitution order when the defendant is convicted of conspiracy to commit property damage in violation of a federal law found outside of title 18. The product tampering offense consists of tampering with a product or its labeling that affects interstate or foreign commerce or spreading false rumors that such a product is contaminated. Section 670 outlaws the theft of, or unlawful trafficking in, pre-retail medical products. Limitations Three qualifications temper the mandatory restitution requirements facing defendants convicted of the predicate offenses listed in §3663A(c)(1)(A). First, there must be an identifiable victim who has suffered a physical injury or a pecuniary loss. Second, in the case of the property damage/fraud predicates, restitution need not be ordered when the number of victims makes an order impractical. Third, again in the case of property damage/fraud predicates, restitution need not be ordered when the complexity that restitution would introduce into the sentencing process would represent an undue burden. Other Restitution Statutes A few other federal statutes authorize restitution. All but the animal enterprise statute, require it. Most apply the procedures that govern §§3663 and 3663A to a narrower range of crimes but a wider range of losses than §§3663 and 3663A and their attendant enforcement procedures might otherwise permit. Numbered among these provisions are 18 U.S.C. 43 (animal enterprise); 18 U.S.C. 228(d) (restitution child support cases); 18 U.S.C. 1593 (restitution in cases under chapter 77 relating to peonage, slavery, and trafficking in persons); 18 U.S.C. 2248 (restitution in cases under chapter 109A relating to sexual abuse); 18 U.S.C. 2259 (restitution in cases under chapter 110 relating to sexual exploitation of children); 18 U.S.C. 2264 (restitution in cases under chapter 110A relating to domestic violence and stalking); 18 U.S.C. 2323(c) (restitution in copyright infringement cases); 18 U.S.C. 2327 (restitution in telemarketing fraud cases); and 21 U.S.C. 853(q) (restitution in controlled substances cases involving amphetamine and methamphetamine offenses). Section 3663 (Discretionary Restitution) Section 3663 authorizes restitution when the defendant has been convicted of a crime proscribed under title 18 of the United States Code . It comes into play when the mandatory restitution statutes do not control. It also authorizes restitution when the defendant is convicted of any of several trafficking offenses under the Controlled Substances Act, or of any of a few air safety prohibitions. Finally, as noted earlier, a court may order restitution with respect to any crime consistent with a plea agreement or as a condition of either probation or supervised release, even with respect to crimes for which restitution is not authorized under §§3663 or 3663A. Losses Restitution is a creature of statute. A court may order reimbursement only for those losses authorized by statute. Sections 3663 and 3663A recognize three categories of reimbursable losses: property losses, losses relating to bodily injuries, and losses relating to participation in the investigation or prosecution of the victimizing offense. Property Loss or Damage Sections 3663 and 3663A Sections 3663 and 3663A have essentially identical restitution provisions: both call for the return of the property, if that provides full victim restitution. If not, restitution takes the form of compensatory payments. As a general rule, victims are entitled only to be made whole; unlike the sentencing guidelines which calculate sentence enhancements based on both actual and intended losses, the restitution statutes permit awards only for actual losses. It is often not the fact of a reimbursable loss, but its measure, that challenges the courts. Nevertheless, the types of reimbursable property losses contemplated by §§3663(b)(1) and 3663A(b)(1) include things like the salary of a faithless employee, or the insurance replacement costs of a stolen car, or the losses visited upon a loan guarantor by a mortgage fraud scheme. Circumstances dictate whether attorneys' fees qualify as reimbursable property losses. The strongest arguments for recovery seem to attend those cases in which the scurrilous litigation is an integral part of the crime of conviction. On the other hand, the courts seem less receptive when restitution is sought as a property loss under either §3663(b)(1) or §3663A(b)(1) in order to compensate a victim for the costs of civil litigation filed against the offender. Section 3663, unlike its counterpart, permits the court to order those convicted of crime-assisting identity theft or aggravated identity theft to pay for the costs incurred by their victims to remedy the actual or intended harm associated with the offense. Section 3663(c) also authorizes community restitution in the form of awards apportioned between state victim assistance agencies and state agencies dedicated to the reduction of substance abuse. The court may order restitution in certain drug trafficking cases where there are no identifiable victims, capped by the amount of the fine that the court may impose for commission of the offense. Moreover, at least one court has held that the section authorizes restitution only in those cases where the court actually imposes a fine as well; if the court fails to impose a fine, it may not order community restitution. Section 3663 expressly provides for restitution for the remedial effects of the victims of identity theft committed in relation to other offenses and for state agencies in certain drug trafficking cases if there are no other identifiable victims. Section 3663A has no comparable provision. Individual Restitution Sections The individual restitution sections fall within two categories. One group focuses on restitution for the victims of crimes involving property damage or loss; the other on restitution for the victims of crimes involving personal injury. Among the first group, only the copyright infringement statute adopts by cross reference the mandatory restitution provisions of §3663A. Each of the others follows the same general pattern as §3663A but adds at least one unique feature of its own. The child support restitution section, 18 U.S.C. 228(d), adopts the procedures of §3663A upon conviction for interstate evasion of child support orders. The amount of restitution that must be awarded is determined by reference to a state court support order or by other governing state law and, as such, may include the interest on overdue support payments and support owed after children have reached their majority. The peonage restitution section, 18 U.S.C. 1593, uses the common definition of "victim" and affords victims of human trafficking offenses a wide range of compensation that, unlike §§3663 and 3663A, includes the economic benefits derived from the victim's services and a catch-all clause ensuring compensation for predicate crime-related injuries and losses. The telemarketing fraud restitution statute, 18 U.S.C. 2327, originally enacted two years before the passage of the mandatory restitution provisions of §3663A, once had highly individualistic features. It has since been amended so that its provisions more closely track those of the general restitution provisions for losses caused by predicate crimes. The methamphetamine statute, 21 U.S.C. 853(q), covers the cleanup cost of closing down illicit amphetamine and methamphetamine production sites. At one time, the section applied only to those convicted of manufacturing offenses and consequently reached convictions for attempted manufacture but not for possession with intent to distribute. The USA PATRIOT Improvement and Reauthorization Act amended the section so that it now authorizes restitution upon conviction for offenses involving possession, possession with intent to distribute, or manufacture of amphetamine and methamphetamine. The animal enterprise interference section, 18 U.S.C. 43(c), permits a sentencing court to order a defendant convicted of violating its proscriptions to pay restitution for specific kinds of damage (i.e., the cost of repeating disrupted experiments, the loss of farm income, and the costs of economic disruption). Personal Injuries Sections 3663 and 3663A Sections 3663 and 3663A have parallel provisions governing the restitution for personal injuries that permit or, in the case of §3663A require, compensation for medical expenses, lost income, rehabilitation, and funeral expenses in the event the victim is killed. The medical expenses covered by a restitution order may include those paid on the victim's behalf by a third party, and may include the costs of psychiatric and psychological treatment when the victim has suffered a physical injury. Restitution for lost income extends to both past and future lost income. Other Restitution Statutes Prior to passage of the general mandatory restitution authority in §3663A, Congress authorized restitution for three related small sets of offenses. Those authorizations, found in 18 U.S.C. 2248, 2259 and 2264, require the courts to order restitution following conviction for an offense proscribed in chapters 109A (sexual abuse), 110 (sexual exploitation of children), and 110A (domestic violence and stalking), respectively. Other than their designation of predicate offenses, the sections are identical. They each insist on restitution of the "full amount of the victim's losses," define "victims" in much the manner of §§3663 and 3663A, supply a list of losses for which restitution must be ordered, make it clear that neither the defendant's poverty nor victim compensation from other sources absolves the court of its obligation to order restitution, and otherwise adopt the procedural mechanisms used for restitution under Section 3663A. Unlike §§3663 and 3663A, the three sections on their face do not require bodily injury of the victim as a precondition for the award of the cost of psychiatric treatments. They also have a catch-all clause that has no counterpart in either §§3663 or 3663A. On the other hand, unlike §§3663 and 3663A, they do not authorize payments to third parties to reimburse them for crime-related treatment of a victim. Cost of Victim Participation in Investigation and Prosecution Sections 3663 and 3663A cover a victim's lost income, as well as necessary child care expenses, transportation costs, and other expenses associated with his or her participation in the investigation and prosecution of the crime, regardless of whether the resulting injury is to person or to property. A number of courts seem to share the view of that "investigation costs—including attorneys' fees—incurred by private parties as a direct and foreseeable result of the defendant's wrongful conduct may be recoverable" under §§3663(b)(4) or 3663A(b)(4). At least one appellate court, however, has concluded that those sections do not permit "restitution for the costs of an organization's internal investigation, at least when (as here) the internal investigation was neither required nor requested by the criminal investigators or prosecutors." The sections mention child care, attendance at judicial proceedings, and other matters that bespeak a human victim, but the courts have made it clear that corporations and other legal entities are likewise entitled to restitution under the provisions. Governmental entities may be entitled to restitution awards when they are the victims of a qualifying offense, but not for the costs of investigating and prosecuting the offense. Awards for investigative and prosecutorial participation have included relocation expenses for threatened victims; compensation for wages lost while the victim assisted in the investigation; and attorneys' fees related to the recovery of the victim of international parental kidnapping. Procedure Except to the limited extent otherwise provided in the individual authorization statutes, §3664 supplies the procedure that governs the issuance of restitution orders. Upon conviction of a defendant, the court directs the probation service to investigate and prepare a report identifying each victim of the offense and the extent of their injuries, damages, or losses. Prosecutors are to provide the probation officer with pertinent information. The officer is also to ask victims to detail the extent and specifics of their predicate crime-related losses. The defendant is obliged to give the officer a complete description of his or her financial situation. The probation officer's report is presented to the court, the defendant, and the prosecutor. The court resolves contested restitution issues by a preponderance of the evidence following a hearing, at which the prosecution bears the burden of establishing the existence and extent of the victim's losses, and the defendant bears the burden on questions regarding his or her finances and the extent to which the defendant has compensated the victim for the losses. The court may conduct a hearing or task the probation officer to secure additional information and resolve disputes. Section 3664 is precise when it describes how the court must frame the restitution order. The order must envision full compensation for the losses of each victim without regard to the financial circumstances of the defendant. In its calculation of the manner and schedule of payment for each victim, however, the court is to consider the defendant's assets, anticipated future income, and other financial obligations. Compensation may be made in a lump sum, in-kind payments, installments, or any combination of such methods of payment. In-kind payments may take the form of a return of lost property, replacement in-kind or otherwise, or personal services. When the defendant's financial condition precludes any alternative, the order may call for nominal periodic payments. Several courts have emphasized the importance of the court's close attention to the restitution payment schedule by prohibiting sentencing courts from initially ordering that restitution be paid immediately when it is readily apparent that the defendant is unable to do so, thereby effectively leaving the task of establishing a payment schedule to the probation officer or the Bureau of Prisons. When it sets the restitution owed by the defendant, the court may not take into account the fact that a victim may have been compensated by insurance or any other alternative form of compensation of his or her injury, loss, or damage. The amount of a restitution order may later be reduced to account for compensatory damages for the same loss recovered in a civil action. When the government and the probation officer have been unable to determine the full extent of victim losses within 10 days of sentencing, they are obligated to inform the court. The court is then to set a date, no later than 90 days after sentencing, for the final determination of victim losses. Thereafter, victims have a limited option to present claims for restitution relating to undiscovered losses. The Supreme Court has resolved a circuit split over how these provisions should be applied, particularly in cases where the timelines have not been observed. It held in Dolan that a sentencing court may determine the extent of a victim's losses and order restitution after the expiration of the statutory 90-day deadline, as long as the defendant was aware beforehand that the court intended to order restitution. Victims may assign their right to receive restitution payments to Crime Victims Fund, but there is no consensus over whether the court may order restitution to be paid to the Crime Victims Fund on its own initiative if the victim refuses to accept it. Should the court determine that more than one defendant contributed to the victim's loss, it may apportion restitution accordingly or it may make the defendants jointly and severally liable. When defendants are made jointly and severally liable, each is liable for the entire amount, but the victim is entitled to no more than what is required to be made whole, regardless of what portion each of the defendants ultimately contributes. There had been a difference of opinion over whether joint and severable liability may be imposed other than with respect to co-defendants. The Supreme Court has recently provided some clarification as to how courts should deal with restitution when those who are not co-defendants are responsible for a substantial portion of the victim's losses. The defendant in the case viewed child pornography of which the victim was the subject. To hold the defendant liable for all of the victim's losses attributable to production, distribution, and viewing of the material might contravene the proscriptions of the Eighth Amendment's excessive fines clause, the Court suggested. Rather, it held that the defendant's restitution order should be calculated to reflect his relative contribution to the harm caused. Section 3664(i) declares that when it comes to restitution, the United States is to be served last. The provision is cited most often to confirm that under the appropriate circumstances, the government and its departments and agencies may be considered victims for restitution purposes. When the government is not a victim, the defendant is not entitled to have the restitution award offset by the value of any forfeited property. There may be some question whether the same thing can be said when the government is both the victim of the offense and the recipient of the forfeited property. Section 3664(j) permits a court to order restitution to third parties who, as insurers or otherwise, have assumed some or all of the victim's losses, although in such cases, the victim must be fully compensated first. It also permits a court to reduce an earlier restitution order by any amounts that the victim later receives in the course of related federal or state civil litigation. The victim, the defendant, or the government may petition to have a restitution order's payment schedule amended to reflect the defendant's changed economic circumstances. The changed economic circumstances envisioned in §3664(k) do not include anticipated future changes or a later, better-informed understanding of the defendant's financial condition at the time of sentence. Nor does the section provide defendants with a mechanism with which to later challenge the legality of their restitution orders. There are several means to enforce a restitution order. Section 3664(m) declares that restitution orders may be enforced in the manner used to collect fines or "by all other available and reasonable means." When restitution is a condition of probation or supervised release, failure to make restitution may provide the grounds for revocation. Moreover, a restitution order operates as a lien in the name of the United States on the defendant's property that remains in effect for 20 years. The government may also use garnishment and the other collection mechanisms of the Federal Debt Collection Procedures Act (FDCPA) to enforce a restitution order. A victim may use a restitution order to secure a lien in his own name against the defendant's property to ensure the payment of restitution. In addition, the victims' rights provisions of 18 U.S.C. 3771 entitle a victim to "full and timely restitution as provided in law," a right, enforceable in the face of legally insufficient restitution order through a liberalized form of mandamus in some circuits. In most instances, a victim may also sue the defendant based on the conduct that led to the conviction and the issuance of the restitution order. During the course of such civil litigation, the defendant may be precluded from denying the facts that formed the basis of the conviction. Section 3664(o) provides that the court's restitution order constitutes a final order notwithstanding the fact it may later be corrected, modified, or appealed under various court rules and statutory provisions. This does not mean that the district court may later reduce a restitution order in the absence of specific authority. Nor does it convey appellate rights upon third parties who claim a right to restitution for expenses necessarily incurred on behalf of a victim. Abatement In a criminal law context, the lower federal courts have generally taken the view that the death of a defendant at any time prior to the determination of his or her final direct appeal abates all underlying proceedings; appeals are dismissed as moot, convictions are overturned, indictments are dismissed, and abated convictions cannot be used in related civil litigation against the estate—all as if the defendant was never criminally charged. It might seem from this that a restitution order would abate as well, but there is no consensus among the lower federal courts on the issue. Statutory Text 18 U.S.C. 3663. Order of restitution (a)(1)(A) The court, when sentencing a defendant convicted of an offense under this title, Section 401, 408(a), 409, 416, 420, or 422(a) of the Controlled Substances Act (21 U.S.C. 841, 848(a), 849, 856, 861, 863) (but in no case shall a participant in an offense under such sections be considered a victim of such offense under this section), or Section 5124, 46312, 46502, or 46504 of Title 49, other than an offense described in Section 3663A(c), may order, in addition to or, in the case of a misdemeanor, in lieu of any other penalty authorized by law, that the defendant make restitution to any victim of such offense, or if the victim is deceased, to the victim's estate. The court may also order, if agreed to by the parties in a plea agreement, restitution to persons other than the victim of the offense. (B)(i) The court, in determining whether to order restitution under this section, shall consider— (I) the amount of the loss sustained by each victim as a result of the offense; and (II) the financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate. (ii) To the extent that the court determines that the complication and prolongation of the sentencing process resulting from the fashioning of an order of restitution under this section outweighs the need to provide restitution to any victims, the court may decline to make such an order. (2) For the purposes of this section, the term "victim" means a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern. In the case of a victim who is under 18 years of age, incompetent, incapacitated, or deceased, the legal guardian of the victim or representative of the victim's estate, another family member, or any other person appointed as suitable by the court, may assume the victim's rights under this section, but in no event shall the defendant be named as such representative or guardian. (3) The court may also order restitution in any criminal case to the extent agreed to by the parties in a plea agreement. (b) The order may require that such defendant— (1) in the case of an offense resulting in damage to or loss or destruction of property of a victim of the offense— (A) return the property to the owner of the property or someone designated by the owner; or (B) if return of the property under subparagraph (A) is impossible, impractical, or inadequate, pay an amount equal to the greater of— (i) the value of the property on the date of the damage, loss, or destruction, or (ii) the value of the property on the date of sentencing, less the value (as of the date the property is returned) of any part of the property that is returned; (2) in the case of an offense resulting in bodily injury to a victim including an offense under chapter 109A or chapter 110— (A) pay an amount equal to the cost of necessary medical and related professional services and devices relating to physical, psychiatric, and psychological care, including nonmedical care and treatment rendered in accordance with a method of healing recognized by the law of the place of treatment; (B) pay an amount equal to the cost of necessary physical and occupational therapy and rehabilitation; and (C) reimburse the victim for income lost by such victim as a result of such offense; (3) in the case of an offense resulting in bodily injury also results in the death of a victim, pay an amount equal to the cost of necessary funeral and related services; (4) in any case, reimburse the victim for lost income and necessary child care, transportation, and other expenses related to participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense; (5) in any case, if the victim (or if the victim is deceased, the victim's estate) consents, make restitution in services in lieu of money, or make restitution to a person or organization designated by the victim or the estate; and (6) in the case of an offense under Sections 1028(a)(7) or 1028A(a) of this title, pay an amount equal to the value of the time reasonably spent by the victim in an attempt to remediate the intended or actual harm incurred by the victim from the offense. (c)(1) Notwithstanding any other provision of law (but subject to the provisions of subsections (a)(1)(B)(i)(II) and (ii), when sentencing a defendant convicted of an offense described in Section 401, 408(a), 409, 416, 420, or 422(a) of the Controlled Substances Act (21 U.S.C. 841, 848(a), 849, 856, 861, 863), in which there is no identifiable victim, the court may order that the defendant make restitution in accordance with this subsection. (2)(A) An order of restitution under this subsection shall be based on the amount of public harm caused by the offense, as determined by the court in accordance with guidelines promulgated by the United States Sentencing Commission. (B) In no case shall the amount of restitution ordered under this subsection exceed the amount of the fine which may be ordered for the offense charged in the case. (3) Restitution under this subsection shall be distributed as follows: (A) 65 percent of the total amount of restitution shall be paid to the State entity designated to administer crime victim assistance in the State in which the crime occurred. (B) 35 percent of the total amount of restitution shall be paid to the State entity designated to receive Federal substance abuse block grant funds. (4) The court shall not make an award under this subsection if it appears likely that such award would interfere with a forfeiture under chapter 46 or chapter 96 of this title or under the Controlled Substances Act (21 U.S.C. 801 et seq.). (5) Notwithstanding Section 3612(c) or any other provision of law, a penalty assessment under Section 3013 or a fine under subchapter C of chapter 227 shall take precedence over an order of restitution under this subsection. (6) Requests for community restitution under this subsection may be considered in all plea agreements negotiated by the United States. (7)(A) The United States Sentencing Commission shall promulgate guidelines to assist courts in determining the amount of restitution that may be ordered under this subsection. (B) No restitution shall be ordered under this subsection until such time as the Sentencing Commission promulgates guidelines pursuant to this paragraph. (d) An order of restitution made pursuant to this section shall be issued and enforced in accordance with Section 3664. 18 U.S.C. 3663A. Mandatory restitution (a)(1) Notwithstanding any other provision of law, when sentencing a defendant convicted of an offense described in subsection (c), the court shall order, in addition to, or in the case of a misdemeanor, in addition to or in lieu of, any other penalty authorized by law, that the defendant make restitution to the victim of the offense or, if the victim is deceased, to the victim's estate. (2) For the purposes of this section, the term "victim" means a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern. In the case of a victim who is under 18 years of age, incompetent, incapacitated, or deceased, the legal guardian of the victim or representative of the victim's estate, another family member, or any other person appointed as suitable by the court, may assume the victim's rights under this section, but in no event shall the defendant be named as such representative or guardian. (3) The court shall also order, if agreed to by the parties in a plea agreement, restitution to persons other than the victim of the offense. (b) The order of restitution shall require that such defendant— (1) in the case of an offense resulting in damage to or loss or destruction of property of a victim of the offense— (A) return the property to the owner of the property or someone designated by the owner; or (B) if return of the property under subparagraph (A) is impossible, impracticable, or inadequate, pay an amount equal to— (i) the greater of— (I) the value of the property on the date of the damage, loss, or destruction; or (II) the value of the property on the date of sentencing, less (ii) the value (as of the date the property is returned) of any part of the property that is returned; (2) in the case of an offense resulting in bodily injury to a victim— (A) pay an amount equal to the cost of necessary medical and related professional services and devices relating to physical, psychiatric, and psychological care, including nonmedical care and treatment rendered in accordance with a method of healing recognized by the law of the place of treatment; (B) pay an amount equal to the cost of necessary physical and occupational therapy and rehabilitation; and (C) reimburse the victim for income lost by such victim as a result of such offense; (3) in the case of an offense resulting in bodily injury that results in the death of the victim, pay an amount equal to the cost of necessary funeral and related services; and (4) in any case, reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense. (c)(1) This section shall apply in all sentencing proceedings for convictions of, or plea agreements relating to charges for, any offense— (A) that is— (i) a crime of violence, as defined in section 16; (ii) an offense against property under this title, or under section 416(a) of the Controlled Substances Act (21 U.S.C. 856(a)), including any offense committed by fraud or deceit; (iii) an offense described in section 1365 (relating to tampering with consumer products); or (iv) an offense under section 670 (relating to theft of medical products); and (B) in which an identifiable victim or victims has suffered a physical injury or pecuniary loss. (2) In the case of a plea agreement that does not result in a conviction for an offense described in paragraph (1), this section shall apply only if the plea specifically states that an offense listed under such paragraph gave rise to the plea agreement. (3) This section shall not apply in the case of an offense described in paragraph (1)(A)(ii) if the court finds, from facts on the record, that— (A) the number of identifiable victims is so large as to make restitution impracticable; or (B) determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process. (d) An order of restitution under this section shall be issued and enforced in accordance with Section 3664. 18 U.S.C. 3664. Procedure (a) For orders of restitution under this title, the court shall order the probation officer to obtain and include in its presentence report, or in a separate report, as the court may direct, information sufficient for the court to exercise its discretion in fashioning a restitution order. The report shall include, to the extent practicable, a complete accounting of the losses to each victim, any restitution owed pursuant to a plea agreement, and information relating to the economic circumstances of each defendant. If the number or identity of victims cannot be reasonably ascertained, or other circumstances exist that make this requirement clearly impracticable, the probation officer shall so inform the court. (b) The court shall disclose to both the defendant and the attorney for the Government all portions of the presentence or other report pertaining to the matters described in subsection (a) of this section. (c) The provisions of this chapter, chapter 227, and Rule 32(c) of the Federal Rules of Criminal Procedure shall be the only rules applicable to proceedings under this section. (d)(1) Upon the request of the probation officer, but not later than 60 days prior to the date initially set for sentencing, the attorney for the Government, after consulting, to the extent practicable, with all identified victims, shall promptly provide the probation officer with a listing of the amounts subject to restitution. (2) The probation officer shall, prior to submitting the presentence report under subsection (a), to the extent practicable — (A) provide notice to all identified victims of— (i) the offense or offenses of which the defendant was convicted; (ii) the amounts subject to restitution submitted to the probation officer; (iii) the opportunity of the victim to submit information to the probation officer concerning the amount of the victim's losses; (iv) the scheduled date, time, and place of the sentencing hearing; (v) the availability of a lien in favor of the victim pursuant to subsection (m)(1)(B); and (vi) the opportunity of the victim to file with the probation officer a separate affidavit relating to the amount of the victim's losses subject to restitution; and (B) provide the victim with an affidavit form to submit pursuant to subparagraph (A)(vi). (3) Each defendant shall prepare and file with the probation officer an affidavit fully describing the financial resources of the defendant, including a complete listing of all assets owned or controlled by the defendant as of the date on which the defendant was arrested, the financial needs and earning ability of the defendant and the defendant's dependents, and such other information that the court requires relating to such other factors as the court deems appropriate. (4) After reviewing the report of the probation officer, the court may require additional documentation or hear testimony. The privacy of any records filed, or testimony heard, pursuant to this section shall be maintained to the greatest extent possible, and such records may be filed or testimony heard in camera. (5) If the victim's losses are not ascertainable by the date that is 10 days prior to sentencing, the attorney for the Government or the probation officer shall so inform the court, and the court shall set a date for the final determination of the victim's losses, not to exceed 90 days after sentencing. If the victim subsequently discovers further losses, the victim shall have 60 days after discovery of those losses in which to petition the court for an amended restitution order. Such order may be granted only upon a showing of good cause for the failure to include such losses in the initial claim for restitutionary relief. (6) The court may refer any issue arising in connection with a proposed order of restitution to a magistrate judge or special master for proposed findings of fact and recommendations as to disposition, subject to a de novo determination of the issue by the court. (e) Any dispute as to the proper amount or type of restitution shall be resolved by the court by the preponderance of the evidence. The burden of demonstrating the amount of the loss sustained by a victim as a result of the offense shall be on the attorney for the Government. The burden of demonstrating the financial resources of the defendant and the financial needs of the defendant's dependents, shall be on the defendant. The burden of demonstrating such other matters as the court deems appropriate shall be upon the party designated by the court as justice requires. (f)(1)(A) In each order of restitution, the court shall order restitution to each victim in the full amount of each victim's losses as determined by the court and without consideration of the economic circumstances of the defendant. (B) In no case shall the fact that a victim has received or is entitled to receive compensation with respect to a loss from insurance or any other source be considered in determining the amount of restitution. (2) Upon determination of the amount of restitution owed to each victim, the court shall, pursuant to Section 3572, specify in the restitution order the manner in which, and the schedule according to which, the restitution is to be paid, in consideration of— (A) the financial resources and other assets of the defendant, including whether any of these assets are jointly controlled; (B) projected earnings and other income of the defendant; and (C) any financial obligations of the defendant; including obligations to dependents. (3)(A) A restitution order may direct the defendant to make a single, lump-sum payment, partial payments at specified intervals, in-kind payments, or a combination of payments at specified intervals and in-kind payments. (B) A restitution order may direct the defendant to make nominal periodic payments if the court finds from facts on the record that the economic circumstances of the defendant do not allow the payment of any amount of a restitution order, and do not allow for the payment of the full amount of a restitution order in the foreseeable future under any reasonable schedule of payments. (4) An in-kind payment described in paragraph (3) may be in the form of— (A) return of property; (B) replacement of property; or (C) if the victim agrees, services rendered to the victim or a person or organization other than the victim. (g)(1) No victim shall be required to participate in any phase of a restitution order. (2) A victim may at any time assign the victim's interest in restitution payments to the Crime Victims Fund in the Treasury without in any way impairing the obligation of the defendant to make such payments. (h) If the court finds that more than 1 defendant has contributed to the loss of a victim, the court may make each defendant liable for payment of the full amount of restitution or may apportion liability among the defendants to reflect the level of contribution to the victim's loss and economic circumstances of each defendant. (i) If the court finds that more than 1 victim has sustained a loss requiring restitution by a defendant, the court may provide for a different payment schedule for each victim based on the type and amount of each victim's loss and accounting for the economic circumstances of each victim. In any case in which the United States is a victim, the court shall ensure that all other victims receive full restitution before the United States receives any restitution. (j)(1) If a victim has received compensation from insurance or any other source with respect to a loss, the court shall order that restitution be paid to the person who provided or is obligated to provide the compensation, but the restitution order shall provide that all restitution of victims required by the order be paid to the victims before any restitution is paid to such a provider of compensation. (2) Any amount paid to a victim under an order of restitution shall be reduced by any amount later recovered as compensatory damages for the same loss by the victim in— (A) any Federal civil proceeding; and (B) any State civil proceeding, to the extent provided by the law of the State. (k) A restitution order shall provide that the defendant shall notify the court and the Attorney General of any material change in the defendant's economic circumstances that might affect the defendant's ability to pay restitution. The court may also accept notification of a material change in the defendant's economic circumstances from the United States or from the victim. The Attorney General shall certify to the court that the victim or victims owed restitution by the defendant have been notified of the change in circumstances. Upon receipt of the notification, the court may, on its own motion, or the motion of any party, including the victim, adjust the payment schedule, or require immediate payment in full, as the interests of justice require. (l) A conviction of a defendant for an offense involving the act giving rise to an order of restitution shall estop the defendant from denying the essential allegations of that offense in any subsequent Federal civil proceeding or State civil proceeding, to the extent consistent with State law, brought by the victim. (m)(1)(A)(i) An order of restitution may be enforced by the United States in the manner provided for in subchapter C of chapter 227 and subchapter B of chapter 229 of this title; or (ii) by all other available and reasonable means. (B) At the request of a victim named in a restitution order, the clerk of the court shall issue an abstract of judgment certifying that a judgment has been entered in favor of such victim in the amount specified in the restitution order. Upon registering, recording, docketing, or indexing such abstract in accordance with the rules and requirements relating to judgments of the court of the State where the district court is located, the abstract of judgment shall be a lien on the property of the defendant located in such State in the same manner and to the same extent and under the same conditions as a judgment of a court of general jurisdiction in that State. (2) An order of in-kind restitution in the form of services shall be enforced by the probation officer. (n) If a person obligated to provide restitution, or pay a fine, receives substantial resources from any source, including inheritance, settlement, or other judgment, during a period of incarceration, such person shall be required to apply the value of such resources to any restitution or fine still owed. (o) A sentence that imposes an order of restitution is a final judgment notwithstanding the fact that— (1) such a sentence can subsequently be— (A) corrected under Rule 35 of the Federal Rules of Criminal Procedure and Section 3742 of chapter 235 of this title; (B) appealed and modified under Section 3742; (C) amended under subsection (d)(5); or (D) adjusted under Section 3664(k), 3572, or 3613A; or (2) the defendant may be resentenced under Section 3565 or 3614. (p) Nothing in this section or Sections 2248, 2259, 2264, 2327, 3663, and 3663A and arising out of the application of such sections, shall be construed to create a cause of action not otherwise authorized in favor of any person against the United States or any officer or employee of the United States.

Federal courts may not order a defendant to pay restitution to the victims of his or her crimes unless authorized by statute to do so. Several statutes supply such authorization. For instance, federal courts are statutorily required to order victim restitution when sentencing a defendant either for an offense against property, including fraud or deceit, proscribed in Title 18 of the United States Code or for a crime of violence. The obligation exists even if the defendant is indigent, and restitution must take the form of in-kind, lump sum, or installment payments. Federal courts are permitted, but not required, to order victim restitution when sentencing a defendant for any offense proscribed in Title 18 for which restitution is not required. Federal courts are permitted to order victim restitution when sentencing a defendant for various controlled substance and aviation safety offenses. In addition, a federal court may order restitution pursuant to a plea bargain or as a condition of probation or supervised release. As a general rule, restitution is available only to victims who have suffered a physical injury or financial loss as a direct and proximate consequence of the crime of conviction, and only to the extent of their losses. Several provisions governing restitution following conviction for particular crimes permit awards for types of losses that might not otherwise be permitted under the general restitution provisions. For example, the Identity Theft Enforcement and Restitution Act of 2008 (18 U.S.C. 3663(b)(6)) authorizes restitution orders to compensate victims for the cost of remediating the intended or actual harm caused by certain identity theft violations. The courts are divided over the extent to which a defendant convicted of possession of child pornography may be ordered to make restitution to the child depicted in the material. When restitution is to be ordered, a probation officer gathers information from victims, the government, the defendant, and other sources for a report to the court. The parties receive copies of the report and may contest its recommendations. The court has considerable discretion as to the manner and scheduling of restitution payments, but the authority may not be delegated to probation or prison officials. Furthermore, the order must provide for full restitution for all victims unless the sheer number of victims or the complications of a given case preclude such an order. Under the abatement doctrine, when a defendant dies before his or her appeal has become final, the law treats the indictment and conviction as though they had never happened. The conviction is vacated and the indictment dismissed. The courts do not agree on whether the doctrine also reaches unfulfilled obligations under a restitution order. This report is available in an abridged form—without footnotes, citations to most authorities, or appendixes—as CRS Report RS22708, Restitution in Federal Criminal Cases: A Sketch. Related reports include CRS Report RL33679, Crime Victims' Rights Act: A Summary and Legal Analysis of 18 U.S.C. 3771, by [author name scrubbed], available in abridged form as CRS Report RS22518, Crime Victims' Rights Act: A Sketch of 18 U.S.C. 3771, by [author name scrubbed].

Most Recent Developments The FY2012 Agriculture Appropriations Act ( P.L. 112-55 ) was signed by the President on November 18, 2011, as the lead division of a three-bill "minibus" appropriation. The minibus passed both chambers by more than two-thirds majorities on November 17, 2011. It reduces regular discretionary Agriculture appropriations by $372 million to $19.8 billion, a cut of -1.8% below FY2011 levels after adjusting for disaster designations and certain jurisdiction issues. The act also includes $367 million of conservation-related disaster assistance that was not subject to the same budgetary caps; with this spending, the appropriation is $20.2 billion, a slight increase over unadjusted FY2011 levels. In December 2011, the Department of Agriculture implemented provisions concerning livestock marketing, and restricting payment limits and mohair support. Scope of the Agriculture Appropriations Bill The Agriculture appropriations bill—formally known as the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act—provides funding for the following agencies and departments: all of the U.S. Department of Agriculture (except the Forest Service, which is funded by the Interior appropriations bill), the Food and Drug Administration (FDA) in the Department of Health and Human Services, and in the House, the Commodity Futures Trading Commission (CFTC). In the Senate, CFTC appropriations are handled by the Financial Services Appropriations Subcommittee. Jurisdiction for the appropriations bill rests with the House and Senate Committees on Appropriations, particularly each committee's Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. These subcommittees are separate from the agriculture authorizing committees—the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry. USDA Activities and Relationships to Appropriations Bills The U.S. Department of Agriculture (USDA) carries out widely varied responsibilities through about 30 separate internal agencies and offices staffed by about 100,000 employees. USDA spending is not synonymous with farm program spending. USDA also is responsible for many activities outside of the Agriculture budget function, such as conservation and nutrition. USDA divides its activities into "mission areas." Food and nutrition programs are the largest mission area, with more than two-thirds of the budget, to support the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), the Women, Infants, and Children (WIC) program, and child nutrition programs. The second-largest USDA mission area, with about one-fifth of USDA's budget, is farm and foreign agricultural services. This broad mission area includes the farm commodity price and income support programs of the Commodity Credit Corporation, crop insurance, certain mandatory conservation and trade programs, farm loans, and foreign food aid programs. Five other mission areas with a combined one-sixth of USDA's budget include natural resource and environmental programs, rural development, research and education programs, marketing and regulatory programs, and food safety. About 60% of the budget for the natural resources mission area is for the Forest Service, which is funded through the Interior appropriations bill. The Forest Service is the only USDA agency not funded through the Agriculture appropriations bill. It also accounts for over one-third of USDA's personnel, with about 35,000 staff years in FY2011. Comparing USDA's organization and budget data to the Agriculture appropriations bill in Congress is not always easy. USDA's "mission areas" do not always correspond to the titles or categories in the Agriculture appropriations bill. Foreign agricultural assistance is a separate title in the appropriations bill (Title V, Figure 1 ), but is joined with domestic farm support in USDA's "farm and foreign agriculture" mission area. Title I in the agriculture appropriations bill (Agricultural Programs), covers four USDA's mission areas: agricultural research, marketing and regulatory programs, food safety, and the farm support portion of farm and foreign agriculture. The type of funding (mandatory vs. discretionary) also is an important difference between how the appropriations bill and USDA's mission areas are organized. Conservation in the appropriations bill (Title II) includes only discretionary programs. The mandatory funding for conservation programs is included in Title I of the appropriations bill as part of the Commodity Credit Corporation. Conversely, USDA's natural resources mission area includes both discretionary and mandatory conservation programs (and the Forest Service). Related Agencies In addition to the USDA agencies mentioned above, the Agriculture appropriations subcommittees have jurisdiction over appropriations for two related agencies: The Food and Drug Administration (FDA) of the Department of Health and Human Services (HHS), and The Commodity Futures Trading Commission (CFTC, an independent financial markets regulatory agency) —in the House only. The combined share of FDA and CFTC funding in the overall Agriculture and Related Agencies appropriations bill is about 2% (Title VI). Jurisdiction over CFTC appropriations is assigned differently in the House and Senate. Before FY2008, the agriculture subcommittees in both the House and Senate had jurisdiction over CFTC funding. In FY2008, Senate jurisdiction moved to the Financial Services Appropriations Subcommittee. Although jurisdiction may be different, CFTC must reside in one or the other in an enacted appropriation. Placement in the enacted version now alternates each year. In even-numbered fiscal years, CFTC has resided in the Agriculture appropriation act. In odd-numbered fiscal years, CFTC has resided in the enacted Financial Services appropriations act. These agencies are included in the Agriculture appropriations bill because of their historical connection to agricultural markets. However, the number and scope of non-agricultural issues has grown at these agencies in recent decades. Some may argue that these agencies no longer belong in the Agriculture appropriations bill. But despite the growing importance of non-agricultural issues, agriculture and food issues are still an important component of FDA's and CFTC's work. At FDA, medical and drug issues have grown in relative importance, but food safety responsibilities that are shared between USDA and FDA have been in the media during recent years and are the subject of legislation and hearings. At CFTC, the market for financial futures contracts has grown significantly compared with agricultural futures contracts, but volatility in agricultural commodity markets has been a subject of recent scrutiny at CFTC and in Congress. Discretionary vs. Mandatory Spending Discretionary and mandatory spending are treated differently in the budget process. Discretionary spending is controlled by annual appropriations acts and consumes most of the attention during the appropriations process. The subcommittees of the House and Senate Appropriations Committees originate bills each year that provide funding and direct activities among discretionary programs. Eligibility for participation in mandatory programs (sometimes referred to as entitlement programs) is usually written into authorizing laws, and any individual or entity that meets the eligibility requirements is entitled to the benefits authorized by the law. Congress generally controls spending on mandatory programs through authorizing committees that set rules for eligibility, benefit formulas, and other parameters, not through appropriations. In FY2011, about 16% of the Agriculture appropriations bill was for discretionary programs, and the remaining balance of 84% was classified as mandatory. Major discretionary programs include certain conservation programs, most rural development programs, research and education programs, agricultural credit programs, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), the Food for Peace international food aid program, meat and poultry inspection, and food marketing and regulatory programs. The discretionary accounts also include FDA and CFTC appropriations. The largest component of USDA's mandatory spending is for food and nutrition programs—primarily the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) and child nutrition (school lunch and related programs)—along with the farm commodity price and income support programs, the federal crop insurance program, and various agricultural conservation and trade programs. Some mandatory spending, such as the farm commodity programs, is highly variable and driven by program participation rates, economic and price conditions, and weather patterns. Formulas are set in the 2008 farm bill ( P.L. 110-246 ). But in general, mandatory spending has tended to rise over time, particularly as food stamp participation and benefits have risen in recent years because of the recession, rise in unemployment, and food price inflation. (See " Historical Trends " in a later section on funding.) Although these programs have mandatory status, many of these accounts receive funding in the annual Agriculture appropriations act. For example, the food stamp and child nutrition programs are funded by an annual appropriation based on projected spending needs. Supplemental appropriations generally are made if these estimates fall short of required spending. The Commodity Credit Corporation operates on a line of credit with the Treasury, but receives an annual appropriation to reimburse the Treasury and to maintain its line of credit. Outlays, Budget Authority, and Program Levels In addition to the difference between mandatory and discretionary spending, four other terms are important to understanding differences in discussions about the federal spending: budget authority, obligations, outlays, and program levels. 1. Budget authority = How much money Congress allows a federal agency to commit to spend. It represents a limit on funding and is generally what Congress focuses on in making most budgetary decisions. It is the legal basis to incur obligations. Most of the amounts mentioned in this report are budget authority. 2. Obligations = How much money agencies commit to spend. Obligations represent activities such as employing personnel, entering into contracts, and submitting purchase orders. 3. Outlays = How much money actually flows out of an agency's account. Outlays may differ from appropriations (budget authority) because, for example, payments on a contract may not flow out until a later year. For construction or delivery of services, budget authority may be committed (contracted) in one fiscal year and outlays may be spread across several fiscal years. 4. Program level = Sum of the activities supported or undertaken by an agency. A program level may be much higher than its budget authority for several reasons. User fees support some activities (e.g., food or border inspection). The agency makes loans; for example, a large loan authority (program level) is possible with a small budget authority (loan subsidy) because the loan is expected be repaid. The appropriated loan subsidy makes allowances for defaults and interest rate assistance. Transfers from other agencies, or funds are carried forward from prior years. Action on FY2012 Appropriations Both chambers passed the conference agreement for the FY2012 Agriculture Appropriations Act on November 17, 2011, and the President signed it the next day ( Table 1 ). It was the lead division of a three-bill "minibus" appropriation that also included Commerce-Justice-Science and Transportation-Housing and Urban Development appropriations. The minibus was the first FY2012 appropriation to be enacted, and it also included another short-term continuing resolution, through December 16, 2011, for the remaining nine appropriations bills. The Agriculture bill was the vehicle for the minibus since it was the only one of the three subcommittee bills in the minibus to have passed the House. Across the most recent 14 fiscal years, stand-alone Agriculture appropriations bills were enacted five times, in FY2000-FY2002, FY2006, and FY2010 ( Table A-1 in the Appendix). Omnibus appropriations were used seven times, in FY1999, FY2003-FY2005, FY2008, FY2009, and FY2012. Year-long continuing resolutions were used two times, in FY2007 and FY2011. Table A-1 lists each appropriation and annual CRS report. Figure A-1 shows a timeline of enactment. House Action In the House, the Agriculture appropriations subcommittee marked up its FY2012 bill by voice vote on May 24, 2011. A week later, the full appropriations committee reported the bill ( H.R. 2112 , H.Rept. 112-101 ) by voice vote, after adopting several amendments. On June 13, the Rules Committee met to discuss the rule for floor consideration ( H.Res. 300 ), leaving four provisions unprotected from points of order that were considered controversial amendments from the full committee markup, waiving points of order against the rest of the committee-reported bill, and allowing an otherwise open rule for floor amendments to be offered. On June 14, floor consideration began, and on June 16, 2011, the House passed H.R. 2112 by a vote of 217-203. Agriculture was the first non-security FY2012 appropriations bill to pass the House, and the third bill after Homeland Security and Military Construction-Veterans Affairs. Under the open rule for floor consideration, Members offered 61 amendments: 22 were adopted, 33 were rejected, 3 were withdrawn, and 3 were disallowed by point of order. There were 38 recorded votes on amendments. Four other provisions in the committee-reported bill fell by point of order, left unprotected by the rule. The House-passed bill would have cut discretionary Agriculture appropriations to $17.2 billion, 14% below FY2011 levels, following a 15% cut in FY2011 from FY2010 levels ( able 2 ). Much of the floor debate related to funding reductions for the Women, Infants, and Children (WIC) feeding program (-11%), food safety (-10%), international food aid (-31%); preventing USDA payments to Brazil in relation to the U.S. loss in the WTO cotton case; and programs promoting locally produced food such as USDA's "know-your-farmer-know-your-food" initiative ( Table 3 ). Other more notable non-money amendments that were adopted would have prevented funding of blender pumps for higher mixtures of ethanol (a similar amendment in the Senate was withdrawn), prevented funding related to the RU-486 abortion pill (proposed relative to the USDA telemedicine program, but also affecting the FDA), prevented food aid to North Korea, and prevented implementation of USDA policy on climate change adaptation. The bill also included a 0.78% across-the-board rescission to discretionary accounts (§743), which is reflected in tables throughout this report and in the Senate committee report's tables. Senate Action In the Senate, the full Appropriations subcommittee marked up a FY2012 Agriculture appropriations bill ( H.R. 2112 , S.Rept. 112-73 ) by a vote of 28-2 on September 7, 2011. The full committee bypassed subcommittee action by "polling" the bill out of subcommittee—a procedure that permits a bill to advance if subcommittee members independently agree to move it along. This expedited committee procedure was formerly uncommon for the Agriculture appropriations bill, but was used for the FY2009-FY2011 Agriculture appropriations bills as well. Floor consideration of the bill began on October 18, 2011, as part of a "minibus" of three appropriations bills ( S.Amdt. 738 , in the nature of a substitute, to H.R. 2112 ) that included Agriculture (Division A), Commerce-Justice-Science (Division B), and Transportation-Housing and Urban Development (Division C). The Agriculture bill was the vehicle for the minibus, since it was the only one of the three to have passed the House. Cloture was approved on October 21, and final passage occurred on November 1, 2011, by a vote of 69-30. Results of Senate floor action for the Agriculture portion of the bill included 19 amendments proposed and raised on the floor for consideration, out of a much larger pool of amendments introduced and numbered. Of the 19 proposed, 12 were adopted, 4 were rejected, 2 were withdrawn, and 1 fell by point of order (eliminating the SNAP benefit in the Recovery Act). There were six recorded votes among these Agriculture-related amendments: passage of a farm subsidy AGI payment limit (84-15) and an increase in disaster funding (58-41), and failure of an FDA drug import provision (44-55), an FDA drug regulatory provision (44-54), SNAP categorical eligibility (41-58), and a reduction in rural development funding (13-85). Besides the two amendments that passed by recorded votes, the other 10 added amendments were adopted by voice vote or unanimous consent. Only two of the amendments that were adopted changed amounts in the bill from the Senate-reported version—to increase disaster funding by $110 million, which is offset by a disaster declaration so as to not count against the regular bill total; and to transfer $8 million between accounts to increase conservation (these are reflected in the updated tables in this report). The rest were policy-related amendments controlling how the appropriations may be used, ranging from the adoption of nutrition standards to uses of funds for vehicles, conferences, and USDA loan programs. The Senate-passed bill would have cut discretionary Agriculture appropriations to $19.8 billion, a cut of -0.8% below FY2011 levels ( able 2 , Table 3 ), after adjusting for disaster designations of certain provisions. This Senate total was $2.7 billion more than the House bill's discretionary total (excluding CFTC from both bills for comparison). The Senate bill's discretionary total was greater than the House bill primarily in the following areas: domestic nutrition programs (+$645 million, mostly for WIC), foreign assistance (+$544 million), FDA (+$350 million), agricultural research (+$320 million), rural development (+$180 million), and fewer rescissions and farm bill limitations (+$430 million). In addition to the amounts above, the Senate bill would have provided $376 million in disaster assistance for conservation and forestry; this amount had a disaster designation for budgetary purposes and is not counted in the discretionary total in the following tables, in order to facilitate comparison of the regular appropriation. Continuing Resolutions FY2012 began under a short-term continuing resolution (CR) on October, 1, 2011. Short-term continuing resolutions have been needed every year since at least FY1999 ( Figure A-1 ). An initial four-day CR was enacted to fund discretionary operations through October 4, 2011, at FY2011 levels minus 1.503% ( P.L. 112-33 ). A second, seven-week CR was subsequently enacted at the same funding level to fund the government through November 18, 2011 ( P.L. 112-36 ). The funding level in the CR was intended to reduce overall discretionary spending to the $1.043 trillion government-wide total allowed for FY2012 by the Budget Control Act (see below). Entitlement and other mandatory programs were continued at a rate to maintain program levels. Conference Agreement The conference agreement for the three-bill minibus was published on November 14, 2011, ( H.Rept. 112-284 to accompany H.R. 2112 ) and both chambers passed the bill on November 17, 2011, with more than two-thirds majorities. The President signed the bill the next day, and the minibus appropriation was enacted as P.L. 112-55 . On October 19, 2011, the White House had issued what amounts to a Statement of Administration Policy (SAP) for all of the appropriations bills. Regarding the Agriculture bill, the statement mentions the importance of adequate funding for food safety, WIC, and global food security. It also referred to certain program termination proposals. The enacted appropriation closely follows the amounts specified in the Senate-passed bill. It reduces regular discretionary Agriculture appropriations by $372 million to $19.8 billion, a cut of -1.8% below FY2011 levels after adjusting for disaster designations of certain provisions and jurisdiction over CFTC ( able 2 , Table 3 ). The bill also included $367 million of conservation-related disaster assistance that was not subject to the same budgetary caps; with this spending, the appropriation is $20.2 billion, a slight increase over FY2011 levels. The FY2012 Agriculture appropriation spreads its reductions in discretionary spending by trimming most agency's budgets in the range of 3%-6%, although some programs have greater reductions. The act makes cuts to rural development programs (-$233 million, -8.8%), discretionary agriculture programs (-$209 million, -3%), discretionary nutrition assistance (-$127 million, -1.8%), foreign assistance programs (-$56 million, -2.9%), and conservation programs (-$45 million, -5.1%). The Food and Drug Administration and Commodity Futures Trading Commission each receive small increases in budget authority of about 1.5% to 2%. The appropriation increases the amount of limitations on mandatory farm bill programs by 27% to $1.2 billion, though rescissions from prior year appropriations were smaller by about half, at $445 million. Budget Resolution and Subcommittee Allocation The House passed a budget resolution ( H.Con.Res. 34 ) on April 15, 2011, with a $1.019 trillion discretionary budget limit for FY2012. This would be a $30.4 billion cut from FY2011 (-2.3%) across all 12 appropriations bills. For the Agriculture bill, the "302(b)" subcommittee allocation in the House is $17.25 billion (in both H.Rept. 112-96 and H.Rept. 112-104 ), which is $2.7 billion less than for FY2011 (-13%). The Senate did not pass a separate budget resolution. But on August 2, 2011, the Budget Control Act of 2011 ( P.L. 112-25 ) was enacted. Among other actions, such as establishing the Joint Select Committee on Deficit Reduction and raising the debt ceiling, it sets the total FY2012 discretionary limit for all 12 appropriations bills at $1.043 trillion. This is akin to the result of a joint budget resolution that can be used for the final FY2012 appropriation bills. This amount is $24 billion (+2.3%) higher than the $1.019 trillion discretionary limit in the House budget resolution ( H.Con.Res. 34 ). The $1.043 trillion level is $6.8 billion below FY2011 (-0.6%). Given the limit set in the Budget Control Act, the Senate Appropriations committee began markups. On September 7, 2011, the Senate Appropriations Committee adopted subcommittee allocations ( S.Rept. 112-76 ). For the Agriculture bill, 302(b) initial subcommittee allocation was $19.78 billion, which is $141 million less than FY2011 (-0.7%) but nearly $2.8 billion more than the House allocation (+16%). The Senate Appropriations committee subsequently adopted higher 302(b) suballocations for Agriculture, but solely due to disaster designations of provisions. On September 20, the committee adopted a revised subcommittee allocation of $20.046 billion ( S.Rept. 112-81 ). On October 20, 2011. the committee adopted a further revised allocation for Agriculture of $20.156 billion ( S.Rept. 112-89 ). These revised allocations were $266 million greater and $376 million greater, respectively, than the initial allocation, exactly reflecting the amount of disaster designations in the Senate markup and in a floor amendment, as allowed under the Budget Control Act. The Senate's revised allocations were greater than FY2011, but because of the disaster amounts rather than the underlying bill. On November 17, 2011, the Senate Appropriations committee adopted a final Agriculture subcommittee allocation for passage of the conference agreement. The allocation was $20.24 billion ( S.Rept. 112-95 ), which incorporates $367 million of disaster designation allowed under the BCA. The non-disaster amount for the "regular" appropriation is about $19.8 billion. Of the $20.24 billion allocation for Agriculture in S.Rept. 112-95 , $1.75 billion is designated as security spending under the BCA. Historical Trends After years of growth, discretionary Agriculture appropriations peaked in absolute terms in FY2010, although mandatory nutrition spending continues to rise. This section offers perspective on type of funding (mandatory or discretionary), purpose (nutrition vs. other), and relationships to inflation, GDP, and the federal budget. The enacted FY2012 appropriation in P.L. 112-55 is the basis for comparison throughout most of this section. Figure 2 shows total discretionary appropriations levels in the Agriculture appropriations bill. The total amount is divided between discretionary domestic nutrition assistance programs and the rest of the bill ( Table 4 ). Over the past 10 years (since FY2002), total discretionary funding in the Agriculture appropriations bill has grown at an average annualized rate of +2.0% per year ( able 5 ). The nutrition portion of this discretionary total shows a +3.7% average annual increase over 10 years, while the rest of the bill has an average annual 10-year increase +1.1%. Figure 3 shows the Agriculture appropriations bill divided between mandatory and discretionary spending. Mandatory appropriations have a 10-year average annual growth of +7.5%, while discretionary appropriations show the +2.0% rate discussed above. The total (mandatory plus discretionary) reflects a +6.4% average annual increase over 10 years. Figure 4 shows the same bill total as in Figure 3 , but divided between domestic nutrition and other program spending. The share going to nutrition has risen from 46% in FY2000 to 77% in FY2012. Since FY2002, total nutrition spending has increased at an average rate of about +10.8% per year, compared to a -1.3% average annual change for the "rest of the bill" (the rest of USDA but excluding the Forest Service, plus FDA and CFTC). Nutrition spending has increased even faster in the more recent 5- and 10-year periods, and the decline in the rest of the bill is sharper, too, in more recent 5- and 10-year periods. Most nutrition program spending is mandatory spending, primarily in the Supplemental Nutrition Assistance Program (SNAP) and child nutrition (school lunch and related programs). Figure 5 takes the orange-colored line from Figure 4 (total domestic nutrition programs) and divides it into mandatory and discretionary accounts. Over the past 10 years, mandatory nutrition spending rose at about +11.5% per year, while the discretionary portion increased at about +3.7% per year. Spending on the non-nutrition programs in the bill is more evenly divided between mandatory and discretionary, more variable over time, and generally growing more slowly than nutrition. Figure 6 divides the green-colored line in Figure 4 into mandatory and discretionary accounts. This subtotal of mandatory spending has shown a -2.6% average annual change over 10 years, and +11% per year over 15 years. Discretionary spending on this component—arguably where appropriators have the most control reflects an average annual increase of +1.1% over the past 10 years. Over the five-year period since FY2007, the rest of bill increase is more nearly flat, at +0.8% per year. The Agriculture appropriations totals can also be viewed in inflation-adjusted terms and in comparison to other economic variables ( Figure 7 through Figure 10 , and Table 6 ) If the general level of inflation is subtracted, total Agriculture appropriations show positive "real" growth—that is, growth above the rate of inflation—but mostly because of mandatory and/or nutrition programs. The total appropriation has increased at an average annual real rate of +4.2% over the past 10 years. Within that total, nutrition programs have increased at a higher average annual real rate of +8.4%. The non-nutrition "rest of the bill" shows a -3.3% average annual real change over 10 years, and a -6.5% average annual real change over 5 years ( Figure 7 ). Relative to the entire federal budget, the Agriculture bill's share declined from 4.4% of the federal budget in FY1995 to 2.7% in FY2009, before rising again to 3.7% in FY2012 ( Figure 8 ). The share for nutrition programs had declined from 2.6% in FY1995 to 1.8% in FY2008, but the recent recession has caused that share to rise to 2.9% in FY2012. The share for the rest of the bill has declined from 1.8% in FY1995 and 2.1% in FY2001 to 0.8% in FY2012 ( Table 7 ). As a percentage of gross domestic product (GDP), Agriculture appropriations have been fairly steady at under 0.75% of GDP from FY2000-FY2009, but have risen to about 0.86% of GDP in FY2012 ( Figure 9 ) due to increases in nutrition program demand. Nutrition programs have been rising as a percentage of GDP since FY2000 (0.33% in FY2001 to 0.67% in FY2012), while non-nutrition agricultural programs have been declining (0.42% in FY2000 to 0.20% in FY2012). Finally, on a per capita basis, inflation-adjusted total Agriculture appropriations have risen slightly over the past 10 to 15 years from about $350 per capita in 1995 and 2000 (FY2011 dollars) to about $426 per capita in FY2012 ( Figure 10 ). Nutrition programs have risen more steadily on a per capita basis from about $200 per capita in 1995 (and a low of $150 per capita in 2001) to $329 per capita in FY2012. Non-nutrition "other" agricultural programs have been more steady or declining, falling from $185 per capita in 2000 to $97 per capita in FY2012. Savings Achieved by Limits and Rescissions The enacted FY2012 appropriation contains about $1.65 billion in rescissions and limitations on mandatory farm bill programs (Title VII in Table 3 ). The FY2011 appropriation contained $1.87 billion of such rescissions and limitations, more than in past years. These actions are used to score savings that help meet the discretionary budget allocations, and by association provide relatively more to (or help avoid deeper cuts to) regular discretionary accounts than might otherwise be possible. These types of reductions grew in importance in the FY2011 appropriation, which required a large discretionary cut from the year before. Half of the $3.4 billion reduction in total discretionary appropriations between FY2010 and FY2011 was achieved by a $1.7 billion increase in the use of farm bill limitations and rescissions. The FY2012 appropriation increases the amount of limitations placed on mandatory farm bill programs by 27% to $1.2 billion, though rescissions from prior-year appropriations were smaller by about half, at $445 million. These limitations and rescissions, though greater than most years, were less in total than for FY2011. The net reduction in the amount of limitations and rescissions from $1.87 billion in FY2011 to $1.65 billion in FY2012 effectively increased the amount of cuts required to agency programs by about $220 million to achieve the FY2012 bill's reduction in total discretionary spending to $19.8 billion. Changes in Mandatory Program Spending (CHIMPS) In recent years, appropriators have placed limitations on mandatory spending authorized in the farm bill ( Table 8 ). These limitations are also known as CHIMPS, "changes in mandatory program spending." Mandatory programs usually are not part of the annual appropriations process since the authorizing committees set the eligibility rules and payment formulas in multi-year authorizing legislation (such as the 2008 farm bill). Funding for mandatory programs usually is assumed to be available based on the authorization without appropriations action. When the appropriators limit mandatory spending, they do not change the authorizing law. Rather, appropriators have put limits on mandatory programs by using appropriations language such as: "None of the funds appropriated or otherwise made available by this or any other Act shall be used to pay the salaries and expenses of personnel to carry out section [ ... ] of Public Law [ ... ] in excess of $[ ... ]." These provisions usually have appeared in Title VII, General Provisions, of the Agriculture appropriations bill. Passage of a new farm bill in 2008 made more mandatory funds available for programs, some of which appropriators or the Administration have chosen to reduce, either because of policy preferences or jurisdictional issues between authorizers and appropriators. Historically, decisions over expenditures are assumed to rest with appropriations committees. The division over who should fund certain agriculture programs—appropriators or authorizers—has roots dating to the 1930s and the creation of the farm commodity programs. Outlays for the farm commodity programs were highly variable, difficult to budget, and based on multi-year programs that resembled entitlements. Thus, a mandatory funding system—the Commodity Credit Corporation (CCC)—was created to remove the unpredictable funding issue from the appropriations process. The dynamic changed near the turn of the century when farm bills began using mandatory funds for programs that usually were discretionary. Appropriators had not funded some programs as much as authorizers had desired, and authorizing committees wrote farm bills using the mandatory funding at their discretion. Tension arose over who should fund certain activities: authorizers with mandatory funding at their disposal, or appropriators with standard appropriating authority. Some question whether the CCC, which was created to fund the hard-to-predict farm commodity programs, should be used for programs that are not highly variable and are more often discretionary. The programs affected by CHIMPS include conservation, rural development, bioenergy, and some smaller nutrition assistance programs. CHIMPS have not affected the farm commodity programs or the primary nutrition assistance programs (such as SNAP), which are generally accepted as legitimate mandatory programs. For FY2012, the conference agreement contains $1.206 billion of reductions from 15 mandatory programs, an increase of 27% from the FY2011 CHIMPS level. The House-passed bill contained $1.439 billion of reductions from 16 mandatory programs, and the Senate-passed bill would have removed $1.131 billion from 13 mandatory programs ( Table 8 ). The reductions in FY2012 affect about twice as many programs as in prior years. The level of CHIMPS in FY2012, especially as proposed in the House bill, begin to approach the $1.5 billion level of CHIMPS last reached in FY2006. CHIMPS in FY2012—the last year of the 2008 farm bill's authorization—could have had potentially noteworthy effects on the 10-year farm bill baseline budget available to the Agriculture Committees to write the expected 2012 farm bill. But appropriators made changes to the expiration dates of several CHIMP-ed programs, and thus avoided greater impacts on the baseline. This issue, as well as greater context about the magnitude and perception of conservation CHIMPS, is discussed in the section " Mandatory Conservation Programs " later in this report. Rescissions Rescissions are a method of permanently cancelling the availability of funds that were provided by a previous appropriations law, and in doing so achieving or scoring budgetary savings. Often rescissions relate to the unobligated balances of funds still available for a specific purpose that were appropriated a year or more ago (e.g., buildings and facilities funding that remains available until expended for specific projects, or disaster response funds for losses due to a specifically named hurricane). These are often one-time savings from cancelling unobligated budget authority that in some cases may no longer have been about to be spent. Rescissions in the FY2012 conference agreement total $445 million. This is less than half of the rescission level in FY2011 ( Table 9 ). The FY2011 appropriation made unusually large rescissions, compared with prior years, to unobligated balances in accounts such as building and facilities, and rural broadband. Rescissions in FY2011 totaled about $925 million, up from a more typical range of $100 million to $500 million. Because some of these were one-time savings from cancelling unobligated balances, the high level was difficult to repeat in FY2012. USDA Agencies and Programs The Agriculture and Related Agencies appropriations bill covers all of USDA except for the Forest Service. This amounts to nearly 95% of USDA's total appropriation. The Forest Service is funded through the Interior appropriations bill. The order of the following sections reflects the order that the agencies are listed in the Agriculture appropriations bill (except for the portion of FDA appropriations for food safety, which is discussed in a comprehensive section on food safety). See Table 3 and tables in some of the following sections for more details on the amounts for specific agencies. Agricultural Research, Education, and Extension Four agencies carry out USDA's research, education, and economics (REE) mission: The Agricultural Research Service (ARS) , USDA's intramural science agency, conducts long-term, high-risk, basic and applied research on food and agriculture issues of national and regional importance. The National Institute of Food and Agriculture (NIFA) distributes federal funds to land grant colleges of agriculture to provide partial support for state-level research, education, and extension. The Economic Research Service (ERS) provides economic analysis of issues regarding public and private interests in agriculture, natural resources, food, and rural America. The National Agricultural Statistics Service (NASS) collects and publishes current national, state, and county agricultural statistics. NASS also is responsible for administration of the Census of Agriculture, which occurs every five years and provides comprehensive data on the U.S. agricultural economy. P.L. 112-55 provides $2.533 billion to the USDA REE mission area for FY2012, which is $53 million (-2%) less than FY2011. Within this total, ARS received a $38.6 million (-3.4%) cut, ERS received a $4 million (-5%) cut, and NIFA levels were reduced by $12.5 million (-1%). NASS actually received a $2.2 million (+1%) increase for FY2012 relative to FY2011. In contrast to the final enacted levels for FY2012, the House-passed bill, H.R. 2112 , would have provided the REE mission area with $2.217 billion, while the Senate bill would have provided $2.538 billion ( Table 10 ). The changes in the FY2012 funding levels for REE activities comes after a 9% reduction in the FY2011 levels relative to FY2010. All REE agencies received cuts in FY2011 relative to FY2010, with ARS and NIFA experiencing the biggest cuts, almost 10% for each agency. Similar to FY2011, the FY2012 enacted appropriation did not include any earmarks or congressionally designated spending items for REE-related activities. The 2008 farm bill instituted significant changes in the structure of the REE mission area, but retained and extended the existing authorities for REE programs. The 2008 farm bill called for the establishment of a new agency called the National Institute of Food and Agriculture (NIFA, formerly CSREES), which USDA launched on October 8, 2009. The 2008 farm bill also created a new competitive grants program, the Agriculture and Food Research Initiative (AFRI), which replaced two previously authorized competitive grants programs, and created several new research initiatives related to specialty crops, organic agriculture, and bioenergy. When adjusted for inflation, USDA-funding levels for agriculture research, education, and extension have remained relatively flat from the early 1970s to 2000 ( Figure 11 ). From FY2001 through FY2003, supplemental funds appropriated specifically for anti-terrorism activities accounted for most of the increases in the USDA research budget. Funding levels since have remained fairly constant on an inflation-adjusted basis, although ARS received supplemental funding for buildings and facilities in FY2009. ARS and NIFA account for most of the research budget and their appropriations generally have tracked each other. Nonetheless, once adjusted for inflation, these increases are not viewed by some as significant growth in spending for agricultural research. Agricultural scientists, stakeholders, and partners express concern for funding over the long term. Agricultural Research Service The enacted FY2012 appropriation provides $1.095 billion for USDA's in-house science agency, the Agricultural Research Service (ARS), which is $38.6 million (-3.4%) less than the regular FY2011 level. Similar to FY2011, the FY2012 amount is allocated entirely to salaries and expenses of the agency and does not include any resources for ARS Buildings and Facilities. For FY2012, the Administration requested $1.137 billion. The House-passed agricultural appropriations bill, H.R. 2112 , would have provided $987.5 million for ARS, while the Senate-passed bill provided the conference agreement's amount of $1.095 billion. The conference report concurred with the USDA's proposal to close 10 ARS research facilities in the following locations: Fairbanks, AK; Shafter, CA; Brooksville, FL; Watkinsville, GA; New Orleans, LA; Coshocton, OH; Lane, OK; Clemson, SC; Weslaco, TX; and Beaver, WV. National Institute of Food and Agriculture The enacted FY2012 appropriation provided NIFA with 1.202 billion, $12.5 million (-1.0%) less than the regular FY2011 level. The enacted FY2012 appropriation provided $182.3 million more than the House-passed bill, but $11.6 million less than the Senate-passed bill. Though slightly less than the Administration's request, Research and Education activities received $705.6 million, an almost $7 million increase relative to FY2011. The budget was relatively flatlined for USDA's flagship competitive grants program, Agriculture and Food Research Initiative (AFRI), and several of the primary formula fund programs such as the Hatch Act, the Evans-Allen Act, and the McIntire-Stennis forestry programs. Extension Activities were appropriated $475.2 million, almost $4 million less than FY2011 (-1%). In contrast, Integrated Activities, which already took a 39% cut in FY2011 relative to FY2010, were appropriated $21.5 million for FY2012, which was another $15.4 million (-42%) less than in FY2011. For FY2012, the Administration requested $1.205 billion for NIFA. The House-passed H.R. 2112 would have provided $1.012 billion, while the Senate-passed bill would have provided $1.214 billion. The House-passed bill would have cut funding for research and education by over 15% from FY2011 levels, specifically reducing the competitive grant program AFRI by almost 14% and the primary formula fund that supports agricultural research under the Hatch Act by about 13%. Extension and Integrated Activities were also reduced considerably in the House-passed bill, by 15% and 67%, respectively. The Senate-passed bill, on the other hand, would have maintained FY2012 NIFA funding close to FY2011 levels, with a less than 1% cut. Funding for research and education activities were actually slightly higher in the Senate-passed bill compared with FY2011, by 1.6%. Extension funding would have been maintained at almost FY2011 levels, though the Smith-Lever extension formula funds would have received a slight increase in funding. Integrated Activities were cut by almost 30%, though the Senate committee report noted that programs previously funded through the Integrated Activities account would have been eligible for funding under AFRI. Economic Research Service P.L. 112-55 provides $77.7 million for the Economic Research Service (ERS), which is $4.1 million (-5%) less than the enacted FY2011 appropriation. The Administration requested $86.0 million for ERS for FY2012. The House-passed H.R. 2112 included $69.5 million for ERS, while the Senate-passed bill provided the amount that was adopted in the conference agreement. National Agricultural Statistics Service Under the enacted FY2012 appropriation, NASS received $158.6 million, which was $2.2 million more than (+1.4%) the enacted FY2011 appropriation. Up to $41.6 million is made available until expended for the Census of Agriculture. The Administration requested $165.4 million for NASS for FY2012. H.R. 2112 included $148.3 million for NASS, while the Senate-passed bill provided $152.6 million. Marketing and Regulatory Programs Three agencies carry out USDA's marketing and regulatory programs mission area: the Animal and Plant Health Inspection Service (APHIS), the Agricultural Marketing Service (AMS), and the Grain Inspection, Packers, and Stockyards Administration (GIPSA). Animal and Plant Health Inspection Service The Animal and Plant Health Inspection Service (APHIS) is responsible for protecting U.S. agriculture from domestic and foreign pests and diseases, responding to domestic animal and plant health problems, and facilitating agricultural trade through science-based standards. APHIS has key responsibilities for dealing with prominent concerns such as avian influenza (AI), bovine spongiform encephalopathy (BSE or "mad cow disease"), bovine tuberculosis, a growing number of invasive plant pests—such as the Emerald Ash Borer, the Asian Long-horned Beetle, and the Glassy-winged Sharpshooter—and a national animal identification (ID) program for animal disease tracking and control. APHIS also is charged with administering the Animal Welfare Act (AWA), which seeks to protect pets and other animals used for research and entertainment. The enacted FY2012 appropriation provides $816.5 million for APHIS salaries and expenses for FY2012, which is $47 million less than FY2011 (-5%). This amount is less than that in the Senate-passed bill of $823.3 million, but greater than that in the House-passed bill of $783.8 million for APHIS (reflecting the 0.78% rescission). It is also lower than the Administration's requested amount ($832.7 million). As reflected in both the House and Senate bill, the enacted bill authorizes APHIS to collect fees to cover the total costs of providing technical assistance, goods, or services in certain cases. The conference bill also provides $3.2 million for buildings and facilities (compared to a proposed $4.7 million in the Administration's request). The Administration's FY2012 budget request proposed a new budget structure for APHIS to manage 29 budgetary line items instead of 45 line items. The committee report expresses support for this proposed budget structure. In prior years, individual budget line items were associated with a specific animal or plant pest or disease. The new budget structure proposes moving from specific animal disease line items to a commodity-based structure with commodity "Health" lines that "integrate the activities needed to address the health concerns for each commodity" and will facilitate "the Agency's ability to adjust rapidly or efficiently to new or emerging situations." Both the House and Senate bills appeared to support this restructuring. The House report stated "this increased flexibility will allow APHIS to apply the greatest resources to the greatest threats or risks within a line item and to prioritize funds accordingly"; however, the committee reiterated that it expects APHIS "to apply appropriated funds to the agency's historical core programs and mission area first before allocating resources to those less critical functions or initiatives." Within APHIS, the enacted bill provides the following appropriations across each of the proposed budget categories: animal health ($290.6 million); plant health ($312.1 million); wildlife services ($90.5 million); regulatory services ($34.4 million); safeguarding and emergency preparedness ($18.0 million); safe trade and international technical assistance ($34.5 million); animal welfare ($27.8 million); and agency management ($9.7 million). Within these budget categories, nearly 19% of the appropriated amount, $154.0 million, is directed to Specialty Crop Pests, "to remain available until expended." In addition, the joint explanatory report states that "the conferees expect that funding for Specialty Crop Pests will be supplemented with contingency or Commodity Credit Corporation funds for the emergency purpose of eradicating the European Grape Vine Moth." Among the other budget categories, the conference bill highlights that the following funding levels will be available until expended: $32.5 million for Animal Health Technical Services (which shall provide for funding for the animal disease traceability system within this category); $52.0 million for Avian Health; $4.3 million for APHIS Information Technology Infrastructure; $9.1 million for Field Crop and Rangeland Ecosystems Pests; $55.7 million for Tree and Wood Pests; and $2.8 million for the National Veterinary Stockpile. Other highlighted programs and/or funding levels include $17.8 million for cotton pests; $0.7 million for activities under the 1970 Horse Protection Act; $1.5 million for the scrapie program for indemnities; $1.0 million for wildlife services methods development; and $1.5 million for wildlife damage management program for aviation safety. Also, up to 25% of the screwworm program shall remain available until expended. In addition, the conference agreement requires that matching state funds be at least 40% for formulating and administering a brucellosis eradication program, and sets limitations on the operation and maintenance of aircrafts and aircraft purchases, and requires that any repair and alteration of leased buildings and improvements not exceed 10% of the current replacement value of the building. As in previous years, the enacted FY2012 appropriation highlights that appropriators expect USDA to continue to use the authority provided in this bill to transfer funds from other appropriations or funds available to USDA for activities related to the arrest and eradication of animal and plant pests and diseases. The Office of Management and Budget (OMB) and congressional appropriators have sparred for years over whether APHIS should—as appropriators have preferred—reach as needed into USDA's Commodity Credit Corporation (CCC) account for mandatory funds to deal with emerging plant pests and other plant and animal health problems on an emergency basis, or be provided the funds primarily through the annual USDA appropriation, as OMB has argued. In particular, both committees highlight the need for USDA to use its authority to transfer CCC funds to address emerging plant pests. The enacted agreement provides that $1 million be available until expended for a "contingency fund" to control outbreaks of insects, plant diseases, animal diseases and for control of pest animals and birds to the extent necessary to meet emergency conditions. Other language that had been contained in the House and Senate committee reports and was not specifically addressed in the conference agreement was implicitly approved. For example, the House committee report included language addressing funding for the Pale Cyst Nematode eradication, sudden oak death, and the Brown Marmorated Stink Bug, as well as House committee requirements that APHIS submit reports on equine diseases the status of USDA's animal disease traceability (ID) system. The Senate committee report included language regarding funding for agricultural quarantine inspection, sudden oak death, and certain APHIS wildlife services education and training programs, as well as Senate committee concerns regarding declining bee populations and invasive honey bee pests, issues surrounding equine transport and increasing loses of livestock to predation, and proposals to develop livestock warranty programs. Agricultural Marketing Service and Section 32 The Agricultural Marketing Service (AMS) is responsible for promoting the marketing and distribution of U.S. agricultural products in domestic and international markets. User fees and reimbursements, rather than appropriated funds, account for a substantial portion of funding for the agency. Such fees cover AMS activities like product quality and process verification programs, commodity grading, and Perishable Agricultural Commodities Act licensing. AMS historically receives additional funding each year through two separate appropriations mechanisms—the direct annual USDA appropriation, and a transfer from the so-called Section 32 account. For FY2012, P.L. 112-55 provides $82.2 million to AMS, which is $4.3 million (-5%) below FY2011 levels. The House-passed bill would have provided $78.5 million, while the Senate-passed bill would have provided $83.4 million to AMS. As mentioned above, in addition to direct appropriations, the Section 32 account is also funded by a permanent appropriation of 30% of the previous calendar year's customs receipts, less certain mandatory transfers. AMS uses these additional Section 32 funds (not reflected in the above totals) to pay for a variety of programs and activities, notably child nutrition, and government purchases of surplus farm commodities not supported by ongoing farm price support programs. The 2008 farm bill set the maximum annual amount of Section 32 funds that would be available for obligation by AMS. This amount is $1.199 billion for FY2010, $1.215 billion for FY2011, and $1.231 billion for FY2012. At the same time, the 2008 farm bill also mandated that funding for a newly authorized fresh fruit and vegetable program in schools comes from the amount of Section 32 funds available for obligation by AMS. The 2008 farm bill also requires additional purchases of Section 32 funds to be to purchase fruit, vegetables, and nuts for domestic food assistance programs. The FY2012 appropriation provides $1.08 billion of Section 32 funds for AMS, which is the same as the House- and Senate-passed bills, and an increase of 1% over the $1.065 billion in FY2011. This amount represents the actual level of funding available for obligations by AMS, after rescissions and mandatory transfers have been made, and is considered mandatory spending. Section 32 funds available for obligation by AMS have been used at the Secretary's discretion, primarily to fund commodity purchases to support the agriculture sector and farm prices, for the school lunch and other domestic programs, and to provide disaster assistance. Rescissions of Section 32 carryover funds are generally used to achieve budgetary savings. The enacted appropriation for FY2012 contained, under Title VII (General Provisions), a rescission of $150 million from unobligated balances carried over from FY2011. The FY2011 enacted appropriation did not rescind any Section 32 funds. In addition, P.L. 112-55 includes a provision that effectively prohibits the use of Section 32 funds for direct payment to farmers: "none of the funds appropriate or otherwise made available by this or any other Act shall be used to pay the salaries or expenses of any employee of the Department of Agriculture or officer of the Commodity Credit Corporation to carry out clause 3 of Section 32 of the Agricultural Adjustment Act of 195 (P.L. 74-320, 7 U.S.C. 612c, as amended) or for any surplus removal activities or price support activities under section 5 of the Commodity Credit Corporation Charter Act". Grain Inspection, Packers, and Stockyards Administration USDA's Grain Inspection, Packers, and Stockyards Administration (GIPSA) oversees the marketing of U.S. grain, oilseeds, livestock, poultry, meat, and other commodities. GIPSA's Federal Grain Inspection Service establishes standards for the inspection, weighing, and grading of grain, rice, and other commodities. The Packers and Stockyards Program monitors livestock and poultry markets to ensure fair competition and guard against deceptive and fraudulent trade practices. The enacted FY2012 Agriculture Appropriations Act ( P.L. 112-55 ) provides $37.75 million for GIPSA salary and expenses, which is $2.5 million (-6.2%) less than enacted for FY2011, and $6.4 million (-14.6%) less than the Administration's budget request. The Senate-passed bill provided $38.2 million and the House-passed bill provided $36.7 million. The enacted appropriation authorizes GIPSA to collect up $49 million in user fees for inspection and weighing services. Section 721 of the conference agreement includes conditions that restrict how USDA can finalize its proposed rule on livestock and poultry marketing practices issued June 22, 2010, to implement requirements under Title XI of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ). The proposed rule addresses how competitive injury is treated under the Packers and Stockyards Act (7 U.S.C. §181 et seq.; P&S Act); sets criteria for determining unfair, unjustly discriminatory and deceptive practices, and undue or unreasonable preference or advantages; and includes arbitration provisions that give contract growers opportunities to participate in meaningful arbitration. The proposed rule was contentious, with proponents arguing that it would bring fairness to marketing transactions, while opponents argued it would disrupt markets and lead to increased litigation. Under Section 721, appropriated funds may be used to publish a final or interim final rule only if the annual cost to the economy is less than $100 million. The section prohibits USDA from using any funds to implement eight specific sections of the proposed rule, regardless of the annual cost to the economy of the final or interim final rule. Last, USDA is required to publish any rules in the Federal Register by December 9, 2011, and no funding may be used to implement the published rules until 60 days after publication. Subsequent to the enactment of P.L. 112-55 , USDA published its final rule on livestock and poultry marketing on December 9, 2011. Only four provisions of the originally proposed 13 are included in the final rule, and the economic impact was estimated at less than $100 million. The final rule includes criteria that the Secretary of Agriculture may consider to determine if the P&S Act has been violated when poultry companies suspend the delivery of birds to contract poultry growers, and require poultry growers or swine producers to make additional capital investments. The final rule also sets criteria to determine if poultry growers and swine producers are given a reasonable amount of time to remedy a breach of contract before cancellation. Last, grower and producer contracts that include arbitration provisions must include an option that allows growers and producers to decline arbitration. The Secretary of Agriculture may determine whether or not growers and producers have the opportunity to participate in meaningful arbitration. The action during the appropriations cycle was initiated in the House version of H.R. 2112 . The Senate version did not include any related restrictions on GIPSA. The House version of H.R. 2112 prohibited USDA from spending funds to "write, prepare, develop, or publish" a final rule or an interim final rule. The House Committee report ( H.Rept. 112-101 , pp. 23-24) expressed concern that the GIPSA proposed rule misinterpreted the intent of Congress concerning the regulation of livestock marketing practices and underestimated the cost of the proposed rule. The report also expressed concern that USDA may not have complied with the Administrative Procedures Act that governs rulemaking by publishing its "Farm Bill Regulations—Misconceptions and Explanations" document. In addition, the committee report stated that by closing the comment period in November 2010 before holding the last of five workshops on competition held jointly with the Department of Justice in December 2010, the Department might have limited the public's ability to comment on the proposed rule. For more information, see CRS Report R41673, USDA's Proposed Rule on Livestock and Poultry Marketing Practices . Food Safety Numerous federal, state, and local agencies share responsibilities for regulating the safety of the U.S. food supply. Federal responsibility for food safety rests primarily with the Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA). FDA, an agency of the Department of Health and Human Services, is responsible for ensuring the safety of the majority of all domestic and imported food products (except for meat and poultry products). USDA's Food Safety and Inspection Service (FSIS) regulates most meat, poultry, and processed egg products. The agriculture appropriations subcommittees oversee both the FDA and FSIS budgets. Historically, funding and staffing levels between FDA and FSIS have been disproportionate to their respective responsibilities to address food safety activities. FSIS is responsible for between 10%-20% of the U.S. food supply, while FDA is responsible for the remainder. However, FSIS has had approximately 60% of the two agencies' combined food safety budget, and FDA had the other approximately 40%. For example, in FY2011, FSIS received $1.007 billion in appropriated funds plus another approximately $150 million in industry-paid user fees. By contrast, FDA's FY2011 budget for foods was $835.7 million, virtually all of it appropriated with limited authorized user fees. Staffing levels also vary considerably among the two agencies: FSIS staff numbers around 9,600 FTEs, while FDA staff working on food-related activities numbers about 3,400 FTEs (FY2011 estimates). The comprehensive food safety legislation that was enacted in the 111 th Congress (FDA Food Safety Modernization Act (FSMA), P.L. 111-353 ) authorized additional appropriations and staff for FDA's future food safety activities. FSMA was the largest expansion of FDA's food safety authorities since the 1930s. Among its many provisions, FSMA increases frequency of inspections at food facilities, tightens record-keeping requirements, extends oversight to certain farms, and mandates product recalls. It requires food processing, manufacturing, shipping, and other facilities to conduct a food safety plan of the most likely safety hazards, and design and implement risk-based controls. It also mandates improvements to the nation's foodborne illness surveillance systems and increased scrutiny of food imports, among other provisions. FSMA did not directly address meat and poultry products under USDA's jurisdiction. Prior to enactment, the Congressional Budget Office (CBO) estimated that implementing FSMA could increase net federal spending subject to appropriation by about $1.4 billion over a five-year period (FY2011-FY2015). This cost estimate covers activities at FDA and other federal agencies, and does not include offsetting revenue from the collection of new user fees authorized under FSMA. New fees authorized under FSMA include an annual fee for participants in the voluntary qualified importer program (VQIP) and three fees for certain periodic activities involving reinspection, recall, and export certification. FSMA did not impose any new facility registration fees. Prior to enactment, CBO estimated that about $240 million in new fees would be collected over the five-year period (FY2011-FY2015). Taking into account these new fees, CBO estimated that covering the five-year cost of new requirements within FDA, including more frequent inspections, would require additional outlays of $1.1 billion. FSMA also authorized an increase in FDA staff, reaching 5,000 by FY2014. Although Congress authorized appropriations when it enacted FSMA, it did not provide the full funding needed for FDA to perform these activities. After FSMA was signed into law in January 2011, concerns were voiced about whether there would be enough money to overhaul the U.S. food safety system and also whether expanded investment in this area is appropriate in the current budgetary climate. The Administration's budget requested a more than 30% increase in additional funding for FDA's food program, while its request for USDA's FSIS was lower compared to FY2010 appropriations ( Table 11 ). As part of the House Appropriations Committee Oversight Plan, the Agriculture subcommittee held two budget hearings on USDA and FDA food safety in March 2011. The Subcommittee also discussed the federal food safety inspection system, including coordination between USDA and FDA, and also FSMA implementation. Not including funding from user fees, the enacted appropriation provides an increase in agency funding for FY2012 food safety efforts for FDA (3.5%) and a slight reduction in such funding for USDA (-0.2%), compared with the FY2011 appropriations. The enacted amounts for food safety within these agencies are similar to those proposed in the Senate-passed version of H.R. 2112 . Food and Drug Administration (FDA) FDA's foods program accounts for about one-third of its budget authority for all its programs. The enacted FY2012 appropriation provides $866.1 million for FDA's Foods Program, which is $30.4 million above FY2011 levels (+3.5%), not including funding from expected user fees ( Table 11 ). The enacted amount is slightly less than that proposed in the Senate-passed bill and nearly $120 million more than that proposed in the House-passed bill (after the 0.78% rescission and not including funding from expected user fees). Neither bill provides breakouts by the various activities within FDA's foods program or other FDA program areas. The enacted bill also assumes that FDA will collect additional revenue of more than $79 million in new user fees under its foods program. These authorized fees, as amended under FSMA, include food and feed recall fees, food reinspection fees, export certification fees, and voluntary qualified importer program fees. The enacted amount is almost $90 million less than the Administration's request ( Table 11 ). This has raised questions about how FDA will be able to implement food safety reforms authorized in the 111 th Congress, and about how FDA and USDA will be able to invest in preventive efforts to address existing and emerging food safety threats. The request projected a total need of $1.035 billion for FDA's food program for FY2012, not including expected fees. FDA justified the increase based on various elements of the newly enacted food safety law (FSMA). The House committee acknowledged CBO's projected estimate that FSMA implementation could require an additional $1.4 billion in new program level funding for FDA's foods program; however, the committee further stated that if the President's FY2012 budget request were adopted, this would result in a 156% increase for FDA since 2004—a level of spending the committee deemed "unsustainable." The Obama Administration has criticized the House-passed reduction in funding for FDA's foods program. During the House floor debate, Representatives Dingell and DeLauro both introduced amendments to restore funding for FDA's food safety programs. These amendments were not adopted. The Senate committee also recognized that current budget constraints would not allow the full funding requested for FSMA implementation. The Senate directed FDA to "apply these increased funds to the highest priority food safety activities" including "publication of new preventative controls for food processing facilities, additional import oversight and inspections of both foreign and domestic facilities, and improved scientific capabilities." FDA was directed to report within 30 days of enactment on how FDA intends to allocate these funds. The Senate bill specifically provided a $40 million increase for FDA to begin implementing FSMA. The enacted appropriation maintains the Senate-proposed requirement that FDA report to the conferees within 30 days of the bill's enactment on how it intends to allocate these increases. The enacted appropriation also maintains the set-aside for FDA to begin implementing FSMA, but at a somewhat lower amount of $39 million. The enacted appropriation also contains a series of recommendations for FDA. The conference report notes data showing that about 20% of foodborne illnesses are from known pathogens, while the remaining 80% of illnesses are caused by unknown sources. Accordingly, the conferees encourage FDA to "work with the public and private sectors to gain a better understanding of the causes of illness," and to broaden the agency's "understanding of unknown sources [which] should contribute towards the development of new strategies, policies, and foodborne illness prevention methods." At the same time, the conferees direct FDA to "do a better job of identifying more effective food safety activities that will reduce illnesses, hospitalizations, and deaths" associated with the 20% of foodborne illness from known pathogens. FDA is also directed to "develop a clear strategy to prioritize intervention methods along the farm to fork continuum to reduce illness ... and to tie the funding levels for food safety to ... both the known and the unknown sources of illness," and to communicate that information in the FY2013 budget justifications. The conferees also direct FDA to develop a comprehensive program for imported seafood, given concerns that FDA currently inspects less than 2% of imported seafood, even though these imports may contain substances that are banned in the United States. The Senate committee bill included recommendations regarding seafood safety, especially for imported products. Other recommendations in the House and Senate committee reports were not specifically addressed in the conference agreement. These include House report language regarding FDA's 2011 proposed rule on nutrition labeling of standard menu items; FDA's rule to define and permit the use of the term "gluten-free" on food labels; and FDA's seafood advisory regarding seafood consumption during pregnancy. The House-passed bill also directed FDA to initiate formal reconsideration of the 2004 advisory in consideration of the 2010 Dietary Guidelines. Elsewhere in the enacted bill are a number of provisions regarding the 2010 Dietary Guidelines (see section on " P.L. 112-55 and USDA's Proposed Rule on Nutrition Standards "). The Senate committee report also contained a series of recommendations for FDA, including the need for food safety information-sharing between HHS and USDA agencies, as well as recommendations regarding concerns about antimicrobial resistance and FDA's publication of its draft industry guidance. Other provisions in both the House and Senate committee reports include recommendations that FDA "collaborate on its research needs where possible to reduce redundancy regarding food safety research in produce and to find efficiencies where possible when constructing new research facilities." Both committees also directed FDA to enhance its trade facilitation and interagency cooperation efforts toward the most serious compliance infractions, and recommended that FDA establish a pilot project to expedite imports for "highly compliant importers," modeled after the Customs and Border Protection (CBP) Customs-Trade Partnership Against Terrorism and Importer Self-Assessment programs, thereby facilitating trade and interagency cooperation. Not included in the enacted bill was a provision of the House-passed bill specifying that no funds were to be used for USDA's Microbiological Data Program. This program, administered by the Agricultural Marketing Service (AMS), tests samples of domestic and imported fresh fruits and vegetables to monitor for microbial contamination and foodborne pathogens frequently associated with foodborne illness. The House committee report stated that "other Federal and state public health agencies are better equipped to perform this function" and that these agencies, including FDA, the Centers for Disease Control and Prevention (CDC), and/or the state departments of health and agriculture, should either collect such data under their purview or "consider entering into reimbursable agreements with USDA." During House floor debate, Representative Clarke introduced an amendment to restore $1 million for the Microbiological Data Program that was not adopted in the House. This restriction on AMS use of funds was not included in the final enacted appropriations bill. Finally, the bill reported by the House committee had included a provision seeking to prohibit funding for FDA rulemaking activities or guidance "intended to restrict the use of a substance or a compound" unless such a rule, regulation, or guidance is based on "hard science" and "the weight of toxicological evidence, epidemiological evidence, and risk assessments clearly justifies such action." The provision was added in committee as an amendment by Representative Denny Rehberg. Chairman of the House Energy and Commerce Committee Fred Upton challenged the amendment as a violation of the House rule against legislating on a spending bill. Some media reports claim this provision is intended to prevent the FDA from restricting the use of antibiotics in feed for farm animals, among other FDA actions including its consumer safety and tobacco regulation efforts. The provision was later removed under a point of order. Food Safety and Inspection Service (FSIS) For USDA's FSIS, the enacted FY2012 appropriation provides $1.004 billion for FY2012, which is $2.1 million less than FY2011 (-0.2%). This is $40 million more than in the House-passed bill (including the rescission), but less than in the Senate-passed bill (-$2 million) and the Administration's FY2012 request (-$7 million, Table 11 ). These congressional appropriations are expected to be augmented by existing (currently authorized) user fees, which FSIS had earlier estimated would total approximately $150 million, as well as another $1 million credited to FSIS from fees collected for the cost of laboratory accreditation. Neither the House or Senate bill assumes the adoption of two new user fees, proposed by the Administration, to partly recover the increased costs of providing additional inspections and related services. Estimated revenue from these two fees, which would require new authorizing legislation, would be an estimated $8.6 million and $4.0 million, respectively. FSIS's appropriations are to be allocated as follows: federal $887.5 million; state $62.7 million; international $15.8 million; Codex Alimentarius $3.8 million; and Public Health Data Communications Infrastructure System $34.6 million. The conference agreement further provides that $1 million may be credited from fees collected for the cost of the national laboratory accreditation programs, and requires that funding for the Public Health Data Communication Infrastructure system remain available until expended. It also requires FSIS to continue its implementation of a grading and inspection program for catfish as required under the 2008 farm bill, requires FSIS to maintain no fewer than 148 FTEs to inspect and enforce the Humane Methods of Slaughter Act (HMSA) during FY2012, and limits the cost of altering any one building during the fiscal year to 10% of the current replacement value of the building. Other recommendations adopted in the House and Senate committee reports require that FSIS continue its efforts under an ongoing pilot inspection program for poultry slaughter inspection and to improve enforcement of the HMSA; urge FSIS to take the necessary steps to protect the public health from E. coli serotypes other than E. coli 0157:H7; and encourage FSIS to expand its pilot inspection program for poultry slaughter inspection (Hazard Analysis and Critical Control Point Based Inspection Model Project), among other activities. The Senate committee report also expressed concerns regarding the implementation of USDA's Public Health Information System. Farm Service Agency USDA's Farm Service Agency (FSA) is probably best known for administering the farm commodity subsidy programs and the disaster assistance programs. It makes these payments to farmers through a network of county offices. In addition, FSA also administers USDA's direct and guaranteed farm loan programs, certain mandatory conservation programs (in cooperation with the Natural Resources Conservation Service), and supports certain international food assistance and export credit programs administered by the Foreign Agricultural Service and the U.S. Agency for International Development. FSA Salaries and Expenses All of the administrative funds used by FSA to carry out its programs are consolidated into one account. A direct appropriation for FSA salaries and expenses pays to carry out the activities such as the farm commodity programs. Transfers also are received from other USDA agencies to pay for FSA administering CCC export credit guarantees, P.L. 480 loans, and the farm loan programs. This section discusses amounts for regular FSA salaries and expenses, plus the transfer within FSA for the salaries, expenses, and administrative expenses of the farm loan programs. Amounts transferred to FSA from the Foreign Agricultural Service for administrative support are not included with the FSA totals in this report. The enacted FY2012 appropriation provides $1.497 billion for FSA salaries and expenses, $25 million less than FY2011 (-1.6%). Both the House and Senate bills would have provided less ($1.434 billion in the House bill and $1.479 billion in the Senate bill). USDA's budget justification for FY2012 proposed $1.718 billion, nearly a $200 million increase above FY2011 Despite requesting greater funding, the Administration's proposal incorporated a 10% reduction in staffing (about 504 positions) for FY2012, after reducing the number of positions by about 363 in FY2011. The Administration's request, therefore, prioritizes funding for information technology modernization plans. The joint explanatory statement emphasizes FSA's information technology investment by saying that at least $66.7 million of the appropriation shall be for the MIDAS computer upgrade (Modernize and Innovate the Delivery of Agricultural Systems) and $13 million for the Common Computing Environment, and that "conferees strongly support the implementation of MIDAS, and encourage the agency to ensure that MIDAS's initial operating capability will be released by October 2012." The Administration's request included $96 million for MIDAS and $26 million for the Common Computing Environment. FSA Farm Loan Programs The USDA Farm Service Agency serves as a lender of last resort for family farmers unable to obtain credit from a commercial lender. USDA provides direct farm loans (loans made directly from USDA to farmers), and it also guarantees the timely repayment of principal and interest on qualified loans to farmers from commercial lenders. FSA loans are used to finance farm real estate, operating expenses, and recovery from natural disasters. Some loans are made at a subsidized interest rate. An appropriation is made to FSA each year to cover the federal cost of making direct and guaranteed loans, referred to as a loan subsidy. Loan subsidy is directly related to any interest rate subsidy provided by the government, as well as a projection of anticipated loan losses from farmer non-repayment of the loans. The amount of loans that can be made—the loan authority—is several times larger than the subsidy level. The FY2012 appropriation provides $108 million of loan subsidy to support $4.787 billion of direct and guaranteed loans. This is consistent with the House, Senate, and Administration amounts, which were all fairly close ( Table 12 ). The loan subsidy is about $40 million less than FY2011 (-27%), while the loan authority is about $136 million more than FY2011 (+3%). Compared to FY2011, the enacted FY2012 appropriation is the same for farm ownership loans and guaranteed operating loans. The appropriation eliminates funding for the guaranteed interest assistance operating loan program, consistent with the Administration's request and due to less demand for the program in the current lower interest rate environment. The appropriation increases direct farm operating loan authority by $100 million, and restores $150 million of loan authority for the 2008 farm bill's new conservation guaranteed loan program. The conservation loan program, new in the 2008 farm bill, was defunded for one year in FY2011. Following the global financial crisis that began in 2008, demand for FSA farm loans and guarantees increased dramatically as bank lending standards became more strict. In FY2009 and FY2010, supplemental appropriations increased the FSA loan authority by nearly $1 billion each year in order to meet demand. Thus, although the FY2012 loan authority is fairly consistent with the loan authority in recent regular annual appropriations, it is $1.2 billion less than the loan authority available in FY2010 including supplementals. Loan demand remained fairly high in FY2011 and some programs in some states at times exhausted their loan availability. Commodity Credit Corporation The Commodity Credit Corporation (CCC) is the funding mechanism for the mandatory subsidy payments that farmers receive. Farm Service Agency salaries and expenses (a discretionary appropriation) pays for administration of the programs. Most spending for USDA's mandatory agriculture and conservation programs was authorized by the 2008 farm bill ( P.L. 110-246 ). The CCC is a wholly owned government corporation that has the legal authority to borrow up to $30 billion at any one time from the U.S. Treasury (15 U.S.C. 714 et seq .). These borrowed funds finance spending for programs such as farm commodity subsidies and various conservation, trade, food aid, and rural development programs. Emergency supplemental spending also has been paid from the CCC over the years, particularly for ad hoc farm disaster payments, for direct market loss payments to growers of various commodities in response to low farm commodity prices, and for animal and plant disease eradication efforts. Although the CCC can borrow from the Treasury, it eventually must repay the funds it borrows. It may earn a small amount of money from activities such as buying and selling commodities and receiving interest payments on loans. But because the CCC never earns more than it spends, its borrowing authority must be replenished periodically through a congressional appropriation so that it does not reach its $30 billion debt limit. Congress generally provides this infusion through the annual Agriculture appropriation law. In recent years, the CCC has received a "current indefinite appropriation," which provides "such sums as are necessary" during the fiscal year. Mandatory outlays for the commodity programs rise and fall automatically based on economic or weather conditions. Funding needs are difficult to estimate, which is a primary reason that the programs are mandatory rather than discretionary. More or less of the Treasury line of credit may be used year to year. Similarly, the congressional appropriation may not always restore the line of credit to the previous year's level, or may repay more than was spent. For these reasons, the appropriation to the CCC may not reflect outlays. To replenish CCC's borrowing authority with the Treasury, the enacted FY2012 Agriculture appropriation concurs with the Administration request and House and Senate bills for an indefinite appropriation ("such sums as necessary") for CCC. The amount is estimated in all cases to be $14.1 billion for FY2012, up 1% from FY2011. Such amounts in prior years ranged from $13.0 billion in FY2008, to $15.1 billion in FY2010. Several amendments were raised during the appropriations process that affected CCC programs. Adjusted Gross Income (AGI) Limits The enacted appropriation includes a new $1 million Adjusted Gross Income (AGI) limit for the direct payment portion of the farm commodity program (§745). This is a tighter AGI limit and is in addition to the separate limits in the 2008 farm bill: the $750,000 limit on farm-related AGI and the $500,000 limit on non-farm AGI (for an implied total of $1.25 million AGI). The new $1 million AGI limit apples to only FY2012 and does not change the underlying statute. It was a floor amendment by Senator Coburn, adopted by a vote of 84-15 ( S.Amdt. 791 ). Because the provision states, "None of the funds made available by this Act may be used" to provide payments to persons with AGI exceeding $1 million, rather than the stronger terminology "made available by this Act or any other Act ," it does not have an effect on the score of the bill under CBO scoring conventions. Despite the lack of CBO scoring and any implication that the provision might have lacked strength because of the language, the Department did in fact issue a notice that it is implementing the provision. With implementation occurring, one might expect the provision to have some effect and therefore reduce the amount of government payments to farmers—albeit by an unknown and probably small amount compared to total payments. Regardless of the scoring effect or implementation question, the successful Senate vote on the Coburn amendment is an important indicator of congressional support for payment limits in advance of the next farm bill. In the House, tighter limits on AGI were unsuccessful. The House committee-reported version contained an amendment (§744) by Representative Flake with a $250,000 AGI limit. The amendment was left unprotected in the rule for floor consideration. Because the amendment contained the stronger language "or any other Act," Chairman Lucas from the Agriculture Committee successfully challenged the provision by a point of order (against legislating in an appropriations bill) and the provision was removed from the bill. Representative Flake offered a floor amendment to the same effect, but without the stronger language, and it was rejected by a vote of 186-228 ( H.Amdt. 478 ). Representative Blumenauer also offered a different payment limits amendment—to prevent payments in excess of $125,000 per year to any individual (not an AGI limit); it was rejected by a vote of 154-262 ( H.Amdt. 460 ). In terms of the next farm bill and support for payment limits, the Coburn amendment is a relatively small reduction in the limit compared to larger reductions that were proposed and failed in the House, or that have been proposed by the Administration. It is unknown whether the success of the Coburn amendment and the failure of the Flake and Blumenauer amendments reflect differences in attitudes between the House and Senate, or a tolerance for the magnitude of the reductions in payment limits. Mohair Marketing Assistance Loans The FY2012 appropriation incorporates a House amendment ( H.Amdt. 456 , adopted by voice vote) that limits the ability of USDA to provide marketing assistance loans for mohair. The provision (§742) is identical to a provision in the FY2011 appropriation (§1291 of P.L. 112-10; H.Amdt. 141 to H.R. 1). Like the AGI provision, it lacks the stronger "or any other Act" language, and thus did not affect the CBO score of the bill. Despite the lack of CBO scoring, the Department suspended the MAL and LDP program for mohair in both FY2011 and FY2012. Brazil Cotton Institute The enacted appropriation does not contain any provisions related to the cotton program, or to a payment to the Brazil Cotton Institute as part of an agreement under a WTO settlement, stemming from a case that Brazil won against the U.S. farm subsidy program. The Brazil Cotton Institute payment was an issue adopted during House committee and floor consideration, but did not survive conference negotiations. CCC funding for a payment to the Brazil Cotton Institute was used as a budgetary offset in a committee-adopted amendment to increase funding for the Women, Infants, and Children (WIC) program. An amendment by Representative DeLauro was adopted in the committee-reported version of the bill that increased the funding for WIC by $147 million (relative to the subcommittee draft) by prohibiting USDA from making the Brazil Cotton Institute payment. The DeLauro amendment had two parts. The increased money for WIC was built into the $6.048 billion for WIC in the committee-reported version of the bill. The offset portion of the DeLauro amendment—the payment to Brazil—was to come from mandatory funds under the jurisdiction of the Agriculture authorizing committee (§743 of the committee-reported bill). This offset provision was left unprotected from points of order by the rule for floor consideration ( H.Res. 300 ). Subsequently, on the floor, Representative Lucas successfully raised a point of order against the offset portion on the grounds that it violated a rule against legislating in an appropriations bill, and the provision was removed. A Brazil Cotton Institute amendment did survive in the House-passed bill, however. A floor amendment ( H.Amdt. 454 ) by Representative Kind to prohibit payment to the Brazil Cotton Institute was adopted by a vote of 223-197 (§751 of the House-passed bill). The Kind amendment had essentially the same language as the DeLauro offset provision, except it states, "None of the funds made available by this Act," rather than the more strict "None of the funds made available by this Act or any other Act ... " The difference was significant enough not to prompt a point of order. Moreover, the Congressional Budget Office did not assign any budgetary savings to the provision because it lacked the language "or any other Act." Thus, while the House-passed provision appeared to prevent the payment to the Brazil Cotton Institute, CBO's budget scoring did not suggest that it had the same effect as the original DeLauro language. Nonetheless, the provision did not appear in the conference agreement. A related, and possibly conflicting, committee-adopted amendment (§741 of the committee-reported bill) would have required USDA to reduce the payment rate for upland cotton—part of the direct payment program in the 2008 farm bill—by an amount to offset the costs of the $147 million payment to the Brazil Cotton Institute. Like the DeLauro amendment, it was unprotected in the rule for floor consideration, and was stripped by a point of order for legislating in an appropriations bill. Crop Insurance The federal crop insurance program is administered by USDA's Risk Management Agency (RMA). It offers basically free catastrophic insurance to producers who grow an insurable crop. Producers who opt for this coverage have the opportunity to purchase additional insurance coverage at a subsidized rate (about 60% subsidy, on average). Policies are sold and completely serviced through approved private insurance companies that have their program losses reinsured by USDA and are reimbursed by the government for their administrative and operating expenses. The annual Agriculture appropriations bill traditionally makes two separate appropriations for the federal crop insurance program. First, it provides discretionary funding for the salaries and expenses of the RMA. Second, it provides "such sums as are necessary" for the Federal Crop Insurance Fund, which finances all other expenses of the program, including premium subsidies, indemnity payments, and reimbursements to the private insurance companies. For the salaries and expenses of the RMA in FY2012, the enacted FY2012 appropriation provides $75 million, down $4 million (or 5%) from FY2011. For FY2012, the Administration requested a 4% increase from FY2011 to cover additional information technology costs. The enacted FY2012 appropriation also provides $3.1 billion for the Federal Crop Insurance Fund, or $4.5 billion less than estimated for FY2011. The FY2012 amount is substantially lower than for FY2011, largely because of a one-time shift in the timing of cash flows specified in the 2008 farm bill to generate budgetary savings within the five-year horizon of the bill. The farm bill provisions allow USDA to collect two crop years of premiums from farmers during FY2012 (by moving forward the premium billing date beginning with 2012), and delay the 2012 payment of reimbursements and underwriting gains to insurance companies into the next fiscal year. Therefore, the reduction in the FY2012 appropriation mostly reflects an accounting change, rather than a reduction in program benefits to farmers. As in FY2011, the FY2012 appropriation prohibits use of funds under the Federal Crop Insurance Act for performance-based premium discounts to farmers (§726(12)). By stopping the discount program, the provision is scored as saving $25 million in each of FY2011 and FY2011 ( Table 8 ). In early 2011, RMA had proposed a program to reward farmers participating in the federal crop insurance program for good performance. It would have been funded by savings derived from USDA's renegotiation of the Standard Reinsurance Agreement with insurance companies in 2010. As designed by USDA, the program would have made payments based on each qualified producer's history in the program. Members of Congress were concerned about program design, including the possibility of sending payments to producers who were no longer in the program and how such payments would constitute a discount on current crop insurance purchases. Disaster Assistance Most agricultural-related disaster assistance is funded on an ad hoc basis and is not typically provided through annual appropriations. The enacted FY2012 appropriation, however, provides $367 million for three watershed and conservation recovery programs, which is $9 million less than the Senate-passed bill. The House bill did not contain such funding. Funding for all three of these programs is designated as disaster funding for the purpose of budget scoring. The Emergency Conservation Program (ECP) provides financial and technical assistance to rehabilitate farmland and conservation practices destroyed by natural disasters (e.g., flood, fire, drought, etc.). ECP is administered by the Farm Service Agency (FSA) and has not received funding since FY2009. In mid-October the program carried a backlog of unfunded requests totaling more than $127 million. USDA anticipates a need of $155.7 million in FY2012 (including anticipated need in FY2012). The enacted FY2012 appropriation provides $122.7 million to remain available until expended. The Senate-passed bill would have increased funding by $126.7 million. The enacted FY2012 appropriations also funds the Emergency Forest Restoration Program (EFRP) at $28.4 million, which is $20.6 million less than the Senate-passed bill. EFRP, also administered by FSA, provides assistance to nonindustrial private forestland owners to restore forestland following a natural disaster. Funding for the Emergency Watershed Protection (EWP) program also is provided. EWP is administered by the Natural Resources Conservation Service and provides financial and technical assistance to relieve imminent hazards to life and property caused by floods, fires, windstorms, and other natural occurrences. EWP has not received funding since FY2009 and carries a backlog of unfunded requests totaling over $200 million. The enacted FY2012 appropriation provides $215.9 million to remain available until expended and repurposes $31 million of previously authorized funding. The Senate-passed bill included $199.2 million. Under the three recovery programs a national or state emergency does not have to be declared in order to receive assistance. The enacted FY2012 appropriation, however, would require that only areas with a disaster designation be eligible for funding. This could potentially limit the distribution of recovery assistance. Conservation More than 20 USDA agricultural conservation programs assist private landowners with natural resource concerns. These include working land programs, land retirement and easement programs, watershed programs, technical assistance, and other programs. The two lead agricultural conservation agencies within USDA are the Natural Resources Conservation Service (NRCS), which provides technical assistance and administers most programs, and the Farm Service Agency (FSA), which administers the largest program, the Conservation Reserve Program (CRP). The majority of conservation program funding is mandatory and funded through the Commodity Credit Corporation (CCC). Other conservation programs, mostly technical assistance, are discretionary and funded through annual appropriations. The enacted FY2012 appropriation accepts, and in some programs exceeds, many of the Administration's proposed reductions to both mandatory and discretionary conservation programs for FY2012. The enacted appropriation reduces discretionary NRCS funding by $45 million (from $889 million in FY2011 to $843 in FY2012). The Senate-passed bill would have reduced discretionary NRCS funding by $52 million, the House-passed bill would have reduced funding by $106 million, and the Administration's proposal would have increased discretionary funding by $10 million. Mandatory programs under the 2008 farm bill are authorized to automatically increase by an estimated $880 million in FY2012. The enacted appropriation reduces certain mandatory conservation programs by $929 million in FY2012. This is more of a reduction than the Senate-passed bill but less than the House-passed bill. The Administration request would have made smaller total reductions to fewer programs. Both the Bush and Obama Administrations have proposed reductions in conservation funding in the past, most of which are more substantial than Congress has supported. The FY2012 appropriation reverts to a trend prior to the 2008 farm bill that reduces mandatory funding for multiple conservation programs. Discretionary Conservation Programs All of the discretionary conservation programs are administered by NRCS. Most of the reduction in discretionary funding is for Conservation Operations (CO), the largest discretionary program. The enacted FY2012 appropriation provides $828 million for FY2012, the same level proposed in the Senate-passed bill, $64 million more than proposed in the House-passed bill (after rescission), $42 million less than FY2011, and $70 million less than the Administration's request. The conference report ( H.Rept. 112-284 ) directs funding for several Administration initiatives proposed in the budget, including $5 million for the Conservation Effects Assessment Project (the Administration requested a $7 million increase), $5 million for the Conservation Delivery Streamlining Initiative (the Administration requested an $11.3 million increase), and $12.5 million for the Common Computing Environment. Further division of CO was provided in the conference report, with $9.3 million provided for the Snow Survey, $9.4 million for Plant Material Centers, $80 million for the Soil Survey, and $729.5 million for Conservation Technical Assistance. Other Administrative initiatives proposed in the budget were rejected in the conference report, including a $15 million requested increase for the Strategic Watershed Action Teams and the Administration's proposal to charge a fee for comprehensive conservation planning, a core activity currently provided to producers for free. The Administration proposed terminating several discretionary conservation programs, including the Watershed and Flood Prevention Operations (WFPO). The WFPO was included in the House-passed bill as an amendment introduced and passed on the floor, but no funding was provided for the program in the enacted FY2012 appropriations or the Senate-passed bill. The Watershed Rehabilitation program was also proposed to be terminated by the Administration. The program rehabilitates aging dams previously built by USDA. The enacted FY2012 appropriations includes the House-passed level of $15 million for the program. Funding was not provided for the Watershed Rehabilitation program in the original Senate-reported bill; however, an amendment was introduced and passed on the Senate floor to include $8 million for the program. The FY2011 long-term continuing resolution terminated funding for the Resource Conservation and Development (RC&D) program. The termination of funding continues in the enacted FY2012 appropriations, as requested by the Administration. The RC&D program was authorized in 1962 and consists of 375 designated RC&D areas across the country. An RC&D area is a locally defined multi-county area, sponsored and directed by an RC&D council. NRCS assists RC&D councils through an RC&D coordinator, who facilitates the development and implementation of an individualized and locally determined program (i.e., area plan). According to testimony offered by the chief of NRCS, approximately 80% of the RC&D budget is directed toward personnel. The chief also testified that termination of RC&D funding could mean that the 140 healthiest RC&D councils might survive on funds from elsewhere, while the other 235 will likely be dissolved. Following termination of the RC&D program, as well as other funding reductions in FY2011, the Office of Management and Budget (OMB) approved buyout and early retirement packages for 544 positions at USDA. Over 400 of the 544 buyout offers were made available to NRCS employees. It is unclear how many buyout offers have been accepted at NRCS and whether buyout packages will provide enough budgetary relief from the FY2011 and FY2012 funding reductions. The enacted FY2012 appropriation also provides $7.5 million to a long-dormant program known as the Water Bank Program (WBP). The WBP was authorized in 1970 and operated until funding was eliminated in the FY1995 Agriculture Appropriations Act. According to FY1995 House and Senate appropriations report language, the program was duplicative of the Wetlands Reserve Program (WRP, a current farm bill program) and less effective because of shorter contract lengths. Under the WBP, USDA entered into agreements with landowners and operators in migratory waterfowl nesting, breeding, and feeding areas for the conservation of specified wetlands. The program operated in 12 states, primarily in the northern part of the central flyway, and the northern and southern parts of the Mississippi flyway. The state that received the greatest benefit, in terms of most acres enrolled and payments received, was North Dakota. Although the conference report does not specify location, the Devils Lake and Stump Lake basins in North Dakota have been cited as the potential beneficiaries of the WBP funding. This is further supported by language in the conference report that waives the limitation (15%) on the share of funding that any single state may receive in order "to ensure efficient administration of the program." Additionally, the WBP was originally intended to protect wetlands; however, the conference report allows "flooded agricultural lands" to be enrolled in the program. This could allow additional land into the program that may not have been allowed otherwise, such as land flooded by rising lake levels. Incidentally, the Administration requested that an unobligated balance of $745,000 in the WBP be rescinded and permanently cancelled because the last WBP agreement expired on December 31, 2010, effectively concluding the program. The enacted bill does not rescind the funding. Mandatory Conservation Programs Mandatory conservation programs are administered by NRCS and FSA. Funding comes from the CCC and therefore does not require an annual appropriation. The enacted FY2012 appropriation accepts many of the Administration's proposed $585 million of reductions to mandatory conservation programs and makes further cuts below authorized levels. The enacted appropriations reduces these programs by $929 million, which is $234 million more than the FY2011 reduction, $22 million more than the Senate-passed reduction, but not as much as the over $1 billion proposed reduction in the House bill ( Table 13 ; see also the discussion in " Changes in Mandatory Program Spending (CHIMPS) " and Table 8 ). Funding for the largest conservation program, FSA's Conservation Reserve Program (CRP), would not change and was estimated at about $2.2 billion for FY2012. The enacted FY2012 appropriation adopts the House- and Senate-passed limits to EQIP, NRCS's largest working lands program, of $1.4 billion for FY2012—a reduction of $350 million from the authorized level of $1.75 billion in the 2008 farm bill. The enacted reductions for other conservation programs are more extensive than the Senate-passed bill and USDA's proposal, but not as extensive as in the House bill ( Table 13 ). The primary differences between the enacted, House, and Senate bills are in the Conservation Stewardship Program (CSP, $76.5 million reduction in the enacted appropriations compared to a $35 million reduction in the Senate bill and $210 million reduction in the House bill) and the Grasslands Reserve Program (GRP, estimated reduction of $30 million in the enacted appropriations and House bill compared to $50 million reduction in the Senate bill). Congress has included reductions in mandatory conservation programs each year since FY2003 in the annual agricultural appropriations law. It usually does not reduce funding as much as requested by the Administration. And because money is fungible, the savings from these reductions are not necessarily applied toward other conservation activities. Prior to the 2008 farm bill, reductions to conservation programs through appropriations law peaked in FY2006 with a reduction totaling $638 million ( Figure 12 ). Since the 2008 farm bill, reductions have primarily affected EQIP and the Watershed Rehabilitation Program. The reductions in FY2012 are the largest reductions to mandatory conservation programs to date. Several conservation, environmental, and farm constituency groups that support conservation programs decry reductions from the funding commitment established in the farm bill. Members of the House Agriculture Committee also have expressed concern over the reductions, which some consider to be an encroachment of the committee's jurisdiction. House appropriators acknowledged these concerns with the following statement in the House report: "The bill includes over $1.5 billion in limitations on mandatory programs, most of them funded in the 2008 farm bill and most of them in the conservation and bio-energy areas. We expect deep concern about these cuts from the Agriculture Committee, as well as persons supporting these programs." While most conservation advocates criticize reduced conservation funding for any fiscal year, additional emphasis was placed on reductions proposed in FY2012. Most farm bill program authorities will expire at the end of FY2012. Because CBO uses the last year of authorization to determine the 10-year funding baseline for the farm bill reauthorization, a reduction in the last year of a farm bill's authorization could multiply the effect on the 10-year farm bill. To address this concern, the enacted FY2012 appropriation extends select farm bill expiration dates to 2014. Authorities for these programs—AMA, EQIP, WHIP, CSP, and FPP—would expire in FY2012. The extension allows appropriators to score savings in FY2012, but not affect the overall farm bill baseline. CBO could score the amended conservation programs based on their authorized funding level in 2014, which is higher than their reduced level in the enacted FY2012 appropriations. Thus the reductions could have less of an effect on the Agriculture Committee's overall farm bill baseline. Just as the savings from conservation reductions in the enacted 2012 appropriations are not always redirected toward other conservation activities, the reestablishment of the farm bill baseline through expiring conservation programs does not guarantee that future farm bills will extend the same level of support for conservation. Programs that are reduced in the FY2012 act but do not have a baseline beyond 2012—when most farm bill program authority expires—are not extended. Programs such as WRP and GRP lack a budget baseline beyond 2012 and therefore reductions in 2012 would not affect the overall farm bill baseline. For this reason, some see these programs as more vulnerable to reductions in appropriations. For example, the Voluntary Public Access and Habitat Incentives Program has authority to spend $50 million until September 30, 2012, and no baseline funding beyond 2012. Under enacted FY2012 appropriations, no funds are to be expended in FY2012, effectively terminating the program before its authorized expiration. Extending these programs' authority would require an offset or reduction elsewhere under current budget law and procedures. Rural Development Three agencies are responsible for USDA's rural development mission area: the Rural Housing Service (RHS), the Rural Business-Cooperative Service (RBS), and the Rural Utilities Service (RUS). An Office of Community Development provides community development support through field offices. This mission area also administers Rural Economic Area Partnerships and the National Rural Development Partnership. For FY2012, P.L. 112-55 provides $2.41 billion in discretionary budget authority, which is $233 million below FY2011 (-8.8%). If a rescission to the Cushion of Credit account (-$155 million) is incorporated, as in the table in H.Rept. 112-284 , the net budget authority for rural development is $2.25 billion. This level of budget authority supports a program level of $36.15 billion in USDA rural development loans and grants ( Table 14 ). Salaries and expenses within Rural Development are funded from a direct appropriation and from transfers from each of the agencies. The combined salaries and expenses total in P.L. 112-55 is $653.9 million, $34.4 million less than FY2011 (-5%). This is the same as recommended by the Senate-passed bill, and $64 million more than recommended in the House-passed bill (+10%). The conference report permits the Secretary to provide up to 5% of the funds available for certain rural development programs for projects in rural areas that are engaged in strategic regional development planning (§725). It also permits the Secretary to charge a one-time fee of no more than 3% of the loan principal for a Business and Industry Guaranteed Loan (§731), and prohibits spending to carry out the Rural Microentrepreneur Assistance Program (§744, Table 8 ). Rural Housing Service (RHS) P.L. 112-55 provides $1.52 billion in budget authority for RHS, $156 million less than in FY2011 (-9%). This is the same as recommended by the Senate bill, and $87 million (+6%) more than the House bill ( Table 15 ). After transferring $431 million of salaries and expenses (which are down 5% from FY2011), the enacted appropriation provides RHS a net $1.09 billion for loans and grants, $134 million less than FY2011 (-11%). This level of budget authority will support $26.5 billion in housing loans in FY2012, $796 million (+3%) more than in FY2011. The largest loan account, representing 95% of RHS's total loan authority, is the single-family housing loan program (Section 502 of the Housing Act of 1949). P.L. 112-55 provides $24.9 billion in loan authorization for Section 502 direct and guaranteed loans, $221 million less than FY2011. The guaranteed loan program is far larger than the direct loan program, with $24 billion. The appropriation permits the Secretary to charge up to 4% for the loan guarantee fee. Most of the budget authority in this area is for salaries and expenses rather than loan subsidy or grants. Section 504 Housing Repair loan programs receive $1.4 million to support $10 million in loans. The Multi-Family Housing loan guarantee program grew by $100 million over FY2011 (+320%). The House bill had recommended eliminating funding for the housing repair loans and multi-family loan guarantees. The enacted appropriation provides $64.5 million in loan authority for the Section 515 rental housing program, $5 million less than FY2011. For the rental assistance program (Section 521), the conference agreement provides $904.6 million, a decrease of $48 million from FY2011 (-5%), the same as recommended by the Senate and $22 million more than the House bill. This is by far the largest budget authority line item in RHS. For mutual and self-help housing grants, the conference agreement provides $30 million, -19% from FY2011; for rural housing assistance grants, $33.1 million, -18% from FY2011. The enacted appropriation provides $29.3 million in budget authority for the Rural Community Facilities account, providing loans and grants for "essential community facilities" in areas with less than 20,000 population. This amount is $12.1 million less than enacted for FY2011 (-29%). The Community Facilities budget includes $11.4 million in grants, $3.6 million less than FY2011 (-24%). The conference report also provides an appropriation for the Rural Community Development Initiative ($3.6 million), the Economic Impact Initiative Grants ($5.9 million), and grants to tribal colleges ($3.4 million). The House bill had proposed eliminating funding for the Economic Impact Initiative grants and grants to tribal colleges. It also includes $1.3 billion in direct loans, and $105.7 million for guaranteed loans. Rural Business-Cooperative Service (RBS) The conference agreement provides $113.9 million in FY2012 budget authority to the RBS before the Cushion of Credit rescission ( Table 16 ). After transferring salaries and expenses, a net $109.3 million of budget authority supports the loan and grant program (-$18.6 million, or -14%, from FY2011). If the Cushion of Credit rescission is incorporated, the RBS net budget authority is $-41.1 million. The enacted appropriation provides $880.2 million in loan authority for the various RBS loan programs (7.6% less than FY2011). For the Rural Business Program account, the conference agreement provides $74.8 million in budget authority, $10.5 million less than FY2011 (-12.3%). The Rural Business Program account includes the Business and Industry Loan Guarantee program ($45.3 in budget authority), the Rural Business Enterprise Grant program ($24.3 million), the Rural Business Opportunity Grant program ($2.2 million), and Delta Regional Authority grants ($2.9 million). With the exception of the Rural Business Enterprise Grant program, which is $10.6 million less than FY2011 (-30.4%), the other accounts are close to their FY2011 enacted levels. The conference agreement provides $6 million in budget authority to support $17.7 million in loans for the Intermediary Relending Program. This loan level is $1.4 million less (-7.6%) in loan authority than FY2011 and $1.4 million less in budget authority. For Rural Cooperative Grants, a total of $25.0 million ($5.1 million less than FY2011) is available, divided among Cooperative Development Grants ($5.8 million), Appropriate Technology Transfer for Rural Areas ($2.2 million), Value-Added Product Grants ($14.0 million), and grants to assist minority producers ($3.0 million). No funds were appropriated for the Appropriate Technology Transfer for Rural Areas in FY2011. For the Rural Energy for America Program (REAP), the conference report provides $3.4 million of discretionary funds for loan subsidies and grants, $1.6 million less than FY2011 and $33.4 million less (90.7%) than the budget request. The recommended loan subsidies would support $6.5 million in loans for FY2012, approximately $4.3 million less than in FY2011 (-39.8%). The enacted appropriation blocks $3 million of mandatory spending for the Rural Microentrepreneur Assistance Program ( Table 8 ) and provides no discretionary appropriation for the program. Rural Utilities Service (RUS) The conference agreement provides $587 million in budget authority for the Rural Utilities Service. After transferring salaries and expenses, the net appropriation for loans and grant programs is $551.0 million, $46 million (-8%) less than FY2011 ( Table 17 ). Loan subsidies and grants under the Rural Water and Waste Disposal Program account represent the largest share of FY2012 budget authority under RUS programs (approximately 93% of the total). The conference agreement provides $513.0 million in budget authority, $15.0 million less than FY2011 (-3%). This budget authority will support $793.6 million in direct and guaranteed loans, $180 million less than FY2011 (-18%). The budget authority is divided among the following programs: (1) Water/Waste Water direct loan subsidies ($70 million) and grants ($327 million); (2) Solid Waste Management grant program ($3.4 million); Individual Well Water grants ($993,000); and Water and Waste Water revolving fund ($497,000). The bill also recommends $9.5 million for High Energy Cost grants ($12.0 million in FY2011). The enacted appropriation authorizes $7.0 billion in electric loans, $75 million (-1%) less than FY2011. Most of the recommended loan authority is for direct Federal Finance Bank electric loans ($6.5 billion). Under the Distance Learning/Telemedicine program, the conference agreement provides $21.0 million in grant support, $11.4 million less than FY2011 (-35.2%). For the rural broadband program, the FY2012 appropriation is $6 million for direct loan subsidies and $10.4 million for grants. Together, these three distance learning, telemedicine, and broadband accounts are $30.7 million below FY2011 (-45%). Loan subsidies would support $212.0 million in broadband loans, $188.0 million below FY2011 (-47.0%). The House committee recommendation would have eliminated funding for rural broadband, although a floor amendment restored $6 million of loan subsidy, the amount adopted in the conference agreement. Domestic Food Assistance Funding for domestic food assistance represents over two-thirds of USDA's budget. These programs are, for the most part, mandatory entitlements; that is, funding depends directly on program participation and, in some cases, indexing for inflation. The biggest mandatory programs include the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program), child nutrition programs, and The Emergency Food Assistance Program (TEFAP). The three main discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), the Commodity Supplemental Food Program (CSFP), and federal nutrition program administration. The enacted FY2012 appropriation provides a total of $105.6 billion for domestic food assistance programs, approximately equal to that proposed in the Senate-passed bill, while the House-passed bill would have provided a total of $96.3 billion. The appropriated amount is approximately $6 billion more than requested by the Administration in February ($99.8 billion); this relative increase is primarily a result of more recently updated estimates to SNAP. Whereas the House bill reduced funding to the WIC program and to TEFAP, P.L. 112-55 adopted the Senate bill's proposal to provide comparatively higher funding for WIC and TEFAP ( Table 18 ). SNAP and Other Programs under the Food and Nutrition Act Appropriations under the Food and Nutrition Act (formerly the Food Stamp Act) support (1) the Supplemental Nutrition Assistance Program (SNAP), (2) a Nutrition Assistance Block Grant for Puerto Rico and nutrition assistance grants to American Samoa and the Commonwealth of the Northern Mariana Islands (all in lieu of the SNAP), (3) the cost of food commodities and administrative/distribution expenses under the Food Distribution Program on Indian Reservations (FDPIR), (4) the cost of commodities for TEFAP (but not administrative/distribution expenses, which are covered under the Commodity Assistance Program budget account), and (5) Community Food Projects and grants to improve access to the SNAP. The enacted FY2012 appropriation provides a total of $80.4 billion for programs under the Food and Nutrition Act, more than the House's $71.1 billion and equal to the Senate's amount. Funding in the law represents a $9.8 billion increase (+14%) over the total amount available for FY2011 (primarily because of forecasted increases in SNAP participation and food costs) and is more than the amount requested by the Administration or included in the House-passed bill, due partially to updates in SNAP participation estimates. The law appropriated $3 billion for the SNAP contingency reserve fund, as requested by both House and Senate bills, but less than the $5 billion requested by the Administration. P.L. 112-55 provides for Food and Nutrition Act appropriations: $78.3 billion for SNAP, including a $3 billion contingency reserve and $5.5 million set aside for certain administrative costs, $1.84 billion for grants for Puerto Rico, American Samoa, and the Commonwealth of the Northern Mariana Islands, $260 million for TEFAP commodities (with permission to use up to 10% of this amount for distribution costs), $5 million each for Community Food Projects and SNAP program access grants, and $103 million for FDPIR ( Table 18 ). The total House-passed appropriation for TEFAP commodities had been $200 million, $50 million below the approximately $250 million that is included in the Food and Nutrition Act and was appropriated for FY2008, FY2009, FY2010, and FY2011. The House-passed bill achieved this reduction by including a cap in Section 730 of the bill (included in Table 8 ). In addition to the FY2012 regular appropriation, the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ) is scheduled to continue to provide added SNAP benefits through October 31, 2013. A proposed Senate amendment to terminate the ARRA benefit upon enactment of an FY2012 appropriation was ruled non-germane and fell by point of order ( S.Amdt. 764 ). The enacted FY2012 appropriation, as well as the House- and Senate- passed bills, also include savings through a "change in mandatory spending." The law rescinds SNAP employment and training funds that would have been carried over from FY2011 into FY2012; CBO has scored a savings of $11 million for this change ( Table 8 ). Child Nutrition Programs Appropriations under the child nutrition budget account fund a number of programs and activities covered by the Richard B. Russell National School Lunch Act and the Child Nutrition Act. These include the School Lunch and Breakfast programs, the Child and Adult Care Food Program (CACFP), the Summer Food Service program, the Special Milk program, assistance for child-nutrition-related state administrative expenses (SAE), procurement of commodities for child nutrition programs (in addition to those funded from separate budget accounts within USDA), state-federal reviews of the integrity of school meal operations ("Coordinated Reviews"), "Team Nutrition" and food safety education initiatives to improve meal quality and safety in child nutrition programs, and support activities such as technical assistance to providers and studies/evaluations. (In addition to these appropriations, child nutrition efforts are supported by mandatory permanent appropriations and other funding sources discussed below in " Other Funding Support .") The enacted appropriation for FY2012 provides a total of $18.2 billion for child nutrition programs, 5% above the amount provided in FY2011 and $40 million below the Administration's request. Increases from FY2011 are primarily the result of added funding for school meal programs (based on estimates of increased participation). The enacted law does not provide the Administration-requested funding for "Hunger-Free Community" grants (-$25 million) or State Childhood Hunger Challenge grants (-$10 million). P.L. 112-55 and the Senate-passed bill appropriate $620 million less than the House-reported bill would have. Report language in H.Rept. 112-284 breaks out the enacted FY2012 funding as follows (significant House differences are noted where applicable): $10.2 billion for the School Lunch program, $3.3 billion for the School Breakfast program, $2.8 billion for the CACFP, $1.1 billion for procurement of commodities for child nutrition programs, $400 million for the Summer Food Service program, and $279 million for SAE ( Table 18 ). P.L. 112-55 and USDA's Proposed Rule on Nutrition Standards In P.L. 112-55 , several provisions respond to USDA's proposed rule on nutrition standards in the school lunch and breakfast program. The enacted law makes FY2012 funding contingent on the content of USDA's interim final or final rule. Specifically, P.L. 112-55 seeks to use appropriations language to influence USDA's rulemaking with regard to the crediting of tomato paste, sodium reduction, whole grain requirements, and starchy vegetables. The requirement that USDA propose a rule updating the nutrition guidelines for the school lunch and school breakfast programs, and the timeline for doing so, was included in the most recent child nutrition reauthorization, P.L. 111-296 , or the Healthy, Hunger-Free Kids Act of 2010. This rule was to be based upon recommendations of the National Research Council, of which the Institute of Medicine (IOM) is a part. On January 13, 2011, USDA published in the Federal Register the proposed rule and an explanatory preamble. The rule, which largely follows the Institute of Medicine's recommendations, includes a number of changes to the meal pattern, such as more fresh fruits and vegetables and more whole grains, in addition to reductions in fat, calories, and sodium. Among the other requirements, the proposed rule also included a change to the way tomato paste would be counted or "credited" in the school lunch and breakfast programs. Under the implementation of the current regulation, tomato paste and puree are credited as a calculated volume based on the number of tomatoes involved in their processing. The proposed rule specifies that all fruits, with the exception of dried fruits, and all vegetables, with the exception of leafy greens are, to be credited based on their volume served. In Section 743 of P.L. 112-55 , the law states, "None of the funds made available by this Act may be used to implement an interim final or final rule ... that (1) requires crediting of tomato paste and puree based on volume." Much of the media discussion of the tomato paste issue has been phrased in terms of pizza. Neither USDA policy nor P.L. 112-55 explicitly make a change to pizza; rather the tomato paste change would have an impact on the nutritional crediting of cheese pizza without added vegetables. Under current USDA policy, the amount of sauce on an individual serving of pizza could be credited as one serving of vegetables in the meals program, whereas volume-for-volume (USDA's proposed change) the sauce alone on a typical individual cheese pizza could not be credited as a serving of vegetables. Section 743 also contains language to influence the sodium reduction and whole grain aspects of the proposed rule. The proposed rule had created a tiered timeline that would phase in reductions in sodium as well as a number of requirements related to whole grains. Section 743 includes language on those aspects of the rule, conditioning FY2012 appropriations on the Secretary's certification "that the Department has reviewed and evaluated relevant scientific studies and data relevant to the relationship of sodium reductions to human health" before moving beyond Target I reductions and also conditioning them on a definition of "whole grain." The proposed rule also includes a limit of 1 cup per week of starchy vegetables—white potatoes, corn, lima beans, and green peas—at lunch and no starchy vegetables at breakfast. USDA and IOM cite interest in promoting vegetables in the other subgroups over the familiar starchy ones. Senator Susan Collins introduced an amendment, S.Amdt. 757 , and later an amended version, S.Amdt. 804 , which passed by unanimous consent on October 18, 2011. Per floor statement, the passed language was negotiated with USDA. This language was in the Senate-passed bill, and then was also included in the conference agreement, Section 746. Based on floor statements and media appearances, while the language would implicate all of the starchy vegetables, the white potato has been a particular focus. While Sections 743 and 746 appear to withhold FY2012 funds for implementation of certain regulatory content, it is uncertain to what extent the appropriation will affect the substance and timing of USDA's next version of the rule. Food Donation Program Section 734 of P.L. 112-55 , unlike the House- and Senate-passed bills, includes authorizing language that specifies that schools and local education agencies that participate in the National School Lunch Program may donate their unused food to food banks and other charities and would be exempt from liability as specified under the Bill Emerson Good Samaritan Food Donation Act ( P.L. 104-210 ). The WIC Program The enacted FY2012 appropriation provides $6.619 billion for WIC in FY2012, approximately $35 million more than proposed in the Senate-passed bill (+0.5%). This is about $582 million more than the House-passed bill would have provided (+9.7%), $150 million below the FY2011 appropriation (-2%) , and roughly $800 million less than the $7.390 billion requested by the Administration in February (-10.8%). A minimum of $60 million of the appropriation is to fund breast-feeding peer counselors and related activities. The House-passed WIC appropriation also would have allocated some $139 million of the total for specific WIC support activities: at least $64 million for program infrastructure development and state management information systems and $75 million for breastfeeding peer counseling. The Senate proposed $60 million for breastfeeding programs. While SNAP (and other Food and Nutrition Act programs) and child nutrition programs are appropriated entitlements, meaning that the money appropriated is to be enough to provide services to all that are entitled according to underlying law's program requirements, WIC is a discretionarily funded program. Nonetheless, historically, appropriators have treated WIC as though it was an entitlement, appropriating enough to serve all eligible. This change in tenor is newly significant in light of the discretionary caps in the Budget Control Act ( P.L. 112-25 ). There were questions as to whether the rising cost of food is accounted for in the Senate WIC amount; although Administration forecasts have incorporated a 2% rise in food inflation, critics contend that this does not adequately capture the current growth of costs in the program. Unlike the appropriated entitlements, an inadequate appropriation for the WIC program may reduce the number of pregnant and postpartum women, infants, and children that the program can serve. WIC Amendments in House-Passed H.R. 2112 For the House-passed bill, the funding level for WIC was subject to amendments in subcommittee and on the floor, and a topic for extensive floor debate over the direction of and/or need for cuts in the bill. An amendment by Representative Rosa DeLauro was adopted in the committee-reported version of the bill that increased the funding for WIC by $147 million (relative to the subcommittee draft) by prohibiting USDA from making a payment to the Brazil Cotton Institute. The DeLauro amendment was in two parts: (1) an increase to the WIC appropriation section in the subcommittee draft from $5.901 billion to the $6.048 billion in the committee-reported version of the bill, and (2) the offset from mandatory funds under the jurisdiction of the Agriculture authorizing committee (§743 of the committee-reported bill). The rule for floor consideration ( H.Res. 300 ) of H.R. 2112 did not protect the offset from points of order. On the floor, Representative Lucas successfully raised a point of order against the offset that it violated a rule against legislating in an appropriations bill, and the offset provision was removed. With the offset struck, the increase to WIC was retained and unpaid for. In order to preserve the increased funding for WIC but keep the bill at the same funding level so that it did not exceed the House's discretionary limit for the whole agriculture appropriations, Chairman Kingston offered an amendment, adopted by voice vote, for an across-the-board 0.78% rescission to discretionary accounts in the bill (a new Section 743 of the House-passed bill). The amendment was scored to save $147 million. This rescission affects the WIC section as well, so that WIC funding in H.R. 2112 is $6.001 billion rather than the $6.048 billion figure in legislation. Additional WIC Issues in House Subcommittee Report and Floor Debate In addition to the WIC appropriation itself, Chairman Kingston's subcommittee report language and the floor debate included discussion of several WIC issues. Some of the issues discussed include adjunctive eligibility, administrative costs, and carryover funds. Commodity Assistance Program Funding under the Commodity Assistance Program budget account supports several discretionary programs and activities: (1) the Commodity Supplemental Food Program (CSFP), (2) funding for TEFAP administrative and distribution costs, (3) the WIC Farmers Market Nutrition program, and (4) special Pacific Island assistance for nuclear-test-affected zones in the Pacific (the Marshall Islands) and in the case of natural disasters. The enacted FY2012 appropriation provides $242 million for the Commodity Assistance Program account. This total is $4 million less than was included in FY2011 appropriations for this account and $54 million less than the Administration's request ( Table 18 ). Of the total, approximately $176.8 million will be appropriated for the CSFP, which adopts the Senate-passed level and equals the Administration's request. The FY2012 appropriation is less than 1% above the FY2011's level and 25% above the House-passed bill's $142 million. The enacted FY2012 appropriation includes $48 million for TEFAP costs other than the value of federally provided commodities (which are funded under the Food and Nutrition Act budget account). The House bill had proposed $10 million less. The enacted FY2012 appropriation provides approximately $17 million for the FY2012 WIC Farmers' Market Nutrition Program. The Administration had requested $20 million for this program. The House-passed bill would have provided $15 million. The enacted law provides a total of $1 million for Pacific Island assistance in FY2012; this is the same level as in FY2011. Nutrition Programs Administration (and the Congressional Hunger Center) This budget account covers spending for federal administration of all the USDA domestic food assistance program areas noted above, special projects for improving the integrity and quality of these programs, and the Center for Nutrition Policy and Promotion (CNPP), which provides nutrition education and information to consumers (including various dietary guides). The enacted FY2012 appropriation provides $139 million, compared to $147.5 million in FY2011 (-6%). Other Funding Support As in earlier years, domestic food assistance programs will receive FY2012 support from sources other than FY2012 appropriations: Food commodities are provided to child nutrition programs in addition to those purchased with appropriations from the Child Nutrition account. They are financed through the use of permanent appropriations under Section 32. For example, out of a total of about $1.1 billion in commodity support provided in FY2008, about $480 million worth came from outside the Child Nutrition account. Historically, about half the value of commodities distributed to child nutrition programs has come from the Section 32 account. The Fresh Fruit and Vegetable program offers fresh fruits and vegetables in selected elementary schools nationwide. It is financed with mandatory funding directed by the 2008 farm bill. The underlying law (Section 4304 of the farm bill) provides funds at the beginning of every school year (each July)—$101 million in July 2010, $150 million in July 2011, and $133 million in July 2012. However, as was done for FY2009, FY2010, and FY2011, Section 718 of H.R. 2112 delays the availability of much of the $133 million scheduled for July 2012 until October 2012. As a result, H.R. 2112 , as with the Agriculture appropriations acts which preceded it, effectively would allocate the total annual spending for the Fresh Fruit and Vegetable program mandated by the farm bill by fiscal year rather than school year, with no reduction in overall support (savings scored in Table 8 ). The Food Service Management Institute (technical assistance to child nutrition providers) is funded through a permanent annual appropriation of $4 million/yr. The Seniors Farmers' Market Nutrition program receives $21 million of mandatory funding per year (FY2008-FY2012) outside the regular appropriations process under the terms of its underlying authorizing law (Section 4402 of the 2008 farm bill). Agricultural Trade and Food Aid The Agriculture appropriations act funds farm bill programs that promote U.S. commercial agricultural exports, provide international food aid, and provide technical assistance to developing countries to improve global agricultural productivity and market development. All programs are administered by the USDA Foreign Agriculture Service, except for the Title II of the Food for Peace Program—the largest of the suite—that is administered by the U.S. Agency for International Development (USAID). Appropriations for agricultural trade and food aid are made in the following areas: The Foreign Agricultural Service (FAS) is the main USDA agency responsible for international activities. It works to improve the competitive position of U.S. agriculture and products in the world market, and also administers USDA's export credit guarantee and food aid programs. The Food for Peace Program (P.L. 480) is administered by the U.S. Agency for International Development (USAID) and aims to combat hunger and malnutrition, and promote equitable and sustainable development and global food security. The Commodity Credit Corporation (CCC) Export Credit Guarantee Program provides payment guarantees for the commercial financing of U.S. agricultural exports. An appropriation is made for salaries and expenses. The McGovern-Dole International Food for Education and Child Nutrition Program provides donations of U.S. agricultural products and financial and technical assistance for school feeding and maternal and child nutrition projects in developing countries. P.L. 112-55 provides $1.836 billion for FY2012, which is $55.7 million (-3%) less than FY2011 levels for foreign assistance and related programs. For FY2012, the Administration requested $2.13 billion for foreign agriculture-related activities. In addition, the FY2012 request allocated about $416 million in mandatory spending for programs authorized in the 2008 farm bill, specifically for overseas market development, technical assistance for specialty crops, and for foreign food assistance. The President's request for FY2012, however, did not include funding for dairy export subsidies or trade adjustment assistance for farmers. The enacted FY2012 appropriation was $473 million more than the House-passed bill, H.R. 2112 , which would have provided $1.39 billion for foreign agriculture-related activities, and $94 million less than the Senate-passed bill, which would have provided $1.93 billion. Foreign Agricultural Service P.L. 112-55 includes $176.3 million for the Foreign Agriculture Service (FAS), which is $9.3 million (-5%) less than appropriated in FY2011. The Administration's FY2012 budget request for FAS was $230 million, and included $20 million in discretionary funding for trade expansion and promotion activities as part of the National Export Initiative (NEI), a government-wide effort to double U.S. exports over the next five years. The FAS budget also included $14.6 million to support the Department's participation in reconstruction and stabilization activities in Afghanistan and Iraq, as well as other food insecure countries. The House-passed bill for FY2012 would have provided $171 million for FAS salaries and expenses, while the Senate bill would have provided $176.4 million. Food for Peace Program (P.L. 480) For FY2012, Food for Peace (P.L. 480) Title II humanitarian food aid, which is by far the largest component of international agriculture expenditures, was appropriated $1.466 billion, $31 million (-3%) less than FY2011. The enacted FY2012 funding levels are $224 million (-13.3%) lower than the Administration's FY2012 request of $1.69 billion, which was also similar to FY2010 levels for Title II food aid. The House-passed bill, H.R. 2112 , would have provided $1.03 billion for Title II, while the Senate-passed bill would have provided $ 1.56 billion. No funding for new Title I or Title III activities has been requested since 2002. Three provisions affecting the Food for Peace program were included in the General Provisions of P.L. 112-55 . Section 715 states that the minimum funding requirements for nonemergency food aid "may be waived for any amounts higher than those specified under this authority for fiscal year 2010," which is any amount over $400 million. As has been done in previous appropriation bills, Section 718 includes a provision that would limit, up to $20 million, the amount of Food for Peace funds available for reimbursement of the Commodity Credit Corporation for the release of commodities from under the Bill Emerson Humanitarian Trust (7 U.S.C. 1736f-1). The third provision, provided in Section 741, states that Title II funds "may only be used to provide assistance to recipient nations if adequate monitoring and controls, as determined by the Administrator of the U.S. Agency for International Development, are in place to ensure that emergency food aid is received by the intended beneficiaries in areas affected by food shortages and not diverted for unauthorized or inappropriate purpose." Unlike the Bush Administration, the Obama budget requests have not proposed to allow the Administrator of USAID to use up to 25% of Food for Peace Title II funds for local or regional purchases of commodities (i.e., non-U.S. commodities) to address international food crises. To date, Congress has not supported this request. Instead, for FY2012, similar to the previous two years, the President requested that $300 million from the International Disaster Assistance (IDA) account within USAID be made available for local and regional procurement of food assistance to address food insecurity in emergency situations. In addition, the 2008 farm bill authorized $60 million of CCC funds (mandatory funds, not Title II appropriations), over four years for a pilot project to assess local and regional purchases of food aid for emergency relief. McGovern-Dole Food for Education and Child Nutrition P.L. 112-55 provides $184.0 million for the McGovern-Dole Program, $15.1 million (-7.6%) less than FY2011 levels. The President's request for FY2012 included $200.5 million for the McGovern-Dole Program. The House-passed bill would have provided $179 million, while the Senate-passed bill would have provided $188 million. Commodity Credit Corporation—Export Credit Guarantee Programs The enacted FY2012 appropriation includes $6.8 million of discretionary appropriations for administrative expenses to support an CCC's overall program level of $5.5 billion, which includes $5.4 billion for the Export Credit Guarantee Program, also known as GSM-102, and $100 million for the Facilities Financing Guarantees. This amount is similar to the level requested by the Administration for these activities. The House-passed bill would have provided a little bit less than $6.8 million, while the Senate bill would have provided $6.5 million for administrative expenses. The export credit programs are permanently authorized. Appropriations to this account are used for administrative expenses. In addition, the 2008 farm bill provides mandatory funding to other programs that promote export market development. These amounts are not directly appropriated, but are included within the CCC amount elsewhere in the bill. These include: $200 million for the Market Access Program; $34 million for the Foreign Market Development Program; $9 million for the Technical Assistance for Specialty Crops (TASC) Program; and $10 million for the Emerging Markets Program;. Mandatory funding levels requested by the Administration for international food assistance programs include: $156 million for Food for Progress; and $5 million for the Local and Regional Commodity Procurement Pilot Program. USDA's "Know Your Farmer, Know Your Food" Initiative The FY2012 appropriations act does not specifically address the USDA-wide initiative "Know Your Farmer, Know Your Food." However, the joint explanatory statement ( H.Rept. 112-284 ) places a reporting requirement on USDA requiring that USDA post information on its website prior to any travel primarily related to the ''Know Your Farmer, Know Your Food'' initiative, as well as submit a report to the appropriations committees on the impacts of this initiative over the previous two years, and that USDA include justification for this initiative in the Administration's FY2013 budget request. The House-passed version of H.R. 2112 contained a number of provisions that would have more rigorously restricted funding for activities under "Know Your Farmer, Know Your Food," as well as reduced funding for selected USDA research and rural development programs for local and regional food production. The Senate-passed version did not put funding restrictions on the "Know Your Farmer, Know Your Food" initiative, and the Senate committee report ( S.Rept. 112-73 ) made no other recommendations or clarifications regarding this USDA initiative. "Know Your Farmer, Know Your Food" is a USDA-wide initiative that was launched by USDA in September 2009 to "begin a national conversation to help develop local and regional food systems and spur economic opportunity." The initiative was designed to eliminate organizational barriers between existing USDA programs and promote enhanced collaboration among staff, leveraging existing USDA activities and programs, and thereby "marshalling resources from across USDA to help create the link between local production and local consumption." It is not a stand-alone program and does not have its own budget; instead, it is a departmental initiative, and not connected to a specific office or subagency. This is done by highlighting various existing programs within USDA that are available to support local farmers; strengthen rural communities; promote healthy eating; protect natural resources; and provide grants, loans and support. Linking local production with local consumption of farm products also is one of the primary goals of USDA's Regional Innovation Initiative. Among the programs mentioned for leveraging local and regional food production systems are (1) marketing and promotion programs (such as the Specialty Crop Block Grant Program, Farmers Market Promotion Program, and Federal State Marketing Improvement Program); (2) rural and community development programs (such as Value-Added Producer Grants, Community Food Projects Competitive Grants, Beginning Farmer and Rancher Development Program, Rural Business Enterprise Grants, Rural Business Opportunity Grant, Rural Cooperative Development Grant, Business and Industry (B&I) Guaranteed Loan Program, and Farm Storage Facility Loans); and (3) selected USDA research and cooperative extension programs. In response to demand for farm-to-school activities, certain USDA nutrition and domestic food programs, such as the farm-to-school and some fresh fruit and vegetable programs, also have been associated with the initiative. Since its launch, USDA has announced funding for various projects under these and other programs identified as promoting local-scale sustainable operations. Some in Congress have challenged USDA's "Know Your Farmer, Know Your Food" initiative. In April 2010, three Senators wrote a letter to USDA Secretary Vilsack expressing concerns about "Know Your Farmer, Know Your Food." The letter stated: "[T]his spending doesn't appear geared toward conventional farmers who produce the vast majority of our nation's food supply, but is instead aimed at small, hobbyist and organic producers whose customers generally consist of affluent patrons at urban farmers markets," among other concerns regarding USDA's promotion and prioritization of local food systems. The letter also requested evidence of USDA's congressional authority to spend money for "Know Your Farmer, Know Your Food" and to provide a full itemized accounting of all spending under the initiative. In response, USDA clarified that the initiative "does not have any budgetary or programmatic authority.... Rather, it is a communications mechanism to further enable our existing programs to better meet their goals and serve constituents as defined in the respective authorizing legislation and regulations. While there are no programs under the initiative, since September 2009 a number of our program funding announcements have included a reference to 'Know Your Farmer, Know Your Food.'" USDA also asserts that "none of these programs are providing preference to local and regional food system projects, except as provided for in their existing regulatory rules or legislative authority." Such cases are limited to two statutory cases: (1) a 5% set-aside established in the 2008 farm bill for rural development Business and Industry loans, and (2) an allowance for schools to use $5 million for local purchases under the Department of Defense Fresh Fruit and Vegetable Program (DoD Fresh). The regulatory case (set by administrative notice) is in USDA's Rural Housing and Community Facilities Program that states, "[The] goal that each state must fund at least one project" that supports the initiative in FY2010. The FY2012 House-passed bill included a number of provisions restricting funding for selected USDA programs that fund local and regional food production projects, and also for USDA's "Know Your Farmer, Know Your Food" initiative. The Senate bill did not put restrictions on the use of USDA funds to support USDA's initiative. The House bill said that no funds could support the "Know Your Farmer, Know Your Food" initiative. The House report ( H.Rept. 112-101 ) further included language requiring USDA to "provide an electronic notification to the committee at least 72 hours prior to any travel in support of the 'Know Your Farmer-Know Your Food' initiative, and such notification shall include the agenda for the entire trip along with the cost to U.S. taxpayers." It also directed the USDA to "post media advisories of all such trips on its website, and that such advisories include the same information." In addition, the House report expressed concern that USDA has awarded "more than $23 million in grants to improve regional and local food systems," and directed the agency to focus "its research efforts on only the highest priority, scientifically merited research." The committee also provided that no funding be used "for any work related to the Community Access to Local Food proposal" at USDA's Economic Research Service (ERS). Building on the House report, Representative Foxx introduced a floor amendment, which was adopted, to prohibit USDA from using funds for USDA's "Know Your Farmer, Know Your Food" initiative. Failed floor amendments from Representatives Pingree, Jackson Lee, and others would have supported local and regional food systems, removed some of the restrictions, and funded USDA's Urban Gardening Program, the Healthy Food Financing Initiative ($5 million) to address so-called "food deserts" in underserved urban and rural communities. The enacted FY2012 appropriation bill does not specifically address USDA's "Know Your Farmer, Know Your Food" initiative, similar to the Senate-passed but unlike the House-passed bill. However, the joint explanatory statement places a reporting requirement on USDA: The conference agreement does not include a provision (House Section 750) regarding the ''Know Your Farmer, Know Your Food'' initiative. The conferees direct the Department to post on its website prior to any travel primarily related to the ''Know Your Farmer, Know Your Food'' initiative, information including the agenda and the cost of such travel. In addition, within 90 days of enactment of this Act the Secretary shall submit to the Committees on Appropriations of the House and Senate a report on the impacts of this initiative over the previous two years, and to include justification for this initiative in the fiscal year 2013 budget explanatory notes. Separately, both the House and Senate committees recommended no appropriation for USDA's Healthy Food Financing Initiative (HFFI). The Healthy Food Financing Initiative is intended to provide for various types of financing to support businesses that expand the supply of and demand for nutritious foods, including tax credits, grants, loans, and other types of technical assistance. The President's budget proposed that $35 million be appropriated to this USDA initiative. The Senate committee pointed out that elsewhere in its proposed bill, loans and grants and other forms of technical assistance are made available that may be used toward some of the objectives of this USDA initiative. The joint explanatory statement of the conference report reiterates that the enacted agreement does not include an appropriation for HFFI and further points out that the initiative "has yet to prove that any expenditures made for this initiative have been effective" in meeting the goal of ensuring that more people have access to nutritious foods, and directs USDA to submit to Congress a system of metrics to measure the effectiveness and expected results for this initiative. Related Agencies Food and Drug Administration (FDA) The Food and Drug Administration (FDA) regulates the safety of foods and cosmetics; the safety and effectiveness of drugs, biologics (e.g., vaccines), and medical devices; and public health aspects of tobacco products. A part of the Department of Health and Human Services (HHS), FDA had been housed in the Department of Agriculture until 1940 and the Agriculture appropriations subcommittees retain jurisdiction over the FDA budget. FDA's program level, the amount that FDA can spend, is composed of direct appropriations (also referred to as budget authority) and user fees. The enacted FY2012 appropriation provides FDA a total program level of $3.899 billion. That total is $209 million (5.7%) more than what the agency received in FY2011 and 9.3% less than what the President requested for FY2012. The FY2011 appropriation provided the agency with a total direct appropriation of $2.457 billion. The President's request for FY2012 was $2.744 billion. The House-passed bill would have provided $2.155 billion and the Senate-passed bill would have provided $2.506. The enacted conference agreement provided $2.506 billion. This amount is 1.99% higher than the FY2011 appropriation and 8.68% lower than the President's request. For user fees , the enacted FY2012 appropriation includes $1.393 billion in user fees. The total includes prescription drug (PDUFA), medical device (MDUFA), animal drug (ADUFA), animal generic drug (AGDUFA), and tobacco product user fees; certification and Mammography Quality Standards Act (MQSA) fees; and newly authorized food and feed recall, food reinspection, and voluntary qualified importer program (VQIP) fees. Not included in that total is $59.6 million in the President's request for as yet unauthorized fees for generic drugs (GDUFA), medical products reinspection, and international couriers. The FY2012 enacted total for fees is 12.96% more than FY2011. Adding to the suggestions and directives included in the House and Senate committee reports ( H.Rept. 112-101 and S.Rept. 112-73 ), the enacted conference agreement ( H.Rept. 112-284 ) specifically directs FDA to take five actions. These actions are: 1. report to Congress on plans to allocate the funding increases included in the conference agreement: $39 million to begin implementation of the Food Safety Modernization Act; $30 million for advancing medical countermeasures; and $13 million for mandatory rental payments; 2. report to Congress on specified lengths of time during the drug, biologic, and device application processes (e.g., "average number of calendar days that elapsed from the date that drug applications ... were submitted to the agency ... until the date that the drugs were approved"); 3. publish a proposed rule regarding the safety and efficacy of over-the-counter cold and cough products for children; 4. develop a comprehensive program for imported seafood inspections and safety; 5. develop a clear strategy on prioritizing intervention methods to reduce foodborne illness from known and unknown sources. Consistent with the Administration and congressional committee formats, each program area in Table 19 includes funding designated for the responsible FDA center (e.g., the Center for Drug Evaluation and Research or the Center for Food Safety and Applied Nutrition) and the portion of effort budgeted for the agency-wide Office of Regulatory Affairs to commit to that area. also apportions user fee revenue across the program areas as indicated in the Administration's request (e.g., 90% of the animal drug user fee revenue is designated for the animal drugs and feeds program, with the rest going to Headquarters and Office of the Commissioner, GSA rent, and other rent and rent-related activities categories). Table 19 displays, by program area, the budget authority (direct appropriations), user fees, and total program levels for FDA in FY2011 (as calculated for the agency's June 2011 operating plan), the President's FY2012 request, H.R. 2112 as passed by the House, H.R. 2112 as passed by the Senate, and the conference agreement P.L. 112-55 , signed by the President on November 18, 2011. The final two columns show the percentage change from the President's FY2012 request or the June 2011 operating plan, respectively, to the FY2012 conference agreement. Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is the independent regulatory agency charged with oversight of derivatives markets. The CFTC's functions include oversight of trading on the futures exchanges, registration and supervision of futures industry personnel, prevention of fraud and price manipulation, and investor protection. The Dodd-Frank Act ( P.L. 111-203 ) brought previously unregulated swaps markets under CFTC jurisdiction. Although most derivatives trading is related to financial variables (interest rates, currency prices, and stock indexes), congressional oversight remains vested in the Agriculture committees because of the market's historical origins as an adjunct to agricultural trade. Appropriations for the CFTC are under the jurisdiction of the Agriculture appropriations subcommittee in the House, and the Financial Services and General Government appropriations subcommittee in the Senate. For FY2011, P.L. 112-10 provided $202 million for the CFTC, up 20% from the $169 million provided for FY2010 before enactment of the Dodd-Frank Act. For FY2012, the President requested $308 million, which would be $105 million more than FY2011 enacted appropriations. The requested increase was intended to ensure that the CFTC can meet its new regulatory responsibilities under the Dodd-Frank Act. For FY2012, P.L. 112-55 provides $205.3 million for the CFTC, an increase of $3.3 million over FY2011. This amount is $33.3 million more than the House recommended, but $34.7 million less than the Senate Appropriations Committee recommendation, and about $103 million (33%) below the Administration's request. Appendix. Key Policy Staff

The Agriculture appropriations bill provides funding for all of the U.S. Department of Agriculture (USDA) except the Forest Service, plus the Food and Drug Administration (FDA) and, in alternating years, the Commodity Futures Trading Commission (CFTC). The FY2012 Agriculture Appropriations Act (P.L. 112-55, H.R. 2112) was signed by the President on November 18, 2011, after passing both chambers by more than two-thirds majorities. It was the lead division of a three-bill "minibus" appropriation that also included Commerce-Justice-Science and Transportation-Housing and Urban Development appropriations. The minibus was the first FY2012 appropriation to be enacted, and it also included another short-term continuing resolution, through December 16, 2011, for the remaining nine appropriations bills. The Agriculture bill was the vehicle for the minibus since it was the only one of the three subcommittee bills in the minibus to have passed the House. P.L. 112-55 provides $20.2 billion of discretionary budget authority, including $367 million of conservation-related disaster assistance that was not subject to the regular budgetary caps. After subtracting the disaster funding and adjusting for CFTC jurisdiction, the $19.8 billion of regular discretionary budget authority reflects a $372 million reduction from FY2011 levels (-1.8%). The bill also includes $116.8 billion of mandatory funding for nutrition assistance and farm supports, up +11% from FY2011 due to a 19% increase in nutrition assistance because of the economy. The FY2012 Agriculture appropriation spreads its reductions in discretionary spending by trimming most agency budgets in the range of 3%-6%, although some programs have greater reductions. The act makes cuts to rural development programs (-$233 million, -8.8%), discretionary agriculture programs (-$209 million, -3%), discretionary nutrition assistance (-$127 million, -1.8%), foreign assistance programs (-$56 million, -2.9%), and conservation programs (-$45 million, -5.1%). The Food and Drug Administration and Commodity Futures Trading Commission each receive small increases in budget authority of about 1.5% to 2%. The appropriation increases the amount of limitations on mandatory farm bill programs by 27% to $1.2 billion, though rescissions from prior-year appropriations were smaller by about half, at $445 million. These limitations and rescissions, though greater than most years, were less in total than for FY2011. Reliance on these provisions in FY2011 and relatively less use in FY2012 increased the amount of cuts required to agency programs by about $220 million to meet the bill's discretionary allocation. The final appropriation is closer to the Senate-passed version from November 1, 2011, than the House-passed version from June 16, 2011. The Budget Control Act of 2011 (P.L. 112-25, August 2, 2011) set the discretionary limits that were used for the Senate bill and in the conference agreement. The Senate-passed version cut discretionary Agriculture appropriations to $19.8 billion, $2.7 billion more than the House bill in its discretionary total. The House version of H.R. 2112, passed under the House's more austere budget resolution, would have cut discretionary Agriculture appropriations to $17.25 billion, a reduction of $2.7 billion from FY2011 levels (-14%), and following a 15% cut in FY2011. Much of the floor debate in the House related to funding reductions for the Women, Infants, and Children (WIC) feeding program (-11%), food safety (-10%), and international food aid (-31%); preventing USDA payments to Brazil in relation to the U.S. loss in the WTO cotton case; and programs promoting locally produced food (USDA's "know-your-farmer-know-your-food" initiative).

Introduction This report is an overview of U.S. foreign assistance to the Middle East. It includes a brief historical review of foreign aid levels, a description of specific country programs, and analysis of current foreign aid issues. Congress authorizes and appropriates foreign assistance and conducts oversight of exe cutive agencies' management of aid programs. As the largest regional recipient of U.S. economic and security assistance, the Middle East is perennially a major focus of interest as Congress exercises these powers. The foreign aid data in this report is based on a combination of resources, including the United States Agency for International Development's U.S. Overseas Loans and Grants Database (also known as the "Greenbook"), appropriations data collected by the Congressional Research Service from the Department of State and USAID, data extrapolated from executive branch agencies' notifications to Congress, and information published annually in the State Department and USAID Congressional Budget Justifications. Foreign Aid to Support Key U.S. Interests U.S. policymakers over time have identified a number of core interests in the Middle East that U.S. foreign aid to the region seeks to advance, ranging from support for the state of Israel and Israel's peaceful relations with its Arab neighbors, to the protection of vital energy supplies and the fight against international terrorism. U.S. foreign assistance continues to support the 1979 peace treaty between Israel and Egypt and the continued stability of the Kingdom of Jordan, which signed its own peace treaty with Israel in 1994. U.S. funding also has sought to promote a diplomatic "two-state" solution between the Palestinians and Israel, with legislative conditions aimed at preventing the diversion of U.S. aid for the West Bank and Gaza Strip to terrorist groups such as Hamas. The United States also provides military assistance to Iraq and Lebanon that seeks to counter Iranian influence in parts of the Arab world. Continuity and Change in U.S. Foreign Aid to the Region While core interests endure, new policy challenges have arisen during the period of upheaval that began across the Arab world in 2011. Since that wave of unrest started a number of governments have fallen or come under severe strain, political conflict and sectarian violence have spread, and economies across the region have weakened. At present, Iraq, Syria, Libya, and Yemen face civil wars and terrorist/insurgent violence that are eroding central governance in each country and threatening neighboring states. Across the region, local affiliates of either Al Qaeda or the Islamic State (IS, also known as ISIL, ISIS, or Daesh) are fighting security forces and/or tribal militias in battles that may reshape the map of the modern Middle East. To date, only Tunisia appears to have made continuing strides toward a stable democratic political system, and even Tunisia's gains are considered fragile due to its weak economy and continued terrorist violence. Questions over the type and amount of resources the United States should devote to tackling the region's problems continue to be debated by Congress. On the one hand, U.S. bilateral assistance to the region has remained relatively unchanged since before 2011. The leading recipients of bilateral foreign aid appropriations in FY2010 —Israel, Egypt, Jordan, the Palestinians, and Iraq—remain, with the exception of Iraq, the same leading bilateral aid recipients in FY2015. This continuity reflects, among other things, strong Congressional support for Israel and for peace between Israel and its neighbors. On the other hand, violence in Syria and Iraq has led to some significant changes in U.S. foreign assistance to the region, as the Administration and Congress have used new sources of funding beyond traditional bilateral or State Department/USAID-controlled accounts to address challenges created by these conflicts. Since FY2012, Congress has appropriated and the Administration has allocated or reprogrammed a total of more than $4 billion for the multilateral humanitarian response to the Syrian refugee crisis. Moreover, to cope with the challenge posed by the Islamic State, Congress has authorized and appropriated new funding to the region through Defense Department-administered security assistance accounts. In the 113 th Congress, lawmakers provided the Defense Department with three new train and equip (T&E) authorities to counter the Islamic State: (1) the global Counter-Terrorism Partnerships Fund (CTPF); (2) Iraq T&E authority; and (3) Vetted Syrians T&E authority. Funding for these new accounts has come from either new appropriations or authorized reprogramming from Defense Department accounts. Overall, the conflicts in Syria and Iraq account for a greater share of regional foreign assistance due to increases in humanitarian spending, military assistance to Iraq, aid to the Syrian opposition, and aid to neighboring states such as Lebanon and Jordan. For FY2016, the Administration is seeking $3.45 billion in combined State Department and Defense Department funding (military and economic) to cope with the conflicts in Syria and Iraq (See " Syria, Iraq, and the Islamic State ," below). Amid this continuity and change in U.S. foreign assistance to the Middle East, future appropriations may be affected by two broader considerations: Domestic-Budgetary . Due to the wars in Afghanistan and Iraq, the overall foreign operations budget increased significantly during the Bush Administration. For the seven-year duration of the Obama Administration, total State Department, Foreign Operations, and Related Programs funding has been fairly flat, averaging $51 billion a year (enduring + OCO) since FY2009. In order to respond to myriad regional crises within a relatively static budgetary environment, officials have relied on foreign aid funds from accounts designated as Overseas Contingency Operations or OCO. These accounts are not subject to the budget caps applicable to most other accounts that were established by the Budget Control Act of 2011 (BCA, P.L. 112-25 ). In recent years, new bilateral aid to Iraq, the Syrian opposition, and Jordan has been designated as OCO, as has a significant portion of funding for multilateral accounts (IDA, MRA, and ERMA) used in response to humanitarian crises, such as the Syrian refugee crisis. As lawmakers consider FY2016 funding and the possible impact of the BCA on discretionary spending, the House version of the State Department, Foreign Operations, and Related Programs bill ( H.R. 2772 ) would provide $47.8 billion in total funding (enduring + OCO). Global-Financial . As the financial needs of the region's non-oil producers have dramatically increased in recent years (due to the 2008 global financial crisis and the Arab Spring), lawmakers have provided grant assistance and/or loan guarantees to complement other loan packages provided by multilateral institutions such as the International Monetary Fund (IMF). The IMF has provided loans to Morocco ($5 billion in 2014), Tunisia ($1.75 billion in 2013), Jordan ($2.1 billion in 2012), and Yemen ($550 million in 2014). These funds have been provided on the condition of economic reforms. Although these loans, totaling over $9 billion, are disbursed over multiple years, they represent a far larger commitment of economic resources to the region than annual U.S. bilateral aid. The oil-rich Arab Gulf states also have dramatically increased their aid to the Middle East region, largely with the political goal of countering Islamist influence in regional politics and ensuring regime continuity in places such as Egypt. Gulf countries have given an estimated $30 billion to Egypt since the military ousted the country's then-president Muhammad Morsi, of the Egyptian Muslim Brotherhood-affiliated party, in July 2013. Iran also provides a range of assistance to its allies in the region, including Syria and Lebanese Hezbollah. The FY2016 Funding Request for the Middle East For FY2016, the Administration has requested overall non-humanitarian bilateral aid for Near East and North Africa countries totaling $7.14 billion, or about 13% of the State Department's International Affairs request. This would represent an increase of $365.1 million (+5.4%) over FY2014 actual funding levels, and an increase of $570.62 million (+8.7%) above the FY2015 requested funding. Similar to FY2013 and FY2014 assistance levels to the region, more than 80% of this FY2016 total would support assistance for Israel, Egypt, Jordan, and the West Bank and Gaza. Bilateral Aid Budget accounts that provide non-humanitarian U.S. aid to Middle Eastern countries include Development Assistance (DA), Global Health Programs (GH), Economic Support Fund (ESF), International Narcotics Control and Law Enforcement (INCLE), Nonproliferation, Anti-Terrorism, Demining and Related Programs (NADR), International Military Education and Training (IMET), Foreign Military Financing (FMF), and Peacekeeping Operations (PKO). Of the non-humanitarian bilateral aid to Middle Eastern countries, 95% is within the ESF and FMF accounts. Also within the overall FY2015 and FY2016 requests, but not allocated by country or region, is emergency humanitarian aid, largely within Migration and Refugee Assistance OCO (MRA-OCO) and International Disaster Assistance OCO (IDA-OCO) accounts. OCO funds within the foreign affairs FY2016 request include $873.4 million for Middle Eastern bilateral aid (up 5.7% over bilateral OCO funds in FY2014) and $1.63 billion for humanitarian aid for the crisis in Syria and Iraq. Combined, these OCO funds would comprise one-third of all OCO funds sought for FY2016. For FY2015, Congress did not provide specific OCO funds for countering the Islamic State, as was requested, but did provide an increase in OCO funds in many accounts by using wording such as "for other assistance," "for other areas of unrest," or "for extraordinary costs, including those resulting from conflict" that could be applied to Middle Eastern countries. Regional Program Aid In addition to assistance provided directly to certain countries, the United States provides aid to Middle Eastern countries through regional programs, including: Middle East Regional (MER) . A USAID-managed program funded by ESF, MER supports programs that work in multiple countries on issues such as women's rights, public health, water scarcity, and education. For FY2016, the Administration is requesting $40 million in ESF funding for MER. In recent years, USAID has allocated $15 million to $20 million annually for MER. Near East Regional Democracy (NERD) . A State Department-managed program funded through ESF, NERD promotes democracy and human rights in Iran (though there is no legal requirement to focus exclusively on Iran). NERD programming for Iranian activists takes place outside the country due to the clerical regime's resistance to opposition activities supported by foreign donors. For FY2016, the Administration is requesting $30 million in ESF for NERD. In recent years, NERD has been funded between $30 million and $40 million annually. Middle East Regional Cooperation (MERC) . A USAID-managed program funded through ESF, MERC supports research and development cooperation between Israel and its Arab neighbors, including the West Bank/Gaza. First established in an amendment to the Foreign Operations bill in 1979, MERC was designed to encourage cooperation between Egyptian and Israeli scientists. Today, MERC is an open-topic, peer-reviewed competitive grants program that funds joint Arab-Israeli research covering the water, agriculture, environment, and health sectors. For FY2016, the Administration is requesting $5 million in ESF for MERC. The program receives anywhere from $1.5 million to $5 million annually. Middle East Multilaterals (MEM) . A small State Department-managed program funded through ESF, MEM supports initiatives aimed at promoting greater technical cooperation between Arab and Israeli parties, such as water scarcity, environmental protection, and renewable energy. For FY2016, the Administration is requesting $1.4 million in ESF for MEM. The program has been funded close to that level annually. Trans-Sahara Counter-Terrorism Partnership (TSCTP) . A State Department-led, interagency initiative funded through multiple foreign assistance accounts, TSCTP supports programs aimed at improving the capacity of 11 countries in North and West Africa to counter terrorism and prevent Islamist radicalization. Three North African countries participate in TSCTP—Tunisia, Algeria, and Morocco—but the majority of funding has been implemented in West Africa's Sahel region to date. For FY2016, the Administration is requesting a total of $69.8 million for TSCTP from multiple accounts. Of this, $13.4 million is requested specifically for the "Near East" (North African) countries ($5 million in ESF, $2 million in INCLE, and $6.4 million in NADR), and an additional $19.1 million is requested in PKO for both sub-Saharan and North African participant countries. In past years, actual funding allocations for TSCTP have often surpassed the Administration's request for a given year, in part because regionally- and centrally-budgeted funds have been used for some TSCTP programs. Other Foreign Aid Programs Millennium Challenge Corporation in the Middle East and North Africa13 The Millennium Challenge Corporation (MCC) is an independent agency created by Congress in 2004 that selects the countries that receive its assistance using a methodology determined largely by a country's performance in relation to the other candidate countries in the same income group in three categories of behavior—ruling justly, investing in people, and economic freedom. In the Middle East and North Africa, Morocco (2007 and 2015) and Jordan (2010) have both been awarded MCC grants, known as compacts. In 2007, Morocco signed a five-year $697.5 million agreement with the MCC focused on assisting the private agricultural and tourism sectors. Morocco's second compact, anticipated at $480 million, would address secondary education and industrial land reform, including privatization and regulatory concerns. In September 2010, the MCC approved a five-year, $275.1 million compact with Jordan to increase the supply of water available to households and businesses in the cities of Amman and Zarqa. The compact also is working to help improve the efficiency of water delivery, wastewater collection, and wastewater treatment. Despite widespread praise for the MCC's performance-based methodology of selecting aid recipients, some critics have charged that countries that score poorly on democratic indicators should be ineligible for MCC aid. Freedom House, the organization whose annual Index of Freedom is used by the MCC for two of the "Ruling Justly" indicators, urged the MCC board to bypass countries that had low scores on political rights and civil liberties. It argued that countries like Jordan, that fall below 4 out of a possible 7 on its index, should be automatically disqualified. Jordan, however, did well on 3 of the 6 other indicators in this category. Several development analysts further argued that Jordan should not be eligible, asserting that it is already one of the largest recipients of U.S. aid, has access to private sector capital, and is not a democracy. Democracy Promotion & The Middle East Partnership Initiative For nearly fifteen years, from the terrorist attacks of September 11, 2001, throughout the Bush Administration's "Freedom Agenda," to the "Arab Spring" of 2011 and beyond, officials, lawmakers, and policy advocates have debated the costs and benefits of funding democracy promotion in the Arab world. The 9/11 attacks reoriented U.S. policy, as Americans considered possible links between authoritarianism and terrorism, and successive Administrations and Congress began to devote more diplomatic attention and programmatic funding toward the promotion of democracy in the Middle East. At the height of the Arab Spring, U.S. funding for democracy promotion became an increased source of acrimony in countries such as Egypt, as remnants of the former regime accused the United States of interfering in domestic affairs, supporting Islamists, and undermining military rule. In 2015, as the Arab world continues to experience violent upheaval and a resurgence of authoritarian rule, the U.S. foreign policy community is once again debating the funding of democracy promotion in the context of overall U.S. interests and whether the current state of the region makes it more or less conducive to reform-related activities. Within the interagency process directed by the White House, there is no single U.S. government agency or office responsible for coordinating democracy promotion in the Middle East. According to the Project on Middle East Democracy, a non-governmental organization, for FY2016 the Administration is requesting a total of $442 million for democracy and governance activities in the Middle East and North Africa across all bilateral and multilateral accounts, though most of that assistance is channeled bilaterally. U.S. funding for democracy promotion in the Middle East also comes from the State Department's Bureau of Democracy, Human Rights, and Labor (DRL), USAID's Bureau for Democracy, Conflict, and Humanitarian Assistance, USAID's Middle East Regional Program, and the National Endowment for Democracy. The Middle East Partnership Initiative (MEPI) MEPI is an office within the Bureau for Near Eastern Affairs at the U.S. State Department that specifically supports political reform, women's and youth empowerment, quality education, and promoting economic opportunity in the Arab world. Since its inception in 2002, Congress has allocated an estimated $913.4 to $960.6 million in Economic Support Funds for MEPI. One of MEPI's contributions to U.S. democracy promotion in the Arab world has been to directly fund indigenous non-governmental organizations (NGOs) throughout the Middle East and North Africa. MEPI's Local Grants Program awards grants to NGOs throughout the Middle East in order to build capacity for small organizations. However, in countries with legal restrictions prohibiting foreign funding of local NGOs, U.S. officials and grant recipients may weigh the potential risks of cooperating with one another. Between 2011 and 2013, Egypt arrested and convicted local and foreign NGO workers working on election monitoring, political party training, and government transparency in Egypt. For FY2016, the State Department is requesting $70 million in ESF funding for MEPI. Since its inception, annual allocations for MEPI have averaged approximately $76-80 million per fiscal year. In 2015, MEPI received $40.8 million. In its FY2016 request to Congress, the State Department aims to continue spending approximately $8.5 million in direct support to local civil society organizations through MEPI's Local Grants Program. MEPI also has adopted performance monitoring and program evaluations for its ongoing projects. Major Country Recipients Israel20 Israel is the largest cumulative recipient of U.S. foreign assistance since World War II. To date, the United States has provided Israel $124.3 billion (current, or non-inflation-adjusted, dollars) in bilateral assistance. Almost all U.S. bilateral aid to Israel is in the form of military assistance, although in the past Israel also received significant economic assistance. Israel is also the largest recipient of U.S. Foreign Military Financing (FMF). For FY2016, the President's request for Israel would encompass approximately 53% of the total requested FMF funding worldwide. Strong congressional support for Israel has resulted in Israel receiving benefits not available to any other countries. For example, most U.S. military assistance is required to be used to purchase equipment from U.S. manufacturers, but Israel can use some U.S. military assistance both for research and development in the United States and for military purchases from Israeli manufacturers. U.S. assistance earmarked for Israel is generally delivered in the first 30 days of the fiscal year, while most other recipients normally receive aid in installments. Israel is also permitted to use cash flow financing for its U.S. arms purchases. In addition to receiving U.S. State Department-administered foreign assistance, Israel receives funds from annual defense appropriations bills for rocket and missile defense programs. Israel engages in varying levels of cooperation with the United States regarding each of these programs. In 2007, the Bush Administration and the Israeli government agreed to a 10-year, $30 billion military aid package for the period from FY2009 to FY2018. There have been reports indicating that U.S.-Israeli discussions have been held regarding a possible future ten-year aid deal beyond FY2018. Egypt22 Between 1948 and 2015, the United States provided Egypt with $76 billion in bilateral foreign aid (calculated in current dollars—not adjusted for inflation), including $1.3 billion a year in military aid from 1987 to the present. Egypt receives the bulk of its foreign aid funds from three primary accounts: FMF, ESF, and IMET. For FY2016, the President requested that Congress appropriate $1.3 billion in military assistance for Egypt. The President also is asking Congress to provide $150 million in economic aid, the same amount Congress appropriated in FY2015. The $150 million FY2015 ESF appropriation was the lowest amount of bilateral economic grant assistance appropriated for Egypt since 1978. Since the Egyptian military's 2013 ouster of former President Mohammed Morsi, the Administration and some lawmakers have focused on conditioning aid to Egypt. P.L. 113-235 , the FY2015 Consolidated Appropriations Act, contains a number of provisions and conditions on U.S. assistance to Egypt that are similar to what Congress included in FY2014 ( P.L. 113-76 ), with one significant exception: Section 7041(a)(6)(C) authorizes the Secretary of State to provide assistance to Egypt, notwithstanding various certification requirements specified both in the FY2015 Act and in the FY2014 Act, if the Secretary determines that it is important to the national security interest of the United States to provide such assistance. The Secretary of State exercised this waiver on May 12, 2015. Jordan23 Total U.S. aid to Jordan from FY1951 through FY2015 amounted to approximately $15.83 billion. On February 3, 2015, the U.S. and Jordanian governments signed a non-binding Memorandum of Understanding (MOU) whereby the Administration agreed, subject to the approval of Congress, to provide a total of $1 billion in annual foreign assistance to Jordan from FY2015 to FY2017. Thus, for FY2016, the Administration is requesting nearly $1 billion in total aid for Jordan. The United States provides economic aid to Jordan as both a cash transfer to its government and for USAID programs in Jordan. The Jordanian government uses cash transfers to service its foreign debt and offset the costs of supporting hundreds of thousands of Syrian refugees now residing in the kingdom. ESF funds have also been used to support loan guarantees for Jordan. U.S. military assistance is primarily directed toward enabling the Jordanian military to procure and maintain conventional weapons systems. FMF grants to Jordan enable its Air Force to maintain a modest fleet of F-16 fighters and purchase Advanced Medium Range Air-to-Air Missiles (AMRAAM). FMF grants also provide financing for Jordan's acquisition of U.S. Blackhawk helicopters in order to enhance Jordan's border monitoring and counterterrorism capability. West Bank and Gaza24 Since the establishment of limited Palestinian self-rule in the West Bank and Gaza in the mid-1990s, the U.S. government has committed more than $5 billion in bilateral assistance to the Palestinians. Annual appropriations legislation makes aid to Palestinians subject to a number of conditions, restrictions, and audit and reporting requirements (see below). Presumably due to political concerns stemming from Israeli-Palestinian disputes, little or no bilateral assistance has been obligated since FY2014. From FY2007 to FY2013, the Bush and Obama Administrations have provided a significant amount (usually averaging between $100 and $200 million annually) of ESF for the West Bank and Gaza as budgetary assistance for the specific purpose of paying PA creditors, with the remainder used for USAID-administered programs. Future executive branch plans to obligate funds, including whether any such funds might be devoted to PA budgetary assistance, are unclear. Currently most, if not all, bilateral funds for Gaza, which remains subject to Hamas security control despite nominal PA governing power, are dedicated to humanitarian assistance and economic recovery needs. Beyond bilateral assistance, U.S. assistance for the humanitarian needs of Palestinian refugees in Gaza, the West Bank, Jordan, Lebanon, and Syria is provided through the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) via the MRA account. In its FY2016 request, the Administration is seeking $442.0 million for West Bank and Gaza, equal to Administration requests since FY2013. According to the Administration's FY2016 request, $370.0 million would be for economic and development programs, and $72.0 million for security assistance. Potential Foreign Aid Issues for Consideration Syria, Iraq, and the Islamic State29 The Administration is requesting $3.45 billion in FY2016 for responding to the crisis in Syria and fighting the Islamic State. This includes $1.82 billion in Department of Defense- administered and State Department security assistance accounts, as well as $1.63 billion in multilateral humanitarian accounts. The majority of the request is OCO rather than enduring funds and can be broken down into the following major categories: Department of Defense train & equip funds, non-lethal aid to the Syrian opposition, FMF for the Iraqi army, and multilateral humanitarian aid. Department of Defense Train & Equip Funds For FY2016, the Department of Defense is requesting $715 million and $600 million for train and equip programs for Iraqis and Syrians , respectively. These requests would fund the continuation of programs initiated under authorities and funds first provided in FY2015 d efense authorization and appropriations bills. The monies would be drawn from FY2016 Department of the Army Operations and Maintenance Overseas Contingency Operations (O&M-OCO) funding. For FY2015, the Administration is providing about $1.6 billion in DOD/OCO funding for an "Iraq Train and Equip Fund" to support an expanded training mission. Of the $1.6 billion, the Administration stated it is using $1.23 billion for the Iraqi Security Forces (ISF); $354 million for the Kurdish peshmerga ; and $24 million to train and equip Sunni tribal fighters who might secure Sunni-inhabited areas recaptured from the Islamic State. Non-Lethal Aid to the Syrian Opposition Of the $1.82 billion in DOD and DO S funding the Administration is requesting for security assistance related to Syria in FY2016, $255 million is for assistance to opposition groups within Syria. Of this amount, $65 million is requested from the peacekeeping operations (PKO-OCO) account to provide non-lethal assistance to vetted members of the armed Syrian opposition. Another $160 million is requested from ESF-OCO to provide non - lethal assistance to Syrian national and local-level opposition groups — potentially including activists, civil society members, journalists, and civil defense workers. The $255 million requested also includes $10 million in INCLE-OCO funding for justice sector support in opposition-held areas. Twenty million dollars from the base request in the NADR account would support law enforcement training for opposition members, border security training, and weapons abatement initiatives. FMF for the Iraqi Army and Foreign Military Sales The United States is also proceeding with pre-existing Foreign Military Sales of combat aircraft, as well as with new sales of tanks and armored vehicles to replenish the equipment lost or seized by the Islamic State in the course of the Iraqi Security Force (ISF) collapse in June 2014 and loss of Ramadi in May 2015. The FY2016 request includes $250 million in FMF-OCO to help build up the capabilities of the ISF against the Islamic State, and thereby supplements requested train and equip funding. Humanitarian Assistance The Administration's FY2016 budget request seeks $5.64 billion in global humanitarian assistance, including $1.63 billion in OCO funds authorized to address the humanitarian impact of the crisis in Syria and Iraq. The $1.63 billion includes $810 million in IDA-OCO to support humanitarian assistance to Syria and Iraq, as well as $819 million in MRA-OCO for humanitarian assistance programs for refugees from Syria and Iraq. From October 1, 2011 through January 22, 2015, the United States allocated more than $4 billion to meet humanitarian needs using existing funding from global humanitarian accounts and some reprogrammed funding. State Department Requests for Flexible Transition Funding Since the early days of the "Arab Spring" in 2011, the Administration and Congress have discussed how to adjust U.S. foreign aid policy to the rapidly changing realities of the Middle East region. For the last five years, the State Department and USAID have relied on long-standing authorities to repurpose already appropriated foreign aid toward countries in transition or in civil war. At times, the Administration has argued that this approach is inadequate and that repurposing aid from various accounts limits transparency, requires a burdensome and inefficient reprogramming process, and restricts availability and flexibility of aid when needs arise. In FY2013 and FY2014, the Administration unsuccessfully sought more legal latitude and additional funding from Congress in responding to the needs of Arab transition states. The State Department made proposals in FY2013 ($770 million) and FY2014 ($580 million) for Congress to create an account called the Middle East and North Africa Incentive Fund (MENA-IF), which would have allowed appropriated assistance to be used notwithstanding any other provision of law and to remain available for multiple years. Congress neither authorized nor appropriated any MENA-IF funding. Some lawmakers expressed significant reservations about the broad spending authorities the proposals would give the Administration. In FY2015, the Administration again sought increased transition support funding ($225 million in ESF and $20 million in INCLE-OCO funds) for what it called the MENA Initiative. The FY2015 request abandoned the Administration's previous approach to create a new account with new authorities and instead sought to support reforms in transitional states by using ESF funds at a level significantly lower than what it previously requested for MENA-IF. The Joint Explanatory Statement accompanying P.L. 113-235 , the Consolidated and Further Continuing Appropriations Act, 2015, included language supporting what appropriators called "Middle East Response." The statement noted that Section 8003 of P.L. 113-235 "provides the Department of State with the necessary flexibility to transfer funding between specific accounts, if needed to address unanticipated contingencies." Restructuring Aid to Egypt34 The intense focus on U.S. foreign aid to Egypt since 2011 has resulted in a number of proposals for broadly restructuring U.S. assistance. Even among supporters of continued military aid to Egypt, there appear to be two basic objections to maintaining the status quo (i.e., military aid subsidizing Egyptian purchases of conventional weaponry like tanks and jet fighters). One is that it does not match the current threats facing Egypt. The other is that it could undermine political stability if it is seen as indirectly perpetuating the control of society by the military-guided state. On March 31, 2015, the White House announced that, although the Administration was releasing the deliveries of selected weapons systems to Egypt that had been on hold since October 2013 (and although it pledged to continue seeking $1.3 billion in aid from Congress), beginning in FY2018, the United States would stop providing cash flow financing (CFF) to Egypt. Cash flow financing is the financial mechanism that can enable foreign governments to pay for U.S. defense equipment in partial installments over time rather than all at once; successive Administrations have authorized CFF for Egypt since 1979. In recent years, as public scrutiny of U.S. military aid to Egypt has increased, some observers have criticized the provision of CFF to Egypt. Critics argue that the financing of expensive conventional weapons systems is based on an assumption of future appropriations from Congress, thus undermining congressional independence and co-equality with the executive. Supporters argue that as the Egyptian military combats terrorism in the Sinai Peninsula and elsewhere, U.S. military aid to Egypt should not be altered. The Administration's proposed policy change comes after its lengthy review of U.S. foreign assistance policy toward Egypt, a process that began immediately following the Egyptian military's 2013 ouster of former president Mohammed Morsi, a leading figure in the Muslim Brotherhood. The President's decision to phase out CFF to Egypt is perhaps part of a broader policy approach that may seek to balance national security interests and the promotion of democratic principles in dealing with the post-Morsi, military-backed Egyptian government. The March 31 White House announcement contemplates maintaining a modicum of security cooperation (e.g., ending weapons suspension, continuing $1.3 billion in aid) while moving the relationship away from some of the aspects of its traditional military-to-military foundation (e.g., ending CFF, limiting future arms sales to specific defense categories). To date, public discussion of the President's proposed policy changes has been relatively muted. The House committee-approved FY2016 Foreign Operations Appropriations bill ( H.R. 2772 ) specifies that the Secretary of State shall consult with the Committees on Appropriations on any plans to restructure military assistance for Egypt. Restrictions on Aid to the Palestinians37 Annual appropriations legislation makes aid to Palestinians subject to a number of conditions, restrictions, and audit and reporting requirements. For example, no aid is permitted for Hamas, the Palestine Liberation Organization, the Palestinian Broadcasting Corporation, or for PA employees in Gaza. Aid for a future Palestinian state; or for a PA government that might in the future include Hamas as a member, or that might result from an agreement with Hamas and over which Hamas exercises "undue influence," would only be permitted if these potential recipients make commitments toward peaceful coexistence with Israel. International initiatives pursued by Palestinian officials since 2011 in attempts to gain greater recognition of Palestinian statehood and/or to pressure Israel have periodically led to informal congressional holds that delayed obligation and disbursement of already-appropriated aid. Congress also has enacted conditions that could reduce U.S. aid to the Palestinians, depending on the initiatives taken and their outcomes. Per Section 7041(i)(2) of P.L. 113-235 , the FY2015 Consolidated and Further Continuing Appropriations Act, ESF aid for the PA is prohibited if the Palestinians "initiate an International Criminal Court (ICC) judicially authorized investigation, or actively support such an investigation, that subjects Israeli nationals to an investigation for alleged crimes against Palestinians." In the past year, the Palestinians have taken a number of actions with respect to the ICC, and the ICC opened a preliminary examination of the "situation in Palestine" in January 2015. In response, some lawmakers have called for the suspension of ESF aid to the Palestinians, per Section 7041(i)(2). However, the State Department has stated that "We evaluate all planned assistance to the PA to ensure we are in full compliance with relevant legislation. We do not consider the relevant restrictions on assistance to the Palestinians to have been triggered." Supporting Tunisia's Ongoing Democratic Transition43 Some observers assert that, amidst the violent upheaval spreading across the Middle East and North Africa, U.S. support for Tunisia's nascent transition to democracy is vital for the promotion of stability across the region. In order to help the newly-elected coalition government consolidate democratic gains, combat terrorism, and unlock economic growth and job creation, the Administration is requesting that Congress appropriate $134 million for Tunisia for FY2016 (of which 60% would be for security assistance), more than double its FY2015 request. The Administration, in consultation with Congress, allocated some $580 million in aid for Tunisia between FY2011 and FY2014, equivalent to ten times the bilateral funding appropriated over the prior four fiscal years. Recent Legislative Action On June 15, 2015, the House Appropriations Committee reported a FY2016 Department of State, Foreign Operations, and Related Programs Appropriations bill ( H.R. 2772 ). On July 9, the Senate Committee on Appropriations reported its version of a FY2016 Foreign Operations Appropriations bill ( S. 1725 ). Both bills' accompanying committee reports ( H.Rept. 114-154 and S.Rept. 114-79 ) include a number of Middle East-related provisions. See Table 6 below for a side-by-side comparison of select provisions. Common Foreign Assistance Acronyms and Abbreviations

This report is an overview of U.S. foreign assistance to the Middle East and North Africa. It includes a review of the President's FY2016 request for the region, a description of selected country programs, and an analysis of current foreign aid issues. We anticipate updating it annually. Since 1946, the United States has provided an estimated total of between $282 billion to $292 billion (obligations in current dollars) in foreign assistance to the region. For FY2016, overall non-humanitarian bilateral aid requested for Middle East and North Africa countries amounts to $7.14 billion, or about 13% of the State Department's International Affairs budget request. The State Department estimates that the Middle East stands to receive 35% of the geographically-specific assistance in the budget request, more than any other region. Like previous years' assistance levels to the region, more than 80% would support assistance for Israel, Egypt, Jordan, and the West Bank and Gaza. The foreign aid data in this report is based on a combination of resources, including the United States Agency for International Development's U.S. Overseas Loans and Grants Database (also known as the "Greenbook"), appropriations data collected by the Congressional Research Service from the Department of State and USAID, data extrapolated from executive branch agencies' notifications to Congress, and information published annually in the State Department and USAID Congressional Budget Justifications. In order to more accurately compare the Administration's FY2016 foreign assistance request to previous years' appropriations, aid figures in this report (except where otherwise indicated) refer only to bilateral assistance that is managed by the State Department or USAID and is requested for individual countries or regional programs. While this represents the majority of U.S. assistance to the Middle East, it is important to note that there are several other sources of U.S. aid to the region, such as International Disaster Assistance (IDA), Migration and Refugee Assistance (MRA), and Transition Initiatives (TI). Likewise, some nations receive assistance from U.S. agencies such as the Department of Defense, which is touched upon briefly below. Since foreign assistance provided through these accounts and agencies is not requested for individual countries, and country-level figures are not publicly available until after the fiscal year has passed, these accounts and agencies are excluded from this analysis. For foreign aid terminology and acronyms, see the glossary appended to the report. On June 15, 2015, the House Appropriations Committee reported a FY2016 Department of State, Foreign Operations, and Related Programs Appropriations bill (H.R. 2772). On July 9, the Senate Committee on Appropriations reported its version of the bill (S. 1725). Both bills' accompanying committee reports (H.Rept. 114-154 and S.Rept. 114-79) include a number of Middle East-related provisions.

Introduction On February 2, 2017, the House of Representatives passed a Congressional Review Act disapproval resolution ( H.J.Res. 40 ) to overturn a final rule promulgated by the Social Security Administration (SSA) regarding implementation of firearms restrictions for certain persons. The House joint resolution passed by recorded vote: 235-180 (Roll no. 77). On February 15, 2017, the Senate passed this resolution by a recorded vote: 57-43 (Roll no. 66). On February 28, 2017, President Donald Trump signed this resolution into law ( P.L. 115-8 ) effectively vacating the SSA final rule. The resolution also bars the SSA from promulgating any rule in the future that would be "substantially the same" as the disapproved rule unless the administration receives a new statutory authorization to do so. The SSA final rule was intended to implement provisions of the NICS Improvement Amendments Act of 2007 (NIAA), which strengthened existing provisions of federal law that set out reporting requirements for any federal agency holding records on persons prohibited from possessing firearms. NIAA mandates that agencies must share those records with the Federal Bureau of Investigation (FBI) for inclusion in a computer index accessible to the National Instant Criminal Background Check System (NICS). As described below, some of these prohibiting records are based upon findings of "mental incompetency" made during certain federal benefit claims processes administered by the Department of Veterans Affairs (VA) since 1998 and similar findings that would have been made by the SSA beginning in December 2017 under the vacated final rule. Such mental incompetency determinations hinge on a regulatory definition promulgated by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in 1998 that defines persons who are found to lack the mental capacity to handle their own affairs as "adjudicated as a mental defective" for the purposes of gun control. As a result, such persons are prohibited from shipping, transporting, receiving, or possessing firearms or ammunition. In the past, Congress has considered legislation that would redefine "mental incompetency" for the purposes of gun control, such that firearms ineligibility based on a person's mental incompetency would only be based on an involuntary commitment to a mental institution or finding by a magistrate or judicial authority ruling that the beneficiary is a danger to themselves or others. Since the release of this report, the House has passed a bill ( H.R. 1181 ) that would clarify the conditions under which veterans and survivors who are beneficiaries of programs administered by the VA may be treated as "adjudicated as a mental defective." Brady Act, NICS, and Firearms Ineligibility As amended by the Brady Handgun Violence Prevention Act, 1993 (Brady Act), the Gun Control Act of 1968 (GCA) requires background checks to be completed for all unlicensed persons seeking to obtain firearms from federally licensed gun dealers (otherwise referred to as federal firearms licensees, or FFLs). Pursuant to the Brady Act, the FBI activated NICS on November 30, 1998. This national computer network allows FFLs to initiate a background check through either the FBI or a state point of contact (POC), before transferring a firearm to an unlicensed, private person. Under the GCA, there are nine classes of persons prohibited from shipping, transporting, receiving, or possessing firearms or ammunition: persons convicted in any court of a crime punishable by imprisonment for a term exceeding one year; fugitives from justice; unlawful users or addicts of any controlled substance as defined in Section 102 of the Controlled Substances Act (21 U.S.C. §802); persons adjudicated as "mental defective" or committed to mental institutions; unauthorized immigrants and nonimmigrant visitors (with exceptions in the latter case); persons dishonorably discharged from the U.S. Armed Forces; persons who have renounced their U.S. citizenship; persons under court-order restraints related to harassing, stalking, or threatening an intimate partner or child of such intimate partner; and persons convicted of a misdemeanor crime of domestic violence. In addition, there is a 10 th class of persons prohibited from shipping, transporting, or receiving (but not possessing) firearms or ammunition: persons under indictment in any court of a crime punishable by imprisonment for a term exceeding one year. It is also unlawful for any person to sell or otherwise dispose of a firearm or ammunition to any of the prohibited persons enumerated above, if the transferor (seller) has reasonable cause to believe that the transferee (buyer) is prohibited from receiving those items. Mental Incompetency and Firearms Ineligibility To implement the Brady Act, inter-agency discussions were held in 1996/1997 about who should be considered "adjudicated as a mental defective" for the purposes of gun control. These discussions were largely led by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), the agency principally responsible for administering and enforcing federal gun control laws. On June 27, 1997, the ATF promulgated a final rule defining the following terms: "Adjudicated as a mental defective" includes a determination by a court, board, commission, or other lawful authority that a person, as a result of marked subnormal intelligence or a mental illness, incompetency, condition, or disease, (1) is a danger to himself or others, or (2) lacks the mental capacity to contract or manage his own affairs. The term also includes (1) a finding of insanity by a court in a criminal case and (2) those persons found incompetent to stand trial or found not guilty by reason of lack of mental responsibility pursuant to articles 50a and 72b of the Uniform Code of Military Justice, 10 U.S.C. Sections 850a, 876(b). "Committed to a mental institution" means a formal commitment of a person to a mental institution by a court, board, commission, or other lawful authority. The term includes commitments: (1) to a mental institution involuntarily; (2) for mental defectiveness or mental illness; or (3) for other reasons, such as drug use. The term does not include a person who is admitted to a mental institution for observation or who is voluntarily admitted. "Mental institution" includes mental health facilities, mental hospitals, sanitariums, psychiatric facilities, and other facilities that provide diagnoses by licensed professionals of mental retardation or mental illness, including psychiatric wards in general hospitals. In its final rule, ATF noted that the VA had commented on the proposed rulemaking and had "correctly interpreted" the proposed definition of "adjudicated as a mental defective" to include persons who have been determined to be "mentally incompetent" by the Veterans Benefits Administration (VBA). Under current VA procedures, an individual is considered "mentally incompetent" if he or she lacks the mental capacity to contract or manage his or her own affairs for reasons related to injury or disease (under 38 C.F.R. §3.353). In a proposed rulemaking, the ATF opined that the inclusion of "mentally incompetent" in the definition of "mental defective" was wholly consistent with the legislative history of the 1968 Gun Control Act. In the wake of the December 2012, Newtown, CT, mass shooting, the ATF issued proposed regulations to clarify further individuals who might fall under this definition. This proposed regulation has not been made final. It is significant to note that the NICS index is not intended to be a registry of all individuals diagnosed with a mental illness. The vacated SSA rule calls into question, who ought to be prohibited from receiving or possessing firearms and ammunition, among those persons deemed mentally incompetent for the purposes of federal benefit claims processing? Moreover, the subsequent legislative history shows that some Members of Congress have long taken issue with the ATF interpretation of the term "adjudicated as a mental defective." NICS Improvement Amendments Act of 2007 In April 2007, a lone assailant armed with two pistols shot to death 32 individuals and nonfatally wounded another 17, before shooting himself to death at the Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, Virginia. Due to his disturbing on-campus behavior, the assailant had previously been evaluated by health care professionals and ordered by a judge to undergo "outpatient" mental health treatment, because he was deemed to be a threat to himself or others. At that time, however, Virginia state law only referred the subjects of "inpatient" court orders for such treatment to the FBI for inclusion in the NICS index. Following this massacre, the Virginia governor, now-Senator Timothy Kaine, reviewed the state statute and determined that henceforward subjects of either court-ordered inpatient or outpatient mental health care under such circumstances would be referred to the FBI for inclusion in the NICS index. In response to the Virginia Tech mass shooting, Congress passed the NICS Improvement Amendments Act of 2007 (NIAA). This act includes provisions designed to encourage states to make available to the Attorney General certain records related to persons who are disqualified from acquiring firearms, particularly disqualifying records related to mental health adjudications, as well as domestic violence misdemeanor convictions and restraining orders. To accomplish this, the act establishes a framework of incentives and disincentives whereby the Attorney General is authorized to either waive a grant match requirement or reduce a law enforcement assistance grant depending upon a state's compliance with the act's goals of bringing such firearms-related disqualifying records online. During congressional debate, however, some Members expressed opposition to the NIAA based on the assertion that, under these amendments, any veteran who was or had been diagnosed with Post Traumatic Stress Disorder (PTSD) and was found to be a "danger to himself or others would have his gun rights taken away ... forever." Members of Congress included a provision in NIAA that required agencies to inform a claimant beforehand that they could lose their gun rights and privileges if they are found to be mentally incompetent as a condition of a benefit program's administration and eligibility. In addition, as under the state grant provisions, NIAA required those referring agencies to establish a firearms disabilities relief program, whereby any individual referred to the NICS index for reasons related to mental incompetency would be able to petition to have his or her gun rights and privileges restored, if and when he or she had overcome the incapacities that led to the initial finding. Thirty-two states and the VA have established disability relief programs under NIAA. The Bureau of Justice Statistics (BJS) has awarded $94.9 million in NICS improvement grants to state, local, and tribal governments from FY2009 through FY2015. According to the BJS, there were 298,571 prohibiting records related to mental incompetency in the NICS index as of January 1, 2007. Of those records, state and local authorities had contributed 159,418 records (53.4%). According to the FBI, there were 4,658,573 active prohibiting records related to mental incompetency in the NICS index as December 31, 2016. Of those records, state and local authorities had contributed 4,487,573 records (96.3%). From the beginning of 2007 to the end of 2016, the number of those records contributed by state and local authorities to the NICS index had increased by 2,715%. Federal agencies had contributed 171,083 such records to the NICS index, of which the VA had contributed 167,815 (98.1%), as of December 31, 2016. By comparison, federal agencies had contributed 139,153 records to the NICS index as of January 1, 2007, the bulk of which were contributed by the VA. The December 2016 SSA final rule established a similar program to the VA's; however, the SSA has not referred any disqualifying records to the FBI for inclusion in NICS. Federal Department and Agency Requirements Under NIAA NIAA included several provisions that address the submission of disqualifying records by federal departments and agencies to the FBI for inclusion in NICS. Attorney General's Authority to Secure Records NIAA ( P.L. 110-180 ) amends the Brady Handgun Violence Prevention Act to strengthen the Attorney General's authority to secure from any department or agency of the U.S. government information on persons who are prohibited from possessing or receiving a firearm under federal or state law. The Brady Act, as amended by NIAA, requires those departments or agencies to (1) "furnish electronic versions" of that information quarterly; (2) update, correct, modify, or remove those records as required to maintain their timeliness, if those records are stored in any databases that are maintained or made available to the Attorney General, and (3) inform the Attorney General of any record changes so NICS could also be updated to reflect those changes. Furthermore, the act requires the Attorney General to submit to Congress an annual report on the compliance of each U.S. department or agency that possesses such disqualifying records. Record Accuracy and Confidentiality NIAA requires the Attorney General to ensure that any information submitted or maintained in NICS be kept accurate and confidential and that obsolete and erroneous names be removed from NICS and destroyed in a timely manner. The act also requires the Attorney General to work with the states to develop computer systems that would electronically notify the Attorney General when a court order has been issued, lifted, or otherwise removed, or when a person has been adjudicated as mentally defective or committed to a mental institution. Records Prohibited from Inclusion in NICS NIAA prohibits any department or agency of the U.S. government from providing the Attorney General with any record regarding the mental health of a person, or any commitment of a person to a mental institution, if (1) the adjudication or commitment has been set aside or expunged, or the person has otherwise been fully released or discharged from all mandatory treatment, supervision, or monitoring; (2) the person in question has been found by a court, board, commission or other lawful authority to no longer suffer from a mental health condition; or (3) the adjudication or commitment is based solely on a medical finding of disability, without an opportunity for hearing by a court, board, or other lawful authority, and the person has not been adjudicated as a mental defective. Relief from Mental Defective Disability NIAA requires that each department or agency of the U.S. government that makes adjudications related to the mental health of a person that impinges upon eligibility to possess or receive firearms to establish a process by which a person who is the subject of such an adjudication or determination could apply for relief from that disability. (In this sense, the disability in question is the person's ineligibility to transfer or possess a firearm under 18 U.S.C. §922(d)(4) or (g)(4).) The act requires further that applications for disability relief be processed not later than 365 days after receipt, and if the agency fails to resolve an application within 365 days for any reason (including a lack of appropriated funds), the application is deemed to have been resolved, triggering de novo judicial review. In addition, administrative "relief and review" provided under the act (subparagraph 101(c)(2)(B)) is required to be made available according to standards outlined in 18 U.S.C. section 925(c). For persons who are granted relief from disability under the act, or who are the subject of mental health records that the act prohibits from being turned over to the Attorney General, the underlying events that were the basis for those records are deemed not to have occurred for the purposes of determining firearms transfer and possession eligibility under federal law. Notice of Firearms Eligibility Loss and Disability Relief NIAA requires any federal department or agency that conducts proceedings to adjudicate a person as a mental defective to provide both oral and written notice to that person at the beginning of the adjudication process (1) that persons adjudicated as a mental defective are prohibited from purchasing, possessing, receiving, shipping or transporting a firearm or ammunition under federal law; (2) what the penalties are for violating related federal firearms provisions; and (3) what relief from such disability with respect to firearms is available under federal law. Senate Action in the 114th Congress In the 114 th Congress, the Senate considered several amendments following the December 2015 San Bernardino, CA, and June 2016 Orlando, FL, mass shootings. While the Senate blocked all these amendments on procedural grounds, Congress included a provision in an enacted bill that addresses VA procedures. Manchin-Toomey Amendment On December 3, 2015, during Senate consideration of the Restoring Americans' Healthcare Freedom Reconciliation Act ( H.R. 3762 ), Senators Joe Manchin and Patrick Toomey offered an amendment ( S.Amdt. 2908 ) that would have amended veterans law to prohibit the VA from turning records on veterans or other beneficiaries who had been determined mentally incompetent over to the FBI for inclusion in NICS index unless certain notification and review conditions had been met. Under the amendment, the Secretary of Veterans Affairs first would have been required to provide to a beneficiary, who had been deemed mentally incompetent for VA purposes, notification that included (a) the determination made by the Secretary; (b) a description of the implications of such a determination upon one's firearms eligibility under federal law; and (c) the right to request review by the board that would have been established by the VA or a court of competent jurisdiction. Within 180 days of enactment, the Manchin-Toomey amendment would have required the Secretary of Veterans Affairs to establish a board that would have reviewed, upon request by a VA beneficiary, whether the individual's status as mentally incompetent for the purpose of receiving benefits prevented him from possessing firearms under the GCA. As mentioned above, a VA beneficiary would have had the option to request such a review from this board or from a court of competent jurisdiction. Under the Manchin-Toomey provision, the board would have been able to consider the individual's honorable discharge or decoration in determining whether he or she "cannot safely use, carry, possess, or store firearms due to mental incompetency." A beneficiary who received a determination from the board also would have been permitted to seek judicial review in federal court of the board's decision. It appears that until this review process was complete, a person would not have been considered "adjudicated as a mental defective" for purposes of firearms eligibility. As such, it appears that the Secretary, by implication, would not have been permitted to make a NICS referral during this period of time. If a beneficiary did not request review by a board or court of competent jurisdiction within 30 days after receiving the initial notification from the Secretary, then the beneficiary who was to be determined mentally incompetent would have been considered "adjudicated as a mental defective" for purposes of the GCA. This suggests that the Secretary would not have been able to make a NICS referral until the 30-day period had passed. For VA beneficiaries who had already been considered "adjudicated as a mental defective" after being determined mentally incompetent by the VA, the Manchin-Toomey amendment would have required the Secretary to provide, within 90 days of enactment, written notice to these individuals of the opportunity for administrative review and appeal, as would have been established by the amendment. Furthermore, the amendment would have also required the Secretary to review and revise all policies and procedures whereby beneficiaries are determined to be mentally incompetent, so that any individual "who is competent to manage his own financial affairs, including receipt of Federal benefits, but who voluntarily turns over the management thereof to a fiduciary is not" considered "adjudicated mentally defective" for purposes of the GCA. Within 30 days of conducting this review, the Secretary would have been required to submit to Congress a report detailing the results of the review and any resulting policy and procedural changes. Murphy Amendment On June 16, 2016, by comparison, during Senate consideration of the Departments of Commerce and Justice, Science, and Related Agencies Appropriations Bill, 2017 ( H.R. 2578 , the expected vehicle for S. 2837 ), Senator Christopher Murphy offered an amendment ( S.Amdt. 4750 ) that would have codified the ATF current regulatory definition of "adjudicated as a mental defective." Grassley Amendments In the 114 th Congress, Senator Charles Grassley offered amendments ( S.Amdt. 2914 and S.Amdt. 4751 ), during consideration of H.R. 3762 and H.R. 2578 , respectively. These Grassley amendments would have also amended the GCA and replaced the term "adjudicated as a mental defective" with the term "mentally incompetent" in both 18 U.S.C. Section 922(d) and (g). In addition, these amendments would have also amended the GCA to define the terms, "has been adjudicated mentally incompetent or has been committed to a psychiatric hospital," "order or finding," and "psychiatric hospital." These definitions and other language would have narrowed the scope of whose records, and under what circumstances, a federal or state agency could refer to the FBI for inclusion in the NICS mental defective file. In addition, during the 114 th Congress, Senator Grassley submitted an amendment ( S.Amdt. 4120 ), during consideration of the National Defense Authorization Act for Fiscal Year 2017 ( S. 2943 ). This amendment would have prohibited the VA Secretary from making a NICS referral to the FBI on any person as "adjudicated as a mental defective," "without the order or finding of a judge, magistrate, or other judicial authority of competent jurisdiction that such person is a danger to himself or herself or others." This amendment was not brought to a vote. P.L. 114-255 Provision In December 2016, Congress included a provision in the 21 st Century Cures Act that codified VA implementation of NIAA. This provision is discussed in greater detail below. VA Implementation of NIAA As noted above, the VA has contributed the bulk of the federal records in the NICS index related to individuals who have been "adjudicated as a mental defective." Hence, the VA and its policies are one example of federal implementation of the Brady Act and NIAA. Under current VA regulations, the VA has the authority to determine the competency status of a person receiving VA benefits. The VA may appoint a fiduciary to receive benefits on behalf of a beneficiary determined to be incompetent. In addition, the VA is to refer the name of any beneficiary determined to be incompetent to the FBI for inclusion in the NICS. Individuals Who Have Their Names Reported to NICS The VA is to report the names of all beneficiaries determined to be incompetent to the FBI for inclusion in the NICS. The VA's regulations define a "mentally incompetent person" as one who because of injury or disease lacks the mental capacity to contract or to manage his or her own affairs, including disbursement of funds without limitation. When making a determination as to the competency of a beneficiary, the regulations require that VA only make a determination of incompetency if either the medical evidence is clear, convincing, and leaves no doubt as to the beneficiary's incompetency; or there is a definite expression regarding the beneficiary's incompetency by responsible medical authorities. In addition, the regulations provide that if there is reasonable doubt as to the incompetency of the beneficiary, the beneficiary will be determined to be competent. How Are Affected Individuals Notified by the VA and What Information Is Provided? Federal regulations require that a beneficiary be notified by the VA about the agency's proposed determination of incompetency. It is the policy of the VA that both this notice, as well as the notice of the final determination of incompetency, include information on the impact of an incompetency decision on the beneficiary's right to purchase, possess, receive, or transport a firearm or ammunition. How Do Affected Individuals Have Their Records Removed from the NICS? Beneficiaries who have had their names submitted by the VA to the FBI for inclusion in the NICS due to determinations of incompetency may contest both the determination and the inclusion of their names on the NICS. The VA's determination of incompetency is subject to the same due process and appeals procedures as other VA decisions. For the purposes of a determination of incompetency, this includes the following procedures provided in regulation and codified in statute pursuant to Section 14017 of the 21 st Century Cures Act: notice by the VA to the beneficiary of the proposed determination and supporting evidence; the opportunity for the beneficiary to request a hearing; the opportunity for the beneficiary to present evidence, including the opinion of a medical professional or other person, as to the beneficiary's capacity to manage his or her benefits; and the opportunity to be represented by counsel, at no cost to the federal government, and bring a medical professional or other person to provide testimony at any hearing. A beneficiary dissatisfied by the decision of the VA regarding his or her competency has the right to a hearing before the Board of Veterans Appeals (BVA) and the right of judicial review of the BVA's decision by the U.S. Court of Appeals for Veterans Claims. Decisions of the U.S. Court of Appeals for Veterans Claims may be appealed to the U.S. Court of Appeals for the Federal Circuit. In addition to contesting or appealing the determination of incompetency, a beneficiary may separately seek relief from the VA's decision to report his or her name to the FBI for inclusion in the NICS. Because the decision of the VA to report a beneficiary to the FBI for inclusion in the NICS is not considered a decision by the agency on a benefit provided by law, the VA does not have a duty to assist the beneficiary with the request for relief, burden of proof is on the beneficiary requesting relief, and failure to meet the burden of proof is sufficient cause for the request for relief to be denied. When deciding whether or not to grant a veteran's request for relief, the VA must consider the following types of evidence: a current statement from the beneficiary's primary mental health physician that assesses the beneficiary's current and past mental health status; and evidence concerning the beneficiary's reputation. The VA must deny a request for relief if there is clear and convincing evidence that the beneficiary would be a danger to himself/herself or others if the relief was granted. If such evidence does not exist, the VA must consider granting the request for relief. In order to grant relief, there must be clear and convincing evidence that affirmatively, substantially, and specifically, shows that the beneficiary is not likely to act in a manner that is dangerous to the public; and granting relief will not be contrary to the public interest. A decision of the VA to deny relief cannot be appealed to the BVA or U.S. Court of Appeals for Veterans Claims, but is subject to judicial review by a U.S. District Court. SSA Implementation of NIAA In March 2013, the Department of Justice (DOJ) issued guidance to agencies regarding the identification and sharing of relevant federal records and their submission to the NICS. DOJ later determined that SSA must report to the Attorney General information about certain Social Security and Supplemental Security Income (SSI) beneficiaries for whom a representative payee (fiduciary) is appointed because they are determined by SSA to be unable to manage their benefits due to a mental impairment. SSA issued a notice of proposed rulemaking concerning its implementation of the NIAA on May 5, 2016, and published its final rule on December 19, 2016. The rule specified the conditions under which SSA would have reported for inclusion in the NICS a Social Security or SSI disability beneficiary's disqualifying records. The rule also outlined SSA's process for notifying affected individuals as well as the administrative appeals process under which such individuals could have requested relief from the federal firearms prohibitions. The final rule became effective on January 18, 2017; however, compliance was not required until December 19, 2017. Individuals Who Would Have Had Their Records Reported to the NICS Under the new rule, an individual would have been considered to be "adjudicated as a mental defective" by SSA if the individual meets all of the following requirements: has filed a claim for Social Security or SSI benefits based on a disability; has been determined to have an impairment (or combination of impairments) that meets or medically equals the criteria of one of the mental disorders specified in SSA's Listing of Impairments (Step 3 of the disability determination process); has a primary diagnosis code based on a mental impairment; has attained age 18 but not yet attained Social Security's full retirement age (currently 66); and has had a representative payee appointed because he or she has been determined by SSA to be mentally incapable of managing benefit payments. In general, adult Social Security and SSI disability beneficiaries are presumed to be capable of managing or directing the management of their benefits. However, if legal, medical, or lay evidence exists to the contrary, SSA will make a capability determination. If the agency determines that it is clearly in the best interest of the beneficiary to do so, it will certify benefit payments to another person as a representative payee. Within the context of SSA's policy under this rule, the appointment of a representative payee for a beneficiary with a listing-level mental impairment would have demonstrated that the individual "lacks the mental capacity to manage his own affairs." According to the rule, SSA would have identified individuals who meet the aforementioned requirements on a prospective basis, meaning that the final rule would have largely affected certain new disability beneficiaries. However, the agency would have reported existing disability beneficiaries to the NICS who currently do not meet all five requirements but who later demonstrate a change in status that satisfies all five requirements. The Obama Administration estimated that the rule would have affected about 75,000 individuals annually. A report by SSA's Office of the Inspector General found that about 81,000 Social Security and SSI disability awardees in FY2015 met all five requirements for reporting to the NICS, which was about 9% of the total disability awardee population. How Affected Individuals Would Have Been Notified by SSA and What Information Would Have Been Provided? Under the rule, SSA planned to provide both oral and written notice to the affected individual that he or she meets all five criteria for reporting to the NICS and that when final, such reporting will prohibit the individual from possessing firearms. In addition, SSA planned to inform the affected individual of his or her ability to request relief from the federal firearms prohibitions at any time after SSA's adjudication became final. How Affected Individuals Would Have Had Their Records Removed from the NICS? SSA planned to notify the Attorney General that an affected individual's record should be removed if (1) the individual were later capable of managing his or her benefit payments, (2) the individual died, (3) SSA received information that it reported the record to the NICS in error, or (4) the agency granted the individual's request for relief under the new rule. In requesting relief, an affected individual would have been required prove that he or she was not likely to act in a manner dangerous to public safety and such relief would not have been contrary to the public interest. Affected individuals denied relief by SSA would have been able to file a petition seeking judicial review in U.S. district court. Conclusion As discussed above, Congress has passed legislation to encourage state, local, tribal, and territorial governments to submit prohibiting records to the FBI for inclusion in the NICS index for individuals who have been "adjudicated as a mental defective," including some federal benefit claimants deemed to be too mentally incompetent to contract or handle their own affairs. Under the GCA, such persons are prohibited from shipping, transporting, receiving, or possessing firearms or ammunition. The legislative record suggests that some Members of Congress have taken issue with the current regulatory definition of "adjudicated as a mental defective," while other Members would prefer to have it codified. The VA has implemented the Brady Act and NIAA and submitted prohibiting records on beneficiaries "who because of injury or disease lack the mental capacity to contract or to manage his or her own affairs." After the December 2012 Newtown, CT, tragedy, the Obama Administration directed the SSA to administer the Brady Act and NIAA in a similar manner. The SSA adopted a final rule that was not completely parallel to the VA's administration of these laws, in that it would have resulted in a narrower set of prohibiting records of beneficiaries being submitted to the FBI for inclusion in the NICS index. As described above, the SSA tied such "adjudications" to "mental impairments," in addition to a beneficiary's ability to handle his or her day-to-day affairs, whereas the VA only ties it to the beneficiary's ability to manage his or her day-to-day affairs. As the legislative record shows, some Members of Congress oppose NICS referrals based solely on the grounds that an individual "lacks the mental capacity to manage his [or her] own affairs." Opponents of the SSA final rule contend that a mental impairment, even when tied to an incapacity to manage one's own affairs, is not sufficient grounds to make such NICS referrals to the FBI, without an "order or finding of a judge, magistrate, or other judicial authority of competent jurisdiction that such person is a danger to himself or herself or others." They also pointed to the position taken by mental health advocates that reporting the incapacitated or mentally disabled under current VA procedures and the SSA final rule, without any regard to their propensity to be violent, reinforces ingrained stereotypes about the disabled. Proponents maintain that the VA has been, and SSA would have been, faithfully addressing public safety by implementing provisions of the Brady Act and NIAA. They argued that measures to prevent mentally incompetent persons from acquiring firearms are justified because firearms in their view are dangerous instruments that amplify violence in the United States to unacceptable levels. They underscore that issues related to notification of loss and restoration of gun rights and privileges were addressed in NIAA, incorporated into the current VA procedures and the vacated SSA final rule, and codified in P.L. 114-255 . Opponents of the SSA final rule maintain that it was not substantive enough on its own to justify the taking of a constitutionally enumerated right to keep and bear arms under the Second Amendment. Opponents of the SSA final rule contend that it was unbalanced, because the SSA would have had to show that the beneficiary was "mentally incompetent" due to a diagnosed "mental impairment," whereas the beneficiary would have had to demonstrate to the SSA that he or she was not a threat to himself or herself, or others to regain his or her Second Amendment rights. In other words, the bar for the beneficiary to regain his or her gun rights would have been higher than for the initial SSA mental incompetency determination.

On February 2, 2017, the House of Representatives passed a Congressional Review Act disapproval resolution (H.J.Res. 40) to overturn a final rule promulgated by the Social Security Administration (SSA) regarding implementation of firearms restrictions for certain persons. On February 16, 2017, the Senate passed H.J.Res. 40 without any amendments. On February 28, 2017, President Donald Trump signed this resolution into law (P.L. 115-8). This enacted joint resolution vacates the SSA final rule. It also bars the SSA from promulgating any future rule that would be "substantially the same" as the vacated rule unless the agency receives a new statutory authorization to do so. The vacated SSA final rule was intended to implement provisions of the NICS Improvement Amendments Act of 2007 (NIAA; P.L. 110-180) on reporting requirements for any federal agency holding records on persons prohibited from possessing firearms. NIAA mandates that agencies must share those records with the Federal Bureau of Investigation (FBI) for inclusion in a computer index accessible to the National Instant Criminal Background Check System (NICS). As described in this report, some of these prohibiting records are based upon findings of "mental incompetency" made during certain federal benefit claims processes administered by the Department of Veterans Affairs (VA) since 1998 and to be administered by the SSA beginning in December 2017. Activated by the FBI, NICS is a national computer network that allows federally licensed gun dealers to initiate a background check through either the FBI or a state or local authority, before transferring a firearm to an unlicensed, private person. Under federal law, persons who are "adjudicated as a mental defective" are ineligible to ship, transport, receive, or possess firearms or ammunition. In 1998, the Bureau of Alcohol, Tobacco, Firearms and Explosives promulgated a rule that defined this term to include any individual that a court, board, commission, or other lawful authority has made a determination that—as a result of marked subnormal intelligence, mental illness, incompetency, condition or disease—he or she is a person who is a danger to himself or others; lacks the mental capacity to contract or manage his or her own affairs; is found insane by a court in a criminal case; or is found incompetent to stand trial, or not guilty by reason of lack of moral responsibility. Since 1998, the Department of Veterans Affairs has referred the name of any beneficiary determined to be incompetent—because he or she lacks the mental capacity to contract or manage his or her own affairs due to injury or disease—to the FBI for inclusion in the NICS index pursuant to the Brady Handgun Violence Prevention Act, 1993 (Brady Act; P.L. 103-159). Under NIAA, since 2007, the VA must inform any benefits claimant that such determinations could lead to a loss of his or her firearms rights and privileges. But, NIAA also requires any federal authority that provides prohibiting mental health records to the FBI for inclusion in the NICS index to establish an administrative process, by which mentally incompetent, prohibited beneficiaries may petition to have those rights and privileges restored. Pursuant to both the Brady Act and NIAA, the SSA final rule specified conditions under which individuals would have been reported for inclusion in the NICS index as Social Security or SSI disability beneficiaries who would have been deemed too mentally incompetent to be trusted with firearms or ammunition. The rule also outlined SSA's process for notifying affected individuals as well as an administrative appeals process under which such individuals may request relief from the federal firearms prohibitions. The vacated rule was to have become effective on January 18, 2017; however, compliance would not have been required until December 19, 2017. Since the release of this report, the House has passed a bill (H.R. 1181) that would clarify the conditions under which veterans and survivors who are beneficiaries of programs administered by the VA may be treated as "adjudicated as a mental defective." For further information, see CRS Report R44818, Gun Control, Veterans Benefits, and Mental Incompetency Determinations.

Introduction Department of Defense (DOD) benefits for survivors of deceased members of the armed forces vary significantly in purpose and structure. Benefits such as the death gratuity provide immediate cash payments to assist these survivors in meeting their financial needs during the period immediately following a member's death. Similarly, the Servicemembers' Group Life Insurance (SGLI) provides the life insurance policy value in a lump sum payment following the servicemembers' death. Other benefits such as the Veterans Affairs Dependency and Indemnity Compensation (DIC) and the Survivor Benefit Plan (SBP), are designed to provide long-term monthly income. Survivors may also receive death benefits from Social Security. As a part of the FY2005 National Defense Authorization Act, Congress directed the Administration to assess and recommend enhanced benefits for deceased members of the armed forces. (See Appendix C for a discussion of that legislation.) In response, on February 1, 2005, DOD presented proposed changes to the Senate Armed Services Committee. Specifically, DOD proposed to increase death benefit payments by nearly $250,000 to families of U.S. servicemembers killed in designated combat zones. This proposed increase would have effectively doubled the cash that survivors can receive in immediate government payments and life insurance proceeds to $500,000. Defense officials also requested that these benefits be made retroactive to October 2001 for relatives of U.S. troops killed in Iraq and Afghanistan. It has been reported that DOD had estimated that its plan would cost about $280 million in retroactive payments alone. The President proposed these same increases as part of his FY2005 Supplemental Appropriations request. The Death Benefits Enhancements increased the Death Gratuity to $100,000 and the SGLI to $400,000 for those who die from wounds, injuries or illness that are combat or combat-training related. Public Law 109-163, January 6, 2006, made these changes permanent for nearly all active duty deaths, retroactive to October 7, 2001. P.L. 109-80 (September 30, 2005) and P.L. 109-163 (January 6, 2006) made these benefits permanent for nearly all active duty deaths. In addition, P.L. 110-118 increased the benefits for survivors of retired or retirement-eligible service members by providing a monthly allowance of $50 in 2009 and increasing by $10 each year after that until 2013. Listed below is a description of the various death benefits from the Department of Defense, Department of Veterans Affairs (VA), and Social Security available to certain survivors of members of the Armed Forces who die on active duty. The following describes each benefit's specific purpose, as well as current policy regarding the level of benefits available to survivors. It should be noted that some benefits, such as the SBP and the VA Dependency and Indemnity Compensation (DIC), may offset one another (i.e., whenever a surviving spouse of an SBP participant is also entitled to DIC, the spouse's monthly SBP annuity is reduced by the amount of the DIC payment). Thus, calculating the level of some benefits usually involves a number of variables which can make each case different from another. Death Gratuity5 Purpose: "To provide an immediate cash payment to assist survivors of deceased members of the armed forces to meet their financial needs during the period immediately following a member's death and before other survivor benefits, if any, become available." In Fiscal Year (FY) 2004, a tax-free, lump sum of $12,420 was paid by DOD in the event of a death while the member was serving on active duty (including certain members of the reserve components during training). It was paid to one of various "eligible survivors" as described in law. The designated survivor of virtually all deceased DOD military personnel receives this gratuity immediately. In FY2004, the death gratuity statute was amended to provide that the gratuity be adjusted upward by the same amount as any increase in military base pay. As part of what was formally called the Death Benefits Enhancement, the Death Gratuity was increased to $100,000 in a case of death resulting from wounds, injuries or illnesses that occur in a combat zone (as designated by the Secretary of Defense) or in combat-related activities (including training, hazardous conditions or situations involving an instrumentality of war). This increase was made retroactive for deaths that occurred on or after October 7, 2001. These additional payments were scheduled to terminate on September 30, 2005. Public Law 109-77 provided that the provisions of, and amendments made with regard the Death Gratuity by Public Law 109-13 shall continue in effect through the earlier of: (1) the date specified in section 106(3) [November 18, 2005] of this joint resolution; or (2) with respect to any such section of Public Law 109-13, the date of the enactment into law of legislation that supersedes the provisions of, or the amendments made by, that section. On January 6, 2006, the National Defense Authorization Act for Fiscal Year 2006 permanently increased the Death Gratuity in all cases for servicemembers who die on active duty. This increase was made retroactive to October 7, 2001. Under law, the beneficiary(ies) are designated in order of eligibility with the surviving spouse first, followed by the children, etc. If so designated by a service member, others can receive this benefit including parents or siblings. Recently, it was reported that a service member, a single parent, died while on active duty and that her financially struggling parents who had custody of the surviving child were unable to access this benefit. P.L. 110-28 (May 25, 2007) contained language that allows a covered service member to designate up to 50 percent of the death gratuity (in 10% increments) to a person other than the recipient under law. This authority ended September 30, 2007. On January 22, 2008, the National Defense Authorization Act for Fiscal Year 2008 modified the law by striking the existing list of beneficiaries and replacing it with a new list by the order of eligible beneficiaries (subject to certain qualifications): 1) any individual designated in writing, 2) the surviving spouse, 3) children, 4) parents, 5) an executor or administrator of the estate, and, 6) other next of kin. The Senate also included report language addressing the need for pre-deployment counseling on survivor benefits and directing the Secretary of Defense to review such counseling. Further, this provision is effective no later than July 1, 2008; requires the notification of the spouse if an election were made under this authority that would exclude a current spouse from any portion of the death gratuity benefit; provides for partial designations in 10 percent increments; and provides that death gratuity elections made before the enactment of P.L. 110-28 , would remain lawful and effectual. Social Security Survivors' Benefits Purpose: "To require employees and employers—in the present case, members of the uniform services and the Federal Government, respectively—to jointly finance a Federal Old-Age, Survivors, Disability, and Health Insurance (OASDHI) program in order to provide pre- and post-retirement income and security to covered employees and their families." Active duty military personnel have been fully covered by Social Security and have paid Social Security taxes since January 1, 1957. In addition to providing monthly benefits to civilian retirees and retired military personnel, the social security program provides benefits to the widows and widowers of deceased military and civilian retirees. Social Security survivor benefits are based on a spouse's (or former spouse's) employment, including military service, and are first payable at age 60; at age 50, if the surviving spouse is totally disabled; or, at any age if and as long as there are children under the age of 16. In 2007, the average monthly Social Security benefit for a surviving parent of a minor was $742. The average benefit for a child of a deceased parent was $691. This monthly benefit is payable to a surviving dependent unmarried child who is either: (1) under age 18, (2) a full time elementary or secondary school student under age 19, or (3) a disabled person age 18 or older whose disability began before the age of 22. A surviving widow with one child therefore would receive an average monthly benefit of $1,433. Existing rules limit the maximum family benefit, so it would not necessarily increase by $691 for each additional child. Servicemembers' Group Life Insurance (SGLI)15 Purpose: "To make life insurance protection available to members of the uniformed services at a reasonable cost." All members of the uniformed services are automatically insured for the maximum coverage under Servicemembers' Group Life Insurance. The maximum coverage was $250,000, which was/is paid in a lump sum. The cost of this coverage is $0.65 per $10,000 of coverage per month. Service members can decline coverage entirely or opt for less than the maximum coverage. According to the Office of the Deputy Under Secretary of Defense (Military Personnel Policy), as of November 2004, only 8.4% of active duty servicemen declined full coverage of SGLI. As noted above in the " Death Gratuity " section, the SGLI was increased up to $400,000 at no additional cost for those who die from wounds, injuries, or illnesses that occur in a combat zone (as designated by the Secretary of Defense) or in combat-related activities (including training, hazardous conditions or situations involving an instrumentality of war). This increase was made retroactive for deaths that occurred on or after October 7, 2001, and would terminate on September 30, 2005. Further, a member with a spouse may not elect less than the maximum coverage without the written consent of the member's spouse. An unmarried member who opts for less than the maximum coverage, will have their designated next of kin or designated beneficiary notified. Again, as noted above, language was included in the FY2006 Defense Appropriations Act to fund this increase for FY2006. Thus, the increase in SGLI would likely continue at least for the next fiscal year. P.L. 109-13 also changed the coverage increments that may be provided from $10,000 to $50,000. On July 26, 2005, the House passed H.R. 3200 . Among its provisions, this bill repeals the language in P.L. 109-13 regarding SGLI and in its place makes permanent (effective September 1, 2005) the increase in this benefit from $250,000 to $400,000. In addition, H.R. 3200 , repeals the 'spousal consent' language regarding those who opt for less than the maximum coverage under SGLI and instead requires 'spousal notification.' Notification of designated next-of-kin or other designated beneficiaries would continue for unmarried servicemembers. H.R. 3200 requires the Secretary to make a good faith effort to provide notification, but a lack of notification does not invalidate the servicemember's decision. Finally, H.R. 3200 would make permanent the change in increments of SGLI coverage from $10,000 to $50,000. P.L. 109-163 sought to make the increase to $400,000 in SGLI permanent for all military active duty deaths. However, as noted above, H.R. 3200 made the increase permanent effective September 1, 2005. However, as constructed and considering the varying "effective" dates of the above laws, the SGLI increase is made permanent and retroactive to October 7, 2001, except for those non-qualifying (e.g., not related to OEF, OIF) deaths that occurred between May 11, 2005 and September 1, 2005. Discussions with both DOD and congressional staff seem to indicate that this may have been an oversight that could be the subject of reconsideration. In addition, P.L. 109-163 also contained a provision (sec. 613) that requires the Secretary of Defense, in the case of a member participating in SGLI and who is serving in OEF or OIF, to pay an allowance equivalent to the monthly amount deducted from the member's pay for the first $150,000 of SGLI (or a lesser amount if the servicemember opted to participate at a reduced level, for example). Further, this language gave the Secretary of Defense permissive authority to cover up to an additional $250,000 in SGLI coverage for those who have SGLI coverage and are participating in OEF or OIF. The National Defense Authorization Act for Fiscal Year 2007 expanded on the FY2006 provision by requiring the services to fund up to $400,000 of SGLI coverage for all service members serving in OEF or OIF. SGLI coverage is available in $50,000 increments up to $400,000 with premiums of $0.07 per $1,000 coverage. VA Dependency and Indemnity Compensation (DIC) Purpose: "To authorize a payment to the surviving dependents of a deceased military member partially in order to replace family income lost due to the member's death and partially to serve as reparation for the death." VA Dependency and Indemnity Compensation benefits are integrated with the military Survivor Benefit Plan or SBP (see below). In other words, payment received via DIC brings about a dollar-for-dollar reduction in SBP benefits. DIC benefits can also be terminated as a result of remarriage by the surviving spouse. The DIC benefit is $1,091 per month for the surviving spouse and a children's payment of $271 per month for each child (plus if there are children under the age 18 the surviving spouse receives an additional $250 per month for two years) as of January 1, 2006 for the survivors of members who died on or after January 1, 1993. Add $233 if the veteran at the time of death was entitled to disability compensation rated as total disability (including a rating based on unemployability) for the eight years immediately preceding the death and if the veteran was married to the same spouse for the same eight years. Additional benefits may be provided to a spouse if the spouse is housebound, has dependents under age 18, or between the ages of 18 and 23 and attending school, or the dependent became permanently incapable of self-support before the age of 18 due to a mental or physical disability. Surviving parents in some cases may also be eligible for DIC benefits, depending on the parents' income and marital status. Military Survivor Benefit Plan24 Purpose: "To establish a program to insure that the surviving dependents of military personnel who die...will continue to have a reasonable level of income." As originally created, the military Survivor Benefit Plan (SBP) was designed to provide an annuity to the survivors of retirement-eligible military personnel. However, recent legislation has expanded the coverage to the survivors of individuals who die while on active duty, effective September 10, 2001. Under these provisions, the surviving spouses of active duty personnel who die are provided an annuity. This annuity for an active duty (non-retirement-eligible) member is determined by assuming the individual would have been eligible to retire with a total (100%) disability at the time of death (under sec. 1201, title 10 USC). The surviving spouse's annuity is based on the amount of disability retired pay the servicemember would have received. Currently, the spouse's share is 55% of the member's disability retired pay if the surviving spouse is under age 62, and 40% if age 62 or over. As a result of language included in the FY2005 National Defense Authorization Act, this reduction in benefits for those survivors age 62 and over is scheduled to be phased out by April 1, 2008. Depending on when the individual entered the service, the computation base may be either the terminal monthly base pay (for those who entered service on or before September 7, 1980) or the average of the 36 months (or "high three" years) during which the member earned the highest rate of base pay (for those who entered the service after September 7, 1980). The amount of monthly disability pay is computed either by multiplying the determined amount of base pay by the percentage disability, or by computing 2.5% of base pay times the member's years of service, whichever is higher. However, this amount cannot exceed 75% base pay. Because the legislation assumes the level of disability is total (100%), the amount of base pay (or "high three") used would be multiplied by 75%. For an active duty member who is eligible to retire, the SBP benefit is computed to be 55% of the retired pay they would have been eligible to receive had they retired at the time of their death. When a survivor is also eligible to receive both SBP and DIC (see above), they do not receive the full amount of both benefits. Rather, the SBP benefit is offset or reduced on a dollar-for-dollar basis by any DIC benefits received. If the DIC benefit is larger than the SBP benefit, then the survivor receives only the DIC benefit. If, however, the SBP benefit is larger than the DIC benefit, the survivor receives the full DIC benefit and any SBP benefits less an amount equivalent to the DIC benefit. As a result of legislation enacted in 2003, surviving spouses of active duty personnel are allowed to designate their children, if any, as the recipient of the SBP benefit in order to avoid this offset. This change was effective November 23, 2003. (Children remain eligible to receive SBP until they reach age 18 or 22; or for life if mentally or physically incapacitated and if the incapacitating condition existed prior to age 18. Eligibility terminates if the child marries.) The National Defense Authorization Act for Fiscal Year 2007 changed the effective date of designating children as the SBP beneficiaries for active duty survivors to October 7, 2001. Any benefits as a result of this change is payable for months after the enactment of this language. A surviving spouse who remarries prior to age 55 loses SBP eligibility. Language was included in the Senate version of the National Defense Authorization Act for Fiscal Years 2006 and 2007 to repeal this SBP/DIC offset. This language was dropped by the Conference Committee each time. Again, language was included in the Senate version of the National Defense Authorization Act for Fiscal Year 2008 to repeal this SBP/DIC offset. This language, too, was dropped by the Conference Committee and in its place language was enacted that provided a survivor indemnity allowance to survivors of service members who were entitled to retired pay, or would be entitled to reserve component retired pay but for the fact they were not yet 60 years of age. Beginning in FY2009, the monthly allowance of $50 would be increased by $10 each year through FY2013. Housing33 Purpose: "To provide a cash allowance to military personnel not provided with government quarters adequate for themselves and their dependents to enable such personnel to obtain civilian housing as a substitute." Previously, family members of a military member who dies in the line of duty were allowed 180 days' free occupancy of Government quarters or 180 days of Basic Allowance for Housing (BAH) if they live in civilian housing. P.L. 109-13 (sec. 1022) extended these housing benefits to 365 days. BAH varies in accordance with whether military personnel have dependents or are single. It is based on annual surveys of housing costs in several hundred metropolitan areas around the United States. P.L. 109-163 ( sec. 611) codified this enhanced benefit. The surviving spouse and dependent children receive an additional benefit entitling them to "...move one time at Government expense. Household goods will not be moved a greater distance than the personal travel. One motor vehicle can be shipped at Government expense." P.L. 109-163 also increased the period of time allowed for a surviving family of servicemembers who die on active duty to select a residence for which they may receive travel and transportation allowances from one year to three years after the death of the member. Health Care37 Purpose: "To make medical care available to members of the uniformed services and their dependents in order to help ensure availability of physically acceptable and experienced personnel in time of national emergency; to provide incentives for armed forces personnel in time of national emergency; to provide incentives for armed forces personnel to undertake military service and remain in that service for a full career, and to provide military physicians and dentists exposure to the total spectrum of demographically diverse morbidity necessary to support professional training programs and ensure professional satisfaction for a medical service career." Unremarried surviving spouses and minor children of deceased military personnel remain eligible to receive military health care benefits subject to certain limitations. As the DOD website on military health care benefits, known as TRICARE, states, "[s]urviving family members of deceased active duty servicemembers remain eligible for TRICARE benefits at the active duty dependent rates for a three-year period. At the end of the three-year period, TRICARE eligibility continues, but at the retiree dependent rates." Surviving spouses remain eligible for TRICARE benefits throughout their lifetime if they do not remarry. Surviving unmarried dependents remain eligible for TRICARE benefits until the age of 21, or until the age of 23 if they are a full-time student. Eligibility for TRICARE may also be extended for a dependent if the child is incapable of self-support because of a mental or physical disability and the condition existed prior to age 21. P.L. 109-163 contained two provisions concerning military survivors. First, sec. 713 would expand eligibility for survivor benefits under the TRICARE dental plan to include the active duty spouse of a member who dies on active duty and had served for a period of more than 30 days. Second, sec. 715 authorized any surviving dependent child of a deceased member to continue to receive benefits under TRICARE Prime as if the servicemember parent were still alive, and without annual premiums, until age 21 or 23 if enrolled in an educational program. Commissary and Exchange Benefits41 Purpose: "To provide quality merchandise and necessary services to authorized patrons at moderate prices and to generate reasonable earnings to supplement appropriated funds for the support of Department of Defense morale, welfare, and recreation (MWR) programs." Under regulations, a surviving spouse of a member who dies while on active duty remains eligible to use commissary (military supermarkets) and exchange (military department stores) stores until the spouse remarries. Unmarried dependent children retain commissary and exchange store privileges until the age of 21, or until the age of 23 if they are a full-time student. Eligibility for commissary and exchange stores may be extended for a dependent if the child is incapable of self-support because of a mental or physical disability and the condition existed prior to age 21. Child Care44 Purpose: "Quality child and youth programs are vital to Service families. Child care is a workforce issue which impacts the effectiveness and readiness of the force." Children of a military member who dies in the line of duty are allowed to continue utilizing military child development facilities. Installation commanders review each case and support, to the maximum extent possible, continued attendance at child development centers. Survivors' and Dependents' Educational Assistance Program (DEA)45 Purpose: "...providing opportunities for education to children whose education would otherwise be impeded or interrupted by reason of the disability or death of a parent from a disease or injury incurred or aggravated in the Armed Forces...the educational program extended to the surviving spouses of veterans who died of service-connected disabilities and to spouses of veterans with a service-connected total disability permanent in nature is for the purpose of assisting them in preparing to support themselves and their families at a standard of living level which the veteran, but for the veteran's death or service disability, could have expected to provide for the veteran's family." Dependents' Educational Assistance (DEA) provides education and training opportunities to eligible dependents of certain veterans, including the surviving spouse and children of a servicemember who died of a service-connected disability (the disability must have arisen from active service in the Armed Forces). This VA program offers monthly benefits for a maximum of 45 months to pay for education benefits. These benefits may be used for degree and certificate programs, apprenticeship, and on-the-job training, as well as correspondence courses for surviving spouses. Remedial, deficiency, and refresher courses may be approved under certain circumstances. The surviving spouse's eligibility to receive these benefits ends 20 years from the date the VA finds them eligible. In addition, a surviving spouse's eligibility for this benefit ends if she/he is remarried before the age of 57. However, the termination of a surviving spouse's remarriage, either by death or divorce, will reinstate DEA benefits to the surviving spouse. Dependent children of the veteran may receive the benefits of attending school or job training between the ages of 18 and 26. In certain instances, it is possible to begin receiving the benefit before they reach the age of 18 and to continue receiving it after the age of 26. Also, marriage is not a bar to this benefit for children of the deceased or disabled veteran. In addition to DEA, the "VA will also pay a special Montgomery GI Bill death benefit to a designated survivor in the event of a service-connected death of an individual while on active duty or within one year after discharge or release. The deceased must either have been entitled to educational assistance under the Montgomery GI Bill program or a participant in the program who would have been so entitled but for the high school diploma or length of service requirement. The amount paid will be equal to the participant's actual military pay reduction, less any education benefits paid." Burial, Funeral, and Related Benefits52 Under law, the responsibilities of the Federal Government are the following: [T]he Secretary [of the military department] concerned may provide for the recovery, care and disposition of the remains of personnel who die while on active duty including the following: 1. Recovery and identification of the remains. 2. Notification of the next of kin or other appropriate person. 3. Preparation of the remains for burial, including cremation if requested by the person designated to direct the disposition of the remains. 4. Furnishing of a uniform or other clothing. 5. Furnishing of a casket or urn, or both, with outside box. 6. Hearse service. 7. Funeral director's services. 8. Transportation of the remains, and round trip transportation and prescribed allowances for an escort ..., to the place selected by the person designated to direct disposition of the remains or, if such a selection is not made, to a national or other cemetery which is selected by the Secretary and in which burial of the decedent is authorized. [Changes made in the National Defense Authorization Act for Fiscal Year 2007 affect the transportation of remains of service members who die in a combat theater of operations and who are transported by air to Dover Air Force Base, Delaware. Unless directed otherwise, when the remains are transported by air, the remains shall be transported by a military or military-contracted aircraft and the transportation of said remains shall be the primary mission of that aircraft. This language also included provisions for an Honor Guard, in addition to the escort mentioned above, to travel with the remains or to meet the remains at the place to which the transfer is made.] 9. Interment of the remains. 10. Presentation of a flag of the United States to the person designated to direct disposition of the remains, except in the case of a military prisoner who dies while in custody of the Secretary and while under a sentence that includes a discharge. 11. Presentation of a flag of equal size to the flag presented under paragraph 10 (above) to the parents or parent, if the person to be presented a flag under paragraph 10 is other than the parent of the decedent. When a servicemember dies, the Service's Casualty Assistance Office (CAO) sends personnel to notify the next-of-kin of the loss. This representative then works with the family following notification of the loss, through funeral preparations, burial and the entire process of determining benefits and compensation. They provide counseling, arranging for the military funeral (if desired), serving as an official representative if/when problems arise, and ensuring that the families receive the benefits and compensation due to them. Families have access to their CAO representative during the days, weeks, months and years after the servicemember's death. Further, if an individual pays any expense payable by the United States the Secretary is authorized to reimburse the individual or her/his representative. The payment of these expenses is limited to amounts not larger than what would have normally been incurred by the Secretary in furnishing the supply or service concerned. Although not a "death benefit" per se, special rules apply to those whose remains can not be recovered, as well as situations in which commingled remains cannot be identified. In these circumstances, burial of the remains in a common grave at a national cemetery may be considered necessary. Military honors are provided at the time of burial. Headstones and markers are also provided. Those who die on active duty may be buried at Arlington National Cemetery. In addition, the member's spouse and dependent children may also be buried at Arlington subject to limitations. Provisions for burial in other national cemeteries or in state veterans cemeteries vary. P.L. 109-163 (sec. 564) directed the Defense Department to implement revisions to DOD Instruction 1300.18 requiring that military members designate, in writing, a person authorized to direct disposition of their remains. The Secretary of Defense was required to report on actions to implement this policy by September 1, 2006. Finally, P.L. 109-163 (sec. 662) modified titles 10 and 38, of the United States Code, to expand the prohibition against the interment of anyone in a national cemetery, as well as the use of military honors, for anyone convicted of a capital offense (as defined), or when the circumstances involved would bring discredit upon the person's service or former service. (This language expands upon a law Congress passed in 1997. That law barred those convicted of capital crimes from being buried in a national cemetery. The 1997 law was ostensibly passed to prevent the possibility of Oklahoma City bomber Timothy McVeigh, a veteran, from being buried at Arlington. McVeigh was put to death on June 11, 2001.) Section 404 of P.L. 109-461 required the removal of Russell Wayne Wagner's remains from the columbarium at Arlington National Cemetery. Although an honorably discharged Vietnam veteran, Wagner was convicted of killing an elderly Maryland couple in 1994. Wagner died in 2005 while serving two life terms. Because he was eligible for parole, he could have an Arlington service. Following protests from the deceased couple's son, language was included in the Veterans Benefits, Health Care and Information Technology Act of 2006 requiring the removal of Wagner's remains. In December, 2006, Wagner's remains were removed and returned to his sister. P.L. 109-364 made changes with regard to transportation of remains for those who die in a combat theater of operations and whose remains are returned to the U.S. First, it requires a uniformed escort at all times. Second, it requires that the transportation of remains from Dover Air Force Base, DE, to a military airfield shall be by military or contracted aircraft whose exclusive mission is the transportation of remains. In addition to the above escort, there shall be a military escort either from Dover AFB, or at the receiving airfield. This escort, or honor guard shall be of sufficient number to transfer the casket to a hearse for local transportation, and shall attend the remains until delivery to the next-of-kin. This escort shall consist of active duty or Ready Reserve members of the armed forces. This law established January 1, 2007, as the effective date. Appendix A. Two Hypothetical Examples for Determining a Level of Death Benefits Determining the value of death benefits to survivors is highly dependent upon individual circumstances. Such variables include increases in benefits resulting from annual cost of living adjustments, possible changes in eligibility (such as remarriage), tax implications, etc. In addition, such an assessment would need to take into consideration all benefits incurred as a result of military service of the decedent. (As noted above, these would include social security benefits.) Since Dependency and Indemnity Compensation are integrated with SBP, these benefits are considered here. Social Security benefits have been excluded from these examples because the primary focus of this report is to examine the death benefits provided by the Department of Defense and the Department of Veteran Affairs. Any computation of death benefits based on a hypothetical situation is unlikely to be representative of the "average" or "typical" benefits received by the survivors of military personnel who die while on active duty. Indeed, the value of many of the benefits, such as health care and commissary/exchange privileges, cannot be quantified. The following examples are, at best, rough estimates, and are intended for illustrative purposes only. The first example consists of a Marine Corps Corporal (E-4) who is killed while on active duty in Iraq in January 2008. The Corporal has been in the service for four years. Given the above, the Corporal's spouse could receive a $100,000 death gratuity. Assuming the Corporal had maintained full participation in the SGLI, the surviving spouse would also receive an additional $400,000. The basic DIC benefit for this Corporal's spouse is $1091 per month (January 2008). The 2008 base pay of the Corporal is $2,047.80 per month. This is the figure used in determining the SBP benefit, although the actual figure would be slightly less since it would be based on the average 36 months of base pay (high three). The disability pay of such an individual is 75% of base pay, or $1,535 per month. Under SBP coverage, the surviving spouse would receive 55% of this amount, or approximately, $844 per month. However, because there is a dollar-for-dollar offset with DIC, the entire SBP is offset by DIC and the spouse receives only the monthly DIC benefit of $1091. Nevertheless, the spouse remains eligible to receive SBP as long as he/she does not remarry prior to reaching the age 55. Further, SBP benefits are subject to annual cost of living increases. Assuming the surviving spouse is 30 years old at the time of the Corporal's death, assuming no cost of living adjustments, and assuming the spouse does not remarry and lives to the age of 74 (528 months), it is possible to compute an approximate life time benefit from SBP/DIC. Such an individual could expect to receive approximately $576,048 from SBP/DIC. If the Death Gratuity and SGLI are added, the total is $1,076,048. The second example consists of an Air Force Lieutenant Colonel (O-5), with eighteen years of service, who dies while on active duty. The basic DIC benefit for the Lieutenant Colonel's spouse is $1091 per month. As in the case above, the Lieutenant Colonel's spouse would be eligible to receive both the death gratuity ($100,000) and the full SGLI benefit ($400,000). The base pay of this officer is $7,212.00 per month. Using the same assumptions as those in the above case, the officer's spouse can expect to receive approximately $2,974 per month (from SBP) until age 62. If the spouse reaches age 62 before 2008, this monthly SBP amount may be reduced. After 2008, it will remain at 55%. For the purpose of this example, SBP will remain at the 55% level. Finally, given the above assumptions, such an individual could expect to receive a lifetime benefit of approximately $1,570,272 from SBP/DIC. With the Death Gratuity and SGLI, the total is $2,070,272. Again, it must be emphasized that these examples are for broad illustrative purposes only and can not incorporate the full range of variables that could apply in any specific instance. Indeed, the amount received can be increased by including social security benefits. In addition, many surviving spouses have designated their child(ren) as SBP beneficiary(ies), thus eliminating any offset that occurs when the spouse receives DIC. Finally, it is not possible to incorporate the full range of in-kind benefits such as health care, housing, etc., that may substantially increase the actual value of these benefits. Appendix B. Government Accountability Office (GAO) Summary on Military and Civilian Death Benefits In July 2004, the Government Accountability Office (GAO) released a report comparing death benefits of military and civilian government employees. The following is a verbatim reproduction from the summary of that report "What GAO Found" (summary page): The military provides survivor benefits that are comparable in type but not in amount to those provided by 61 civilian government entities (federal government, 50 states and the District of Columbia, and 9 cities with populations of at least 1 million) when employees die in the line of duty. Social Security payments, a death gratuity, burial expenses, and life insurance are four types of lump sum survivor benefits provided by the military and at least some government entities; the federal government and some states additionally provide a lump sum payment through their retirement plans. Recurring payments are also provided by Social Security to the survivors for deceased servicemembers and most deceased government employees in 61 civilian government entities GAO studied. Other types of payments are specific to the military or civilian government entities. GAO identified two programs with recurring payments for the military and two other types of programs for the civilian government entities. For the four hypothetical situations GAO used to examine the amount of cash payments provided to survivors, survivors of deceased servicemembers almost always obtain higher lump sums than do the survivors of deceased employees from 61 civilian government entities. The amount of recurring payments to deceased servicemembers' survivors in three of the four situations exceeds those provided by the federal government, typically exceeds those provided by at least one-half of the states, but are typically less than those provided by one-half the cities. The military also provides more types of noncash survivor benefits than do civilian government entities, with some benefits being comparable in type and others differing among the entities. The survivors of civilian government employees in some high-risk occupations may receive supplemental benefits—a death gratuity, higher life insurance, higher benefits from the retirement plan, or a combination of the three—beyond those that the entities provide to civilian government employees in general. For example, survivors of federal, state, and city government law enforcement officers and firefighters who die in the line of duty may be entitled to a lump sum payment of more than $267,000 under the Public Safety Officers' Benefits Act. Further, 34 states and 5 cities provide survivors of employees in high-risk occupations with additional cash benefits that are not available to survivors of state and city employees in general. The addition of these supplemental cash benefits to those provided to the survivors of deceased general government employees can result in lump sum and recurring payments being generally higher for survivors of government employees in high-risk occupations than for servicemembers' survivors.

Department of Defense (DOD) benefits for survivors of deceased members of the armed forces vary significantly in purpose and structure. Benefits such as the death gratuity provide immediate cash payments to assist these survivors in meeting their financial needs during the period immediately following a member's death. Similarly, the Servicemembers' Group Life Insurance (SGLI) provides the life insurance policy value in a lump sum payment following the servicemember's death. Other benefits such as the Veterans Affairs Dependency and Indemnity Compensation (DIC) and the Survivor Benefit Plan (SBP), are designed to provide long-term monthly income. Additional death benefits provided by the DOD for survivors and dependents include housing assistance, health care, commissary and exchange benefits, educational assistance, and burial, funeral, and related benefits. Survivors may also receive death benefits from Social Security. In response to P.L. 108-375, February 1, 2005, DOD presented proposed survivor benefit changes during a Senate Armed Services Committee hearing. DOD recommended an increase in the death gratuity benefit from its current amount of $12,420 to $100,000, limited to servicemembers killed in an area or operation designated by the Secretary of Defense. In addition, the DOD also recommended an increase in Servicemembers' Group Life Insurance (SGLI) coverage from $250,000 to $400,000, with the premiums for the additional $150,000 coverage paid for by the government for servicemembers serving in areas or operations designated by the Secretary of Defense. Military personnel not serving in such designated areas could receive the additional coverage, but at their own expense through higher monthly premiums. As proposed by DOD, both of these measures would be made retroactive to October 7, 2001, when U.S. military operations began in Afghanistan. The President proposed these same increases as part of his FY2005 Supplemental Appropriations request. The Death Benefits Enhancements (P.L. 109-13) increased the Death Gratuity to $100,000 and the SGLI to $400,000 for those who die from wounds, injuries or illness that are combat or combat-training related. P.L. 109-80 and P.L. 109-163 made these benefits permanent for nearly all active duty deaths. This report describes the various death benefits from the Department of Defense, Department of Veterans Affairs (VA), and Social Security available to certain survivors of members of the Armed Forces who die on active duty. (This report does not consider benefits available to civilian employees of the Department of Defense.) Benefits are listed, along with their purpose, how they are calculated, and where appropriate, recent changes. Finally, two hypothetical examples for determining a level of death benefits and a Government Accountability Office (GAO) summary comparing military and other death related benefits are presented in the Appendices. The report will be updated as events warrant.

Introduction Beginning in the late 1970s, Congress deregulated the railroad industry by giving railroads more flexibility to set rates and negotiate confidential contracts with their customers. The legal structure under which the rail industry now operates was put in place at a time when railroads were in financial peril. Over the last decade, as major railroads have consolidated and have achieved higher profitability, Some Members of Congress have questioned whether the present regime needs to be revised to protect the interests of rail customers who are poorly positioned to benefit from competition among freight transportation providers—a group often referred to as "captive shippers." Captive rail shippers often cannot ship their product economically by truck because of its bulk or the long distance of their shipments, and lack viable access to a navigable waterway to ship by barge. They typically claim that the railroad serving them acts like a monopoly, charging excessive rates and providing inadequate service. Organizations representing captive shippers have called upon Congress to reimpose regulation upon certain aspects of railroad operations in order to protect shippers' interests. Captive rail shippers are a small minority of all rail customers, and the argument between them and the railroads is long-standing. However, the captive shipper issue has wider economic implications than just the division of revenue between shippers and railroads. An important policy question for Congress is whether more competition will lead to a more robust and efficient railroad system or undermine it by discouraging investment in rail infrastructure. This report provides background on the current railroad regulatory regime. It then explains "bottlenecks" and "terminal switching arrangements," two of the main points of contention between railroads and their captive customers. The Surface Transportation Board (STB or Board) recently began a review of its policies regarding these two issues, and they are addressed in legislation supported by captive shippers. After reviewing shipper and railroad points of view, the last section of the report discusses the implications of injecting more rail-to-rail competition into the industry. Regulatory Background The last major changes to U.S. law concerning the economic regulation of railroads were the Railroad Revitalization and Regulatory Reform Act of 1976 (the so-called "4R Act," P.L. 94-210 ; 90 Stat. 31) and the Staggers Rail Act of 1980 ( P.L. 96-448 ; 94 Stat. 1898). At that time, U.S. railroads, particularly those in the Northeast, were in a prolonged period of financial distress, and strict federal regulation of railroad activities was blamed for some of the railroads' difficulties. Railroad deregulation was part of a larger movement to deregulate all modes of transportation in the late 1970s and early 1980s. Before deregulation, railroads were required to post proposed freight rates for various commodities, and the Interstate Commerce Commission (ICC) reviewed proposed rates to determine whether they were "reasonable." Railroads were prohibited from discriminating between shippers in rates and quality of service. The 4R Act, which restructured the Northeast railroads and created Conrail from the remains of the bankrupt Penn Central Railroad, took the first step toward deregulation, exempting traffic from regulation if the regulation was deemed by the ICC to be an undue burden on commerce and served no useful purpose. The 4R Act also introduced the concept of "market dominance," which it described as the "absence of effective competition from other carriers or modes of transportation, for the traffic or movement to which the rate applies." The act directed the ICC to establish standards and procedures for determining when a railroad possessed market dominance. The Staggers Act greatly advanced the movement toward railroad deregulation by granting railroads more freedom to set rates, to provide different rates and service quality to different customers, and to enter into confidential contracts with customers. Contracts are not subject to regulatory review on the assumption that a contract reflects shipper and railroad agreement. However, the ICC retained authority over rates in situations where it determined a railroad to have market dominance. The Interstate Commerce Commission Termination Act of 1995 ( P.L. 104-88 ; 109 Stat. 803) eliminated many of the functions of the ICC, abolished the ICC itself, and transferred its remaining functions to STB. STB is bipartisan and decisionally independent from, but organizationally housed within, the U.S. Department of Transportation (DOT). The ICC Termination Act left largely intact the regulatory framework that governs captive rail shipper issues. In addition to determining market dominance, STB must determine that a rail rate exceeds a revenue to variable cost threshold of at least 180% before it can assert jurisdiction to judge the reasonableness of that rate. Depending on the total amount of freight costs in question, STB has different methodologies for rate reasonableness determinations. STB does not evaluate rates on its own initiative; it must receive a complaint from a shipper. Competition and railroad revenue adequacy figure prominently in national railroad policy. As stated in the Staggers Act and amended by the ICC Termination Act of 1995 ( P.L. 104-88 ; 109 Stat. 803), in regulating the railroad industry, it is the policy of the United States government "to allow, to the maximum extent possible, competition and the demand for service to establish reasonable rates" and "to minimize the need for Federal regulatory control over the rail transportation system and to require fair and expeditious regulatory decisions when regulation is required." The law also states a goal "to promote a safe and efficient rail transportation system by allowing rail carriers to earn adequate revenues, as determined by the Board." (STB conducts an annual evaluation to determine railroad revenue adequacy based on established standards and procedures.) DOT under the Obama Administration shares the view of its predecessors that "overall, the regulatory environment since the Staggers Act was enacted has allowed the railroads to respond to market forces that demanded lower costs, greater productivity, and innovation in the form of new transportation products and services." The Obama Administration believes there are public benefits associated with shifting more freight from truck to rail, and has provided federal funds to upgrade rail infrastructure for this purpose. A 2006 Government Accountability Office (GAO) study found that the rail industry's health had improved since Staggers but that while rates have declined, "they have not done so uniformly, and rates for some commodities are significantly higher than rates for others." The GAO study noted that "the extent of captivity appears to be dropping, but the percentage of industry traffic traveling at rates substantially over the statutory threshold for rate relief has increased from about four percent of tonnage in 1985 to about six percent of tonnage in 2004." GAO stated that "these findings may reflect reasonable economic practices by the railroads in an environment of excess demand, or they may indicate a possible abuse of market power." What is a "Captive Shipper"? "Captive shipper" is not a term found in statute and is subject to interpretation. Most shippers claiming to be captive handle bulky materials, such as coal, chemicals, grain, and construction materials. About 70% of the nation's coal, which generates over half of the nation's electricity, is delivered by rail. According to one report, an electric utility in Arkansas was forced to switch to more expensive natural gas, in part, because the railroad failed to deliver coal to its power plants on time. Some utilities have even begun to import coal from South America or Indonesia, in part to lessen their dependence on what they perceive as overpriced and unreliable rail service. Likewise, railroads haul about 40% of the nation's grain. Grain producers have complained about railroads not providing enough hopper cars at harvest time. In an attempt to resolve this problem, many grain shippers purchased their own hopper cars, but now complain that railroads fail to provide the locomotives and crews to move their cars. They contend that poor and expensive rail service is driving their customers to overseas sources of grain. Few if any shippers are absolutely limited to a single railroad for moving their freight. The question of whether a particular shipper is a "captive" has less to do with physical availability of alternatives to a single railroad than with the economic viability of those alternatives: a North Dakota wheat farmer always has the option of hiring trucks to haul grain to the Pacific coast for export, but if the cost would make his wheat uncompetitive, rail may be the only economically feasible alternative. If that is the case, and if only one railroad is able to serve his needs, then he could be deemed a captive shipper under STB rules. In some cases, captivity could be due to the fact that an area does not have the density of production to sustain the existence of more than one railroad. Northern Maine, northern Michigan, and parts of Montana, Idaho, and South Dakota may be examples of this. In other locations, such as Tampa, Nashville, and Green Bay, mergers among railroads have reduced the extent of rail competition. Yet evaluating captivity is complex. No railroad has unrestrained market power, because it is not in the railroad's interest to make a freight rate so high that its customer is driven out of business. The owner of any facility built since 1980 had the opportunity to avoid captivity by negotiating terms of service with a railroad before starting construction or by locating in a place with access to more than one railroad. And shippers with multiple facilities may have bargaining power even if an individual plant or distribution center appears to be a captive, as the shippers can agree to tender freight at competitive locations in return for favorable treatment at captive locations. Some shippers that seemingly have access to alternatives nevertheless claim to be captive. For instance, DuPont considers its largest North American plant, located in Richmond, VA, to be captive to CSX Railroad. It is one of 32 North American plants (out of a total of 39) that it considers captive. The Richmond plant is located just south of the city of Richmond along CSX tracks. Bordering the other side of the plant is Interstate 95. Across the highway, just a few yards from the plant, is the Port of Richmond on the James River. This port provides a 25-foot deep shipping channel to Norfolk. Three miles downriver from the Port of Richmond, DuPont owns a wharf along the river where it receives bulk material by vessel. Its river terminal is also served by CSX. CSX's competitor, Norfolk Southern Railroad, can be accessed approximately six miles north of the plant in Richmond or about 15 miles south of the plant in Petersburg. With proximity to a variety of transportation facilities, DuPont's definition of captivity would appear to encompass a large universe of shippers. In 2007, STB estimated that captive shipments accounted for less than 10% of all rail shipments. In response to a GAO recommendation, STB sponsored a more rigorous analysis of the state of competition in the railroad industry that generally did not find an abuse of market power by the railroads. Among its conclusions, this study asserted that requiring a railroad to interchange traffic with a competitor may not be workable or effective because it could reduce length-of-haul economies. Captive shippers contend that STB has interpreted the law in favor of railroads and advocate changing the law to overrule certain Board decisions. However, they note that STB could, under its existing authority, give greater weight to competition as opposed to railroad revenue adequacy in interpreting the Staggers Act. For instance, they note that STB modified rail merger rules in 2001 to require that future rail merger applicants demonstrate how the proposed merger would enhance competition rather than merely preserve competition through such means as terminal switching arrangements, trackage rights, and eliminating restrictions on interchanges with short-line railroads, among other measures. Other shippers note that STB could, under its existing authority, assist captive shippers by establishing, monitoring, and publishing railroad service performance metrics. Shining the spotlight on poor service, these shippers believe, would drive railroads to improve their performance. Recent Legislative and Regulatory Activity In the 111 th Congress, the Surface Transportation Board Reauthorization Act of 2009 ( S. 2889 ), reported by the Senate Commerce Committee, and bills reported by the Senate and House Judiciary Committees ( S. 146 and H.R. 233 , which was also referred to the House Transportation and Infrastructure Committee) would have changed current railroad practices to allow "captive shippers" more access to competing railroads by addressing, among other provisions, "bottlenecks" and "terminal switching arrangements." In the Senate, these bills have been reintroduced in the 112 th Congress as S. 49 and S. 158 . S. 49 , the Railroad Antitrust Enforcement Act of 2011, has been ordered to be reported by the Senate Judiciary Committee. STB considered initiating a review of competition in the railroad industry in the spring of 2009, but deferred at the request of the Senate Commerce Committee, in light of the legislation noted above. Early in 2011, the Board revisited the subject, requesting public comment and scheduling a hearing. In its announcement, the Board observed that the railroad industry had changed in many significant ways since policies with respect to competitive access were originally adopted in the mid-1980s. Among the changes it mentioned were the improving economic health of the railroad industry, increased consolidation of the Class I sector, the proliferation of short-line railroads, and increased participation of railroad customers in activities that had previously been provided by the railroads, such as railcar ownership and maintenance. The Board also noted that while railroad productivity has increased dramatically since 1980, resulting in lower rail rates, productivity gains now seem to be diminishing, and since 2004, overall, railroad rates have risen. On February 24, 2011, the Board held a hearing to review the rationale and continuing utility of exemptions from regulation for certain categories of rail shipments, specifically boxcar, intermodal (trailer- or container-on-flat-car, TOFC/COFC), and certain commodities listed in 49 CFR §§ 1039.10 and 1039.11. The Board noted that some of these exemptions had been issued as long as 30 years ago, justifying a review. The chairman and ranking Member of the House Committee on Transportation and Infrastructure, along with the chairman and ranking Member of the Subcommittee on Railroads, wrote STB in January 2011, "we would like to ... impress upon you the importance of maintaining the existing regulatory balance between the railroads and shippers," adding, "Any policy change made by the STB which restricts the railroads' abilities to invest, grow their networks and meet the nation's freight transportation demands will be opposed by the Committee." Among the issues STB intends to review are "bottleneck rates" and "competitive access." Bottleneck Rates A bottleneck refers to a situation in which only one railroad has track serving a particular origin or destination but where another railroad also owns track that parallels a portion of the route between the same origin and destination. This situation is most easily explained with a diagram. In Figure 1 , a portion of the route between points A and C is competitive, but the segment between points A and B is a bottleneck controlled by Railroad X. Under existing practice, Railroad X can capture all traffic between points A and C by offering only a through rate from A to C. This precludes shippers from using Railroad Y for the C-B segment of the haul and using Railroad X only for the B-A segment. Bottleneck rate practices were affirmed by STB in December 1996 in its ruling on three coal rate cases brought by several utilities. STB ruled that railroads did not have to "short-haul" themselves by offering rates on only a portion of a route if they could serve the entire route. The Board cited the section of statute that states that a rail carrier may establish "any rate for transportation or service." The Board decided that a railroad only has to offer a rate on the route it deems most efficient for handling the cargo, and need not offer rates for alternative routes that a shipper requests. STB did establish an exception to this ruling. If a shipper has already entered into a contract with the non-bottleneck carrier for the non-bottleneck portion of the route (in other words, in the diagram above, a contract with Railroad Y for the movement between points B and C), then the bottleneck railroad (Railroad X) must segment the route and offer a separate rate for the bottleneck portion of the shipment. In practice, however, the non-bottleneck railroad generally has not entered into a contract with a shipper under these circumstances. Captive shippers seek legislative or regulatory changes that would require railroads to provide a rate on any bottleneck segment of a route. Thus, in Figure 1 above, a shipper located at origin A could require railroad X to quote separate rates from A to B and from B to C as well as a through rate from A to C. It could also seek a rate from railroad Y from point B to C. If the shipper chose railroad Y to carry its traffic from B to C, railroad X would be required to interchange the traffic at point B. A shipper could then challenge the reasonableness of the rate from A to B. Bottlenecks and Railroad Mergers In 1970, there were 71 Class I railroads in the United States. Today there are seven (two of which are Canadian railroads with U.S. subsidiaries). Captive shippers contend that the consolidation of the railroad industry has created more bottlenecks. Railroads deny this is a problem, asserting that STB frequently requires railroads to share access to track as a condition for approving a merger in those instances where the merger would otherwise result in captive traffic. In addition to these merger remedies, railroads also contend that recent mergers have not resulted in more captive shippers because most mergers since 1980 have been "end-to-end" consolidations rather than mergers between railroads with parallel track. In an effort to exploit their comparative advantage in long-distance movement of freight, the Class I railroads have sought, in some cases, mergers with railroads whose route networks begin at the end point of their route network. In 1970, the average length of haul for a Class I rail shipment was 515 miles. Today it is more than 860 miles. In addition to focusing on long-distance freight, the Class I carriers are deploying longer trains, utilizing bigger railcars, and trying to operate trains in which all cars have the same origin and destination ("through-blocking"). These practices allow railroads to handle more freight without interchanging cars, reducing operating costs and transit times. The railroads argue that these benefits are passed on to shippers in the form of lower rates and improved service, and consequently, that rail mergers benefit shippers. However, even end-to-end rail mergers can result in bottlenecks. The diagram below illustrates how a bottleneck situation might arise as the result of an end-to-end rail merger, in this case a merger between Railroad X and Railroad Z. Competitive Access The extent to which a rail customer should have access to a second, potentially competing railroad is referred to as "competitive access" (shippers sometimes use the term "open access" and railroads use the term "forced access"). Unlike highways, waterways, and airways, which are publicly owned and over which carriers within these respective modes compete against each other for freight or passengers, railways are privately owned. If two railroads own parallel track in an area with relatively light traffic, they may agree to abandon one track and share the other to reduce maintenance costs. Or, in a dense traffic lane with two sets of tracks, they may agree to share both tracks to increase train fluidity. However, neither of these situations involves granting access to each other's customers. In other situations, STB has required railroads to share track, including access to potential customers on a route, as a condition for approving a merger. For instance, as a condition for approving the merger between Union Pacific (UP) and Southern Pacific (SP) in 1996, STB granted the BNSF and other railroads trackage rights over about 4,000 miles of track because otherwise the merger would have reduced the number of railroads serving certain shippers from two to one. In the case of the breakup of Conrail in 1997, the two acquiring railroads, Norfolk Southern (NS) and CSX, share some of the lines and terminals of the former railroad. Other merger remedies include "switching arrangements" where one carrier transports the railcars of a competing carrier at origin or destination for a fee and "terminal access areas" where the terminal-owning railroad allows trains from a competing railroad to use the terminal for a fee. While these track-sharing circumstances are not uncommon, neither are they universal. Railroads often interchange traffic with one another at terminals located at the end points of their networks, when a shipment's origin and destination traverses more than one railroad's network. This type of interchange can be viewed as an operating partnership among two or more railroads that is necessary to complete an interline movement. By statute, an origin railroad and a destination railroad are required to provide a physical connection with each other's networks. Another kind of interchange occurs when a railroad hands off cargo to a competing railroad that offers an alternative route to the same destination. The interchange may also involve use of the owning railroad's tracks outside the terminal area for a reasonable distance. Under existing practice, this type of interchange generally occurs only on certain segments of rail routings because STB required it as a condition for approving a merger transaction. Although the law allows STB to order terminal interswitching if the Board finds it to be practicable and in the public interest, or necessary to provide competitive rail service, STB will only order such interswitching if it finds anti-competitive conduct, such as a railroad using its market power to extract unreasonable terms on through shipments. Captive shippers seek to change the statute to state that the Board shall require railroads to interchange traffic, if practicable and in the public interest, and would not require that anti-competitive practices first be proven. Captive shippers support this change because they assert that proving anti-competitive conduct by a railroad is onerous. To date, no shipper has succeeded in proving that a terminal-owning railroad has engaged in anti-competitive conduct. The railroads argue that this proposed change in the law would thwart their efforts to streamline their operations. If the law were to require more interchanging of traffic among railroads, the railroads claim, this will increase delays at switching yards, increase cargo handling costs, and therefore make them less competitive relative to other modes. They also contend that if STB were to require mandatory access to railroad track and terminals, the Board would be put in a position of having to assess the reasonableness of track access charges, thus opening up an entire new area of rail price regulation. The net result, railroads contend, would be more regulation, not more competition. Policy Issues The dispute between railroads and their captive customers is long-standing, but was exacerbated by record demand for rail service and higher rail rates, before the recent economic recession. Additional indicators of railroad market power that captive shippers point to are the railroads return to public pricing and the manner in which they have recently assessed fuel surcharges. With some of their customers, railroads have insisted on charging public tariff rates rather than negotiating confidential contracts with these customers. These customers complain that public pricing allows the railroads to raise prices with little warning (tariffs can be changed with 20 days' notice ) and, since there are no more than two railroads serving most communities, provides opportunity for price signaling between the railroads. Shippers have also complained about railroads using recent spikes in fuel prices to pad their freight bills by basing their fuel surcharges on a simple percentage of the freight bill rather than basing it on the actual (or estimated) amount of fuel burned for a particular shipment. STB investigated this practice and in January 2007 directed the railroads to change their fuel surcharge method to reflect actual costs. Not all shippers support the captive shipper legislative agenda. Intermodal rail customers, which utilize the railroads to haul shipping containers and truck trailers, are more likely to view greater investment in rail infrastructure as a more effective remedy to capacity and service-quality problems. For instance, UPS, one of the railroads' largest intermodal customers, supports the creation of a federal rail trust fund to accelerate rail infrastructure expansion. Ocean container lines and intermodal truckers stress the importance of maintaining a regulatory environment that does not impede the railroads' ability to reinvest in their infrastructure. Some intermodal shipper groups, like the Waterfront Coalition, the Intermodal Association of North America, the National Retail Federation, the Retail Industry Leaders Association, and the American Apparel and Footwear Association, have supported a rail industry proposal to provide a 25% tax credit for railroad investment. These rail customers may be concerned that if the captive shippers' legislative proposals are adopted, railroads' resources will be shifted toward serving captive customers at the expense of serving the fast-growing intermodal market. Intermodal customers share some concerns of captive shippers. Although intermodal shippers theoretically have the option of shifting to the truck mode, increases in fuel prices and insurance rates, truck driver shortages, and new hours-of-service rules for truck drivers means that large-volume intermodal shippers like UPS, ocean container lines, and even large trucking firms cannot realistically shift their long-distance freight to trucks without "pricing-out" a significant portion of their customer base. UPS stated at an STB hearing on rail capacity, "Are we captive? No. Are we constructively captive? Yes." Ocean container lines, which rely on railroads extensively to move their containers between U.S. ports and distant inland points, reportedly experienced railroad rate increases of 30% to 40% in 2006, before the economic downturn, with one shipping line executive noting that railroads have "immense bargaining power" because of their "virtual duopoly in each half of the country," while a container shipper notes that railroads "can almost dictate this [the rate increase]" because "we don't have anywhere else to go." The rationing of intermodal rail service at West Coast ports in 2004, in which two railroads limited the number of marine containers they would accept each day, also indicated railroads' market power. Yet tellingly, at the February 2011 STB hearing on traffic exemptions, two large intermodal customers of the railroads, J.B. Hunt Transport (a trucking firm) and Hub Group (a freight arranger), strongly opposed revocation of the regulatory exemption for intermodal traffic. The railroads counter shipper criticism by arguing that their recent pricing and investment strategies are rational responses to changing economic circumstances. They argue the shift from a rail market with excess capacity to a rail market with excess demand dictates price increases and a preference by the railroads for shorter-term contracts or, in some cases, public pricing. The railroads explain that some shippers now face higher rates because many of the contracts that recently expired were negotiated many years ago, when the railroads had excess capacity and thus were eager to sign long-term contracts. Railroads respond to complaints about inadequate service by pointing out that rail infrastructure is a fixed, long-term investment that must respond to long-term expectations rather than short-term surges of freight. Recent coal delivery problems and the allocation of train service at West Coast ports in 2004 were the results of unexpected surge in traffic, they contend. As for grain delivery issues, railroads view this market as especially volatile—not only in the size of the harvest each year but in the destinations that grain producers may want to ship to from year to year. During the George W. Bush Administration, DOT supported the railroads' position, with one official stating: "The bottom line on any rail expansion is the requirement by investors for an adequate return on that investment. The industry appears to be making capacity-enhancing investments at a responsible pace, but is unlikely to invest to meet what it observes as surge demand." Although the captive shipper debate has continued for over two decades, changing economic circumstances may have recast it. Captive shippers assert that STB's interpretations of the Staggers Act are based on precedents established in an era of excess rail capacity. With segments of the rail network now experiencing congestion, captive shippers argue that, as a matter of public policy, shippers should be given greater latitude to reroute their traffic to less capacity-constrained routes, even if those are not owned by the same carrier that serves a particular factory or distribution center. The railroads counter that increased rail-to-rail competition would be harmful to the financial health of their industry. If railroads are forced to share their rights-of-way with other railroads, even at compensatory rates, they argue, it would undermine their incentive to reinvest in their infrastructure. Determining how much intramodal rail competition is optimal is central to striking the appropriate balance between these two objectives. Although greater emphasis on competition could lead to increased rail traffic and higher revenues for the carriers, the railroads contend that many of the investments captive shippers want them to make may not generate enough business to earn a reasonable return. The view that increased competition among railroads could result in a smaller rail network that serves only higher-margin customers was articulated in 1998 by Linda Morgan, then chairwoman of STB: [C]arriers could be expected to seek to maintain an adequate rate of return by cutting their costs, which could include the shedding of unprofitable lines. Thus, it is quite possible that open access would produce a smaller rail system (although not necessarily a degraded one) that would serve fewer and a different mix of customers than are served today, with different types of, and possibly more efficient but more selectively provided, service. We leave open for public discussion the issue of whether that type of a rail system, which might not serve shippers of less desirable traffic, would better serve the interest of shippers, labor, and the public generally. Another view is that multiple railroads operating over the same rail line will actually increase the cost of railroad operations, thus increasing the price of railroad services to all rail shippers. This view was suggested by a study funded by the Federal Railroad Administration: Arguments advocating competitive policies in the rail industry generally highlight the textbook advantages of competition over monopoly of a larger sum of consumer and producer surplus due to a restriction on output by monopoly. However, the advantages are only so clear when the costs of providing services are the same for competitive or monopoly firms. In cases where there are substantial economies of scale and scope in the production (as there appears to be in the rail industry), competition can increase the costs of resources used in production, potentially reducing societal welfare. Railroads' inherent advantage in hauling large volumes of heavy freight long distances is especially beneficial during periods of high fuel prices, rising trade volumes, and growing demand for raw material transport. Congress faces consideration of whether addressing the problems of captive shippers would be detrimental or beneficial to maintaining a strong and vibrant railroad system.

Beginning in the late 1970s, Congress gave railroads flexibility to set rates and to enter into confidential contracts with their customers. Over the last decade, large railroads have consolidated and, particularly in recent years, have achieved higher profitability. These changes have left some bulk shippers, particularly those that claim to be "captive" to a single railroad, frustrated with what they perceive as poor rail service and exorbitant rates. "Captive shippers" claim that the railroad serving them acts like a monopoly—charging excessively high rates and providing less service than they require. Such complaints have led Congress to consider whether the present, largely deregulated, regime should be revised to accommodate the interests of "captive shippers." A major point of contention is whether current railroad industry practices should be changed to guarantee such shippers more railroad routing options. Legislation, supported by captive shippers and opposed by the railroads and other shippers, failed to reach the floor of either the House or Senate in the last Congress, and has been reintroduced in the 112th Congress (S. 49 and S. 158). In the wake of renewed congressional interest, the Surface Transportation Board (STB or Board), successor agency of the Interstate Commerce Commission (ICC), is reviewing its policies with respect to railroad access and competition issues. It announced a hearing on "bottleneck rates" and "competitive access" matters. Changes in these policies might benefit some shippers of bulk products, such as coal and grain, but could be disadvantageous to shippers of other products, such as maritime containers and domestic truck trailers, that want railroads to maintain high levels of investment in order to provide fast, reliable service for high-value shipments. The captive shipper issue has wider economic implications than just the division of revenue between railroads and their customers. Higher fuel prices, congestion on certain segments of the interstate highway system, and rising domestic and international trade volumes are driving shippers to demand more rail capacity. Freight revenues are a significant means of financing rail capacity because the railroads receive negligible public financing. If it acts in this area, Congress would face consideration of how a legislated or regulatory solution to the "captive shipper" problem would affect the development of a more robust and efficient railroad system.

Threat Assessment The instability in western Pakistan has broad implications for international terrorism, for Pakistani stability, and for U.S. efforts to stabilize Afghanistan. From the State Department's Country Reports on Terrorism 2007 (released April 2008): The United States remained concerned that the Federally Administered Tribal Areas (FATA) of Pakistan were being used as a safe haven for Al Qaeda terrorists, Afghan insurgents, and other extremists.... Extremists led by Baitullah Mehsud and other Al Qaeda-related extremists re-exerted their hold in areas of South Waziristan.... Extremists have also gained footholds in the settled areas bordering the FATA. The report noted that the trend and sophistication of suicide bombings grew in Pakistan during 2007, when there was more than twice as many such attacks (at least 45) as in the previous five years combined. Rates of such bombings have only increased in 2008. CIA Director Hayden said in March 2008 that the situation on the Pakistan-Afghanistan border "presents a clear and present danger to Afghanistan, to Pakistan, and to the West in general, and to the United States in particular." He agreed with other top U.S. officials who believe that possible future terrorist attacks on the U.S. homeland likely would originate from that region. The International Terrorism Threat The State Department report on international terrorism for 2007 said that Al Qaeda remained the greatest terrorist threat to the United States and its partners in 2007. The two most notable Al Qaeda leaders at large, and believed in Pakistan, are Osama bin Laden and his close ally, Ayman al-Zawahri. They have apparently been there since December 2001, when U.S. Special Operations Forces and CIA officers reportedly narrowed Osama bin Laden's location to the Tora Bora mountains in Afghanistan's Nangarhar Province (30 miles west of the Khyber Pass), but the Afghan militia fighters who were the bulk of the fighting force did not prevent his escape. Associated with Al Qaeda leaders in this region are affiliated groups and their leaders, such as the Islamic Movement of Uzbekistan (IMU) and its leader, Tahir Yuldashev. Chechen Islamist radicals are also reportedly part of the Al Qaeda militant contingent, and U.S. commanders say some have been captured in 2008 on the Afghanistan battlefield. A purported U.S.-led strike reportedly missed Zawahri by a few hours in the village of Damadola, Pakistan, in January 2006, suggesting that the United States and Pakistan have some intelligence on his movements. A strike in late January 2008, in an area near Damadola, killed Abu Laith al-Libi, a reported senior Al Qaeda figure who purportedly masterminded, among other operations, the bombing at Bagram Air Base in February 2007 when Vice President Cheney was visiting. In August 2008, an airstrike was confirmed to have killed Al Qaeda chemical weapons expert Abu Khabab al-Masri. Prior to 2007, the United States had praised the government of then-President Pervez Musharraf for Pakistani accomplishments against Al Qaeda, including the arrest of over 700 Al Qaeda figures, some of them senior, since the September 11 attacks. After the attacks, Pakistan provided the United States with access to Pakistani airspace, some ports, and some airfields for Operation Enduring Freedom. Others say Musharraf acted against Al Qaeda only when it threatened him directly; for example, after the December 2003 assassination attempts against him by that organization. The U.S. shifted toward a more critical position following a New York Times report (February 19, 2007) that Al Qaeda had re-established some small Al Qaeda terrorist training camps in Pakistan, near the Afghan border. The Threat to Afghanistan's Stability According to the Pentagon, the existence of militant sanctuaries inside Pakistan's FATA represents "the greatest challenge to long-term security within Afghanistan." The commander of U.S. and NATO forces in Afghanistan, General David McKiernan, and his aides, assert that Pakistan's western tribal regions provide the main pool for recruiting insurgents who fight in Afghanistan, and that infiltration from Afghanistan has caused a 30% increase in number of militant attacks in eastern Afghanistan over the past year. Another senior U.S. military officer estimated that militant infiltration from Pakistan now accounts for about one-third of the attacks on coalition troops in Afghanistan. Most analysts appear to agree that, so long as Taliban forces enjoy "sanctuary" in Pakistan, their Afghan insurgency will persist. U.S. leaders—both civilian and military—now call for a more comprehensive strategy for fighting the war in Afghanistan, one that will encompass Pakistan's tribal regions. The Chairman of the U.S. Joint Chiefs of Staff, Adm. Mike Mullen, sees the two countries as "inextricably linked in a common insurgency" and has directed that maps of the Afghan "battle space" include the tribal areas of western Pakistan. Afghan Militant Groups in the Border Area The following major Afghan militant organizations apparently have a measure of safehaven in Pakistan: The original Taliban leadership of Mullah Mohammad Omar. His purported associates include Mullah Bradar and several official spokespersons, including Qari Yusuf Ahmadi and Zabiullah Mujahid. This group—referred to as the "Qandahari clique" or "Quetta Shura"—operates not from Pakistan's tribal areas, but from populated areas in and around the Baluchistan provincial capital of Quetta. Its fighters are most active in the southern provinces of Afghanistan, including Qandahar, Helmand, and Uruzgan. Many analysts believe that Pakistan's intelligence services know the whereabouts of these Afghan Taliban leaders but do not arrest them as part of a hedge strategy in the region. Another major insurgent faction is the faction of Hizb-e-Islami (Islamic Party) led by former mujahedin leader Gulbuddin Hikmatyar. His fighters operate in Kunar and Nuristan provinces, northeast of Kabul. His group was a major recipient of U.S. funds during the U.S.-supported mujahedin war against the Soviet occupation of Afghanistan, and in that capacity Hikmatyar was received by President Reagan in 1985. On February 19, 2003, the U.S. government formally designated Hikmatyar as a "Specially Designated Global Terrorist," under the authority of Executive Order 13224, subjecting it to financial and other U.S. sanctions. (It is not formally designated as a "Foreign Terrorist Organization.") On July 19, 2007, Hikmatyar expressed a willingness to discuss a cease-fire with the Karzai government, although no firm reconciliation talks were held. In 2008, he has again discussed possible reconciliation, only later to issue statements suggesting he will continue his fight. Another major militant faction is led by Jalaludin Haqqani and his eldest son, Sirajuddin Haqqani. The elder Haqqani served as Minister of Tribal Affairs in the Taliban regime of 1996-2001, is believed closer to Al Qaeda than to the ousted Taliban leadership in part because one of his wives is purportedly Arab. The group is active around Khost Province. Haqqani property inside Pakistan has been repeatedly targeted in September and October 2008 by U.S. strikes. For their part, Pakistani officials more openly contend that the cause of the security deterioration has its roots in the inability of the Kabul government to effectively extend its writ, in its corruption, and in the lack of sufficient Afghan and Western military forces to defeat the Taliban insurgents. This view is supported by some independent analyses. Pakistani leaders insist that Afghan stability is a vital Pakistani interest. They ask interested partners to enhance their own efforts to control the border region by undertaking an expansion of military deployments and checkposts on the Afghan side of the border, by engaging more robust intelligence sharing, and by continuing to supply the counterinsurgency equipment requested by Pakistan. Islamabad touts the expected effectiveness of sophisticated technologies such as biometric scanners in reducing illicit cross-border movements, but analysts are pessimistic that such measures can prevent all militant infiltration. Attacks on U.S./NATO Supply Lines Militants in Pakistan increasingly seek to undermine the U.S.-led mission in Afghanistan by choking off supply lines. Roughly three-quarters of supplies for U.S. troops in Afghanistan move either through or over Pakistan. Taliban efforts to interdict NATO supplies as they cross through Pakistan to Afghanistan have included a March 2008 attack that left 25 fuel trucks destroyed and a November 2008 raid when at least a dozen trucks carrying Humvees and other supplies were hijacked at the Khyber Pass. Despite an upsurge in reported interdiction incidents, U.S. officials say only about 1% of the cargo moving from the Karachi port into Afghanistan is being lost. After a U.S. special forces raid in the FATA in early September 2008, Pakistani officials apparently closed the crucial Torkham highway in response. The land route was opened less than one day later, but the episode illuminated how important Pakistan's cooperation is to sustaining multilateral military efforts to the west. Pentagon officials have studied alternative routes in case further instability in Pakistan disrupts supply lines. The Russian government agreed to allow non-lethal NATO supplies to Afghanistan to cross Russian territory, but declines to allow passage of troops as sought by NATO. Uzbekistan also has expressed a willingness to accommodate the flow of U.S. supplies, although in exchange for improved U.S. relations, which took a downturn following the April 2005 Uzbek crackdown on demonstrators in its city of Andijon. A Pentagon official has said the U.S. military was increasing its tests of alternative supply routes. The Threat to Pakistan and Islamabad's Responses The Tehrik-i-Taliban Pakistan (TTP)—widely identified as the leading anti-government militant group in Pakistan—emerged as a coherent grouping in late 2007 under Baitullah Mehsud's leadership. This "Pakistani Taliban" is said to have representatives from each of Pakistan's seven tribal agencies, as well as from many of the "settled" districts abutting the FATA. There appears to be no reliable evidence that the TTP receives funding from external states. The group's principal aims are threefold: uniting disparate pro-Taliban groups active in the FATA and NWFP; assisting the Afghan Taliban in its conflict across the international frontier; and establishing a Taliban-style state in Pakistan and perhaps beyond. As an umbrella group, the TTP is home to tribes and sub-tribes, some with long-held mutual antagonism. It thus suffers from factionalism. Mehsud himself is believed to command some 5,000 militants. His North Waziristan-based deputy is Hafiz Gul Bahadur; Bajaur's Maulana Faqir Muhammad is said to be third in command. The Islamabad government formally banned the TTP in August 2008 due to its alleged involvement in a series of domestic suicide attacks. The move allowed for the freezing of all TTP bank accounts and other assets and for the interdiction of printed and visual propaganda materials. The NWFP governor has claimed Mehsud oversees an annual budget of up to $45 million devoted to perpetuating regional militancy. Most of this amount is thought to be raised through narcotics trafficking, although pro-Taliban militants also sustain themselves by demanding fees and taxes from profitable regional businesses such as marble quarries. The apparent impunity with which Mehsud is able to act has caused serious alarm in Washington, where officials worry that his power and influence are only growing. In addition to the TTP, several other Islamist militant groups are active in the region. These include the Tehreek-e-Nafaz-e-Shariat-e-Mohammadi (TNSM) of radical cleric Maulana Fazlullah and up to 5,000 of his armed followers who seek to impose Sharia law in Bajaur, as well as in neighboring NWFP districts; a South Waziristan militia led by Mehsud rival Maulvi Nazir, which reportedly has won Pakistan government support in combating Uzbek militants; and a Khyber agency militia led by Mangal Bagh, which battled government forces in mid-2008. Internal Military Operations To combat the militants, the Pakistan army has deployed upwards of 100,000 regular and paramilitary troops in western Pakistan in response to the surge in militancy there. Their militant foes appear to be employing heavy weapons in more aggressive tactics, making frontal attacks on army outposts instead of the hit-and-run skirmishes of the past. The army also has suffered from a raft of suicide bomb attacks and the kidnaping of hundreds of its soldiers. Such setbacks damaged the army's morale and caused some to question the organization's loyalties and capabilities. Months-long battles with militants have concentrated on three fronts: the Swat valley, and the Bajaur and South Waziristan tribal agencies (see Figure 1 ). Taliban forces may also have opened a new front in the Upper Dir valley of the NWFP, where one report says a new militant "headquarters" has been established. Pakistan has sent major regular army units to replace Frontier Corps soldiers in some areas near the Afghan border and has deployed elite, U.S.-trained and equipped Special Services Group commandos to the tribal areas. Heavy fighting between government security forces and religious militants flared in the FATA in 2008. Shortly after Bhutto's December 2007 assassination the Pakistan army undertook a major operation against militants in the South Waziristan agency assumed loyal to Baitullah Mehsud. Sometimes fierce combat continued in that area throughout the year. According to one report, nearly half of the estimated 450,000 residents of the Mehsud territories were driven from their homes by the fighting and live in makeshift camps. Pakistani ground troops have undertaken operations against militants in the Bajaur agency beginning in early August. The ongoing battle has been called especially important as a critical test of both the Pakistani military's capabilities and intentions with regard to combating militancy, and it has been welcomed by Defense Secretary Gates as a reflection of the new Islamabad government's willingness to fight. Some 8,000 Pakistani troops are being backed by helicopter gunships and ground attack jets. The Frontier Corps' top officer has estimated that militant forces in Bajaur number about 2,000, including foreigners. Battles include a series of engagements at the strategic Kohat tunnel, a key link in the U.S. military supply chain running from Karachi to Afghanistan. The fighting apparently has attracted militants from neighboring regions and these reinforced insurgents have been able to put up surprisingly strong resistance—complete with sophisticated tactics, weapons, and communications systems—and reportedly make use of an elaborate network of tunnels in which they stockpile weapons and ammunition. Still, Pakistani military officials report having killed more than 1,500 militants in the Bajaur fighting to date. The army general leading the campaign believes that more than half of the militancy being seen in Pakistan would end if his troops are able to win the battle of Bajaur. Subsequent terrorist attacks in other parts of western Pakistan have been tentatively linked to the Bajaur fighting. The Pakistani military effort in Bajaur has included airstrikes on residential areas occupied by suspected militants who may be using civilians as human shields. The use of fixed-wing aircraft continues and reportedly has killed some women and children along with scores of militants. The strife is causing a serious humanitarian crisis. In August, the U.S. government provided emergency assistance to displaced families. The United Nations estimates that hundreds of thousands of civilians have fled from Bajaur, with about 20,000 of these moving into Afghanistan. International human rights groups have called for international assistance to both Pakistani and Afghan civilians adversely affected by the fighting. Questions remain about the loyalty and commitment of the Pakistani military. Pakistan's mixed record on battling Islamist extremism includes an ongoing apparent tolerance of Taliban elements operating from its territory. Reports continue to indicate that elements of Pakistan's major intelligence agency and military forces aid the Taliban and other extremists forces as a matter of policy. Such support may even include providing training and fire support for Taliban offensives. Other reports indicate that U.S. military personnel are unable to count on the Pakistani military for battlefield support and do not trust Pakistan's Frontier Corps, whom some say are active facilitators of militant infiltration into Afghanistan. At least one senior U.S. Senator, Armed Services Committee Chairman Carl Levin, has questioned the wisdom of providing U.S. aid to a group that is ineffective, at best, and may even be providing support to "terrorists." Tribal Militias Autumn 2008 saw an increase in the number of lashkars —tribal militias—being formed in the FATA. These private armies may represent a growing popular resistance to Islamist militancy in the region, not unlike that seen in Iraq's "Sunni Awakening." A potential effort to bolster the capabilities of tribal leaders near the Afghan border would target that region's Al Qaeda elements and be similar to U.S. efforts in Iraq's Anbar province. Employing this strategy in Pakistan presents new difficulties, however, including the fact that the Pakistani Taliban is not alien to the tribal regions but is comprised of the tribals' ethnolinguistic brethren. Still, with pro-government tribals being killed by Islamist extremists almost daily in western Pakistan, tribal leaders may be increasingly alienated by the violence and so more receptive to cooperation with the Pakistan military. The Pakistan army reportedly backs these militias and the NWFP governor expresses hope that they will turn the tide against Taliban insurgents. Islamabad reportedly plans to provide small arms to these anti-Taliban tribal militias, which are said to number some 14,000 men in Bajaur and another 11,000 more in neighboring Orakzai and Dir. No U.S. government funds are to be involved. Some reporting indicates that, to date, the lashkars have proven ineffective against better-armed and more motivated Taliban fighters. Intimidation tactics and the targeted killings of pro-government tribal leaders continue to take a toll, and Islamabad's military and political support for the tribal efforts is said to be "episodic" and "unsustained." Some analysts worry that, by employing lashkars to meet its goals in the FATA, the Islamabad government risks sparking an all-out war in the region. Complicating Factors in Achieving U.S. Goals Pakistan's Strategic Vision Three full-scale wars and a constant state of military preparedness on both sides of their mutual border have marked six decades of bitter rivalry between Pakistan and India. The acrimonious partition of British India into two successor states in 1947 and the unresolved issue of Kashmiri sovereignty have been major sources of tension. Both countries have built large defense establishments at significant cost to economic and social development. The conflict dynamics have colored the perspectives of Islamabad's strategic planners throughout Pakistani existence. Pakistani leaders have long sought access to Central Asia and "strategic depth" with regard to India through friendly relations with neighboring Afghanistan to the west. Such policy contributed to President-General Zia ul-Haq's support for Afghan mujahideen "freedom fighters" who were battling Soviet invaders during the 1980s and to Islamabad's later support for the Afghan Taliban regime from 1996 to 2001. British colonialists had purposely divided the ethnic Pashtun tribes inhabiting the mountainous northwestern reaches of their South Asian empire with the 1893 "Durand Line." This porous, 1,600-mile border is not accepted by Afghan leaders, who have at times fanned Pashtun nationalism to the dismay of Pakistanis. Pakistan is wary of signs that India is pursuing a policy of "strategic encirclement," taking note of New Delhi's past support for Tajik and Uzbek militias which comprised the Afghan Northern Alliance, and the post-2001 opening of several Indian consulates in Afghanistan. More fundamental, perhaps, even than regime type in Islamabad is the Pakistani geopolitical perspective focused on India as the primary threat and on Afghanistan as an arena of security competition between Islamabad and New Delhi. In the conception of one long-time analyst, "Pakistan's grand strategy, with an emphasis on balancing against Afghanistan and India, will continue to limit cooperation in the war on terrorism, regardless of whether elected civilian leaders retain power or the military intervenes again." Xenophobia and Anti-American Sentiment The tribes of western Pakistan and eastern Afghanistan are notoriously adverse to interference from foreign elements, be they British colonialists and Soviet invaders of the past, or Westerners and even non-Pashtun Pakistanis today (a large percentage of Pakistan's military forces are ethnic Punjabis with little or no linguistic or cultural familiarity with their Pashtun countrymen). Anti-American sentiments are widespread throughout Pakistan and a significant segment of the populace has viewed years of U.S. support for President Musharraf and the Pakistani military as an impediment to, rather than facilitator of, the process of democratization and development there. Underlying the anti-American sentiment is a pervasive, but perhaps malleable perception that the United States is fighting a war against Islam. Opinion surveys in Pakistan have found strong support for an Islamabad government emphasis on negotiated resolutions to the militancy problem. They also show scant support for unilateral U.S. military action on Pakistani territory. Pakistan's Islamist political parties are notable for expressions of anti-American sentiment, at times calling for "jihad" against the existential threat to Pakistani sovereignty they believe alliance with Washington entails. Some observers identify a causal link between the poor state of Pakistan's public education system and the persistence of xenophobia and religious extremism in that country. Anti-American sentiment is not limited to Islamic groups, however. Many across the spectrum of Pakistani society express anger at U.S. global foreign policy, in particular when such policy is perceived to be unfriendly or hostile to the Muslim world (as in, for example, Palestine and Iraq). Weak Government Writ in the FATA Pakistan's rugged, mountainous FATA region includes seven ethnic Pashtun tribal agencies traditionally beyond the full writ of the Pakistani state. The FATA is home to some 3.5 million people living in an area slightly larger than the state of Maryland. The inhabitants are legendarily formidable fighters and were never subjugated by British colonialists. The British established a khassadar (tribal police) system which provided the indigenous tribes with a large degree of autonomy under maliks —local tribal leaders. This system provided the model through which the new state of Pakistan has administered the region since 1947. Today, the Pashtun governor of Pakistan's North West Frontier Province, Owais Ahmed Ghani, is the FATA's top executive, reporting directly to President Zardari. He and his "political agents" in each of the agencies ostensibly have full political authority, but this has been eroded in recent years as both military and Islamist influence has grown. Ghani, who took office in January 2008, gained a reputation for taking a hardline toward militancy during his tenure as Baluchistan governor from 2003 to 2008. Under the Pakistani Constitution, the FATA is included among the "territories" of Pakistan and is represented in the National Assembly and the Senate, but remains under the direct executive authority of the President. The FATA continues to be administered under the 1901 Frontier Crimes Regulation (FCR) laws, which give sweeping powers to political agents and provides for collective punishment system that has come under fire from human rights groups. Civil and criminal FCR judgments are made by jirgas (tribal councils). Laws passed by Pakistan's National Assembly do not apply to the FATA unless so ordered by the President. According to the FATA Secretariat, "Interference in local matters is kept to a minimum." Adult franchise was introduced in the FATA only in 1996, and political parties and civil society organizations are still restricted from operating there. Efforts are underway to rescind or reform the FCR, and the civilian government seated in Islamabad in 2008 has vowed to work to bring the FATA under the more effective writ of the state. The U.S. government supports Islamabad's "Frontier Strategy" of better integrating the FATA into the mainstream of Pakistan's political and economic system. Many analysts insist that only through this course can the FATA's militancy problem be resolved. U.S. Policy U.S. policy in the FATA seeks to combine better coordinated U.S. and Pakistani military efforts to neutralize militant threats in the short term with economic development initiatives meant to reduce extremism in Pakistan over the longer-term. Congressional analysts have identified serious shortcomings in the Bush Administration's FATA policy: In April 2008, the Government Accountability Office issued a report in response to congressional requests for an assessment of progress in meeting U.S. national security goals related to counterterrorism efforts in Pakistan's FATA. Their investigation found that, "The United States has not met its national security goals to destroy terrorist threats and close safe haven in Pakistan's FATA," and, "No comprehensive plan for meeting U.S. national security goals in the FATA has been developed." House Foreign Affairs Committee Chairman Representative Howard Berman called the conclusions "appalling." Increasing U.S.-Pakistan Cooperation and Coordination In late 2008, U.S. officials have indicated that they are seeing greater Pakistani cooperation. In February 2008, Pakistan stopped attending meetings of the Tripartite Commission under which NATO, Afghan, and Pakistani forces meet regularly on both sides of the border. However, according to General McKiernan on November 18, 2008, the meetings resumed in June 2008 and three have been held since then, with another planned in December 2008. Gen. McKiernan, Pakistan's Chief of Staff Ashfaq Pervez Kayani, and Afghan Chief of Staff Bismillah Khan represent their respective forces in that commission. In April 2008, in an extension of the commission's work, the three forces agreed to set up five "border coordination centers"—which will include networks of radar nodes to give liaison officers a common view of the border area. These centers build on an agreement in May 2007 to share intelligence on extremists' movements. Only one has been established to date, at the Torkham border crossing. According to U.S. Army chief of staff Gen. George Casey in November 2008, cooperation is continuing to improve with meetings between U.S. and Pakistani commanders once a week. Also, U.S. commanders have praised October 2008 Pakistani military moves against militant enclaves in the tribal areas, and U.S. and Pakistani forces are jointly waging the "Operation Lionheart" offensive against militants on both sides of the border, north of the Khyber Pass. In addition, Afghanistan-Pakistan relations are improving since Musharraf's August 2008 resignation. Karzai attended the September inauguration of President Asif Ali Zardari, widower of slain former Prime Minister Benazir Bhutto. The "peace jirga" process—a series of meetings of notables on each side of the border, which was agreed at a September 2006 dinner hosted by President Bush for Karzai and Musharraf—has resumed. The first jirga, in which 700 Pakistani and Afghan tribal elders participated, was held in Kabul in August 2007. Another was held in the improving climate of Afghanistan-Pakistan relations during October 2008; the Afghan side was headed by former Foreign Minister Dr. Abdullah. It resulted in a declaration to endorse efforts to try to engage militants in both Afghanistan and Pakistan to bring them into the political process and abandon violence. Increased Direct U.S. Military Action Although U.S.-Pakistan military cooperation is improving in late 2008, U.S. officials are increasingly employing new tactics to combat militant concentrations in Pakistan without directly violating Pakistan's limitations on the U.S. ability to operate "on the ground" in Pakistan. Pakistani political leaders across the spectrum publicly oppose any presence of U.S. combat forces in Pakistan, and a reported Defense Department plan to send small numbers of U.S. troops into the border areas was said to be "on hold" because of potential backlash from Pakistan. This purported U.S. plan was said to be a focus of discussions between Joint Chiefs Chairman Mullen and Kayani aboard the aircraft carrier U.S.S. Lincoln on August 26, 2008, although the results of the discussions are not publicly known. On September 3, 2008, one week after the meeting, as a possible indication that at least some aspects of the U.S. plan were going forward, U.S. helicopter-borne forces reportedly crossed the border to raid a suspected militant encampment, drawing criticism from Pakistan. However, there still does not appear to be U.S. consideration of longer term "boots on the ground" in Pakistan. U.S. forces in Afghanistan now acknowledge that they shell purported Taliban positions on the Pakistani side of the border, and do some "hot pursuit" a few kilometers over the border into Pakistan. Aerial Drone Attacks Since well before the September 3 incursion, U.S. military forces have been directing increased U.S. firepower against militants in Pakistan. Missile strikes in Pakistan launched by armed, unmanned American Predator aircraft have been a controversial, but sometimes effective tactic against Islamist militants in remote regions of western Pakistan. Pakistani press reports suggest that such drones "violate Pakistani airspace" on a daily basis. By some accounts, U.S. officials reached a quiet January understanding with President Musharraf to allow for increased employment of U.S. aerial surveillance and Predator strikes on Pakistani territory. Musharraf's successor, President Asif Zardari, may even have struck a secret accord with U.S. officials involving better bilateral coordination for Predator attacks and a jointly approved target list. Neither Washington nor Islamabad offers official confirmation of Predator strikes on Pakistani territory; there are conflicting reports on the question of the Pakistani government's alleged tacit permission for such operations. Three Predators are said to be deployed at a secret Pakistani airbase and can be launched without specific permission from the Islamabad government (Pakistan officially denies the existence of any such bases). Pentagon officials eager to increase the use of armed drones in Pakistan reportedly meet resistance from State Department diplomats who fear that Pakistani resentments built up in response to sovereignty violations and to the deaths of civilians are harmful to U.S. interests, outweighing potential gains. A flurry of suspected Predator drone attacks on Pakistani territory in the latter months of 2008 suggests a shift in tactics in the effort to neutralize Al Qaeda and other Islamist militants in the border region. As of later November, at least 20 suspected Predator attacks had been made on Pakistani territory since July, compared with only three reported during all of 2007. Such strikes have killed more than 100 people, including numerous suspected foreign and indigenous fighters, but also women and children. The new Commander of the U.S. Central Command, Gen. David Petraeus, claims that such attacks in western Pakistan are "extremely important" and have killed three top extremist leaders in that region. Officially, Pakistan's Foreign Ministry calls Predator attacks "destabilizing" developments that are "helping the terrorists." Strident Pakistani government reaction has included summoning the U.S. Ambassador to lodge strong protest, and condemnation of missile attacks that Islamabad believes "undermine public support for the government's counterterrorism efforts" and should be "stopped immediately." During his first visit to Pakistan as Centcom chief in early November, Gen. Petraeus reportedly was met with a single overriding message from Pakistani interlocutors: cross-border U.S. military strikes in the FATA are counterproductive. Pakistan's defense minister warned Gen. Petraeus that the strikes were creating "bad blood" and contribute to anti-American outrage among ordinary Pakistanis. In November 2008, Pakistan's Army Chief, Gen. Ashfaq Pervez Kayani, called for a full halt to Predator strikes, and President Zardari has called on President-elect Obama to re-assess the Bush Administration policy of employing aerial attacks on Pakistani territory. Military Capacity Building in Pakistan Some reports indicate that U.S. military assistance to Pakistan has failed to effectively bolster the paramilitary forces battling Islamist militants in western Pakistan. Such forces are said to be underfunded, poorly trained, and "overwhelmingly outgunned." However, a July 2008 Pentagon-funded assessment found that Section 1206 "Global Train and Equip" funding—which supplements security assistance programs overseen by the State Department—is important for providing urgently needed military assistance to Pakistan, and that the counterinsurgency capabilities of Pakistani special operations forces are measurably improved by the training and equipment that come through such funding. Security-Related Equipment Major government-to-government arms sales and grants to Pakistan since 2001 have included items useful for counterterrorism operations, along with a number of "big ticket" platforms more suited to conventional warfare. The United States has provided Pakistan with nearly $1.6 billion in Foreign Military Financing (FMF) since 2001, with a "base program" of $300 million per year beginning in FY2005. These funds are used to purchase U.S. military equipment. Defense supplies to Pakistan relevant to counterinsurgency missions have included more than 5,600 military radio sets; six C-130E transport aircraft; 20 AH-1F Cobra attack helicopters; 26 Bell 412 transport helicopters; night-vision equipment; and protective vests. The Defense Department also has characterized transferred F-16 combat aircraft, P-3C maritime patrol aircraft, and TOW anti-armor missiles as having significant anti-terrorism applications. In fact, the State Department claims that, since 2005, FMF funds have been "solely for counterterrorism efforts, broadly defined." Such claims elicit skepticism from some observers. Other security-related U.S. assistance programs for Pakistan are said to be aimed especially at bolstering Islamabad's police and border security efforts, and have included U.S.-funded road-building projects in the NWFP and FATA. Security-Related Training The Bush Administration has launched an initiative to strengthen the capacity of Pakistan's Frontier Corps (FC), an 80,000-man paramilitary force overseen by the Pakistani Interior Ministry. The FC has primary responsibility for border security in the NWFP and Baluchistan provinces. Some $400 million in U.S. aid is slated to go toward training and equipping FC troops by mid-2010, as well as to increase the involvement of the U.S. Special Operations Command in assisting with Pakistani counterterrorism efforts. Some two dozen U.S. trainers began work in October 2008. Fewer than 100 Americans reportedly have been engaged in training Pakistan's elite Special Service Group commandos with a goal of doubling that force's size to 5,000. The United States also has undertaken to train and equip new Pakistan Army Air Assault units that can move quickly to find and target terrorist elements. Some in Congress have expressed doubts about the loyalties of locally-recruited, Pashtun FC troops, some of whom may retain pro-Taliban sympathies. Coalition Support Funds Congress has appropriated billions of dollars to reimburse Pakistan and other nations for their operational and logistical support of U.S.-led counterterrorism operations. These "coalition support funds" (CSF) account for the bulk of U.S. financial transfers to Pakistan since 2001. More than $9 billion has been appropriated or authorized for FY2002-FY2009 Pentagon spending for CSF for "key cooperating nations." Pentagon documents show that disbursements to Islamabad—at some $6.7 billion or an average of $79 million per month since 2001—account for roughly 80% of these funds. The amount is equal to about one-quarter of Pakistan's total military expenditures. According to Secretary of Defense Gates, CSF payments have been used to support scores of Pakistani army operations and help to keep some 100,000 Pakistani troops in the field in northwest Pakistan by paying for food, clothing, and housing. They also compensate Islamabad for ongoing coalition usage of Pakistani airfields and seaports. Concerns have grown in Congress and among independent analysts that standard accounting procedures were not employed in overseeing these large disbursements from the U.S. Treasury. The State Department claims that Pakistan's requests for CSF reimbursements are carefully vetted by several executive branch agencies, must be approved by the Secretary of Defense, and ultimately can be withheld through specific congressional action. However, a large proportion of CSF funds may have been lost to waste and mismanagement, given a dearth of adequate controls and oversight. Senior Pentagon officials reportedly have taken steps to overhaul the process through which reimbursements and other military aid is provided to Pakistan. The National Defense Authorization Act for FY2008 ( P.L. 110-181 ) for the first time required the Secretary of Defense to submit to Congress itemized descriptions of coalition support reimbursements to Pakistan. The Government Accountability Office (GAO) was tasked to address oversight of coalition support funds that go to Pakistan. A report issued in June 2008 found that, until about one year before, only a small fraction of Pakistani requests were disallowed or deferred. In March 2007, the value of rejected requests spiked considerably, although it still represented one-quarter or less of the total. The apparent increased scrutiny corresponds with the arrival in Islamabad of a new U.S. Defense Representative, an army officer who reportedly has played a greater role in the oversight process. GAO concluded that increased oversight and accountability was needed over Pakistan's reimbursement claims for coalition support funds. U.S. Development Assistance for Western Pakistan Since the 2001 renewal of large overt U.S. assistance packages and reimbursements for militarized counterterrorism efforts, a total of about $12 billion in U.S. funds went to Pakistan from FY2002-FY2008. The majority of this was delivered in the form of coalition support reimbursements; another $3.1 billion was for economic purposes and nearly $2.2 billion for security-related programs. According to the State Department, U.S. assistance to Pakistan is meant primarily to maintain that country's ongoing support for U.S.-led counterterrorism efforts. FATA Development Plan Pakistan's tribal areas are remote, isolated, poor, and very traditional in cultural practices. The social and economic privation of the inhabitants is seen to make the region a particularly attractive breeding ground for violent extremists. The U.S.-assisted development initiative for the FATA, launched in 2003, seeks to improve the quality of education, develop healthcare services, and increase opportunities for economic growth and micro-enterprise specifically in Pakistan's western tribal regions. A senior USAID official estimated that, for FY2001-FY2007, about 6% of U.S. economic aid to Pakistan has been allocated for projects in the FATA. The Bush Administration urges Congress to continue funding a proposed five-year, $750 million aid plan for the FATA initiated in FY2007. The plan will support Islamabad's own ten-year, $2 billion Sustainable Development effort there. Skepticism has arisen about the potential for the new policy of significantly boosted funding to be effective. Corruption is endemic in the tribal region and security circumstances are so poor that Western nongovernmental contractors find it extremely difficult to operate there. Moreover, as much as half of the allocated funds likely will be devoted to administrative costs. Islamabad is insisting that implementation is carried out wholly by Pakistani civil and military authorities and that U.S. aid, while welcomed, must come with no strings attached. Reconstruction Opportunity Zones The related establishment of Reconstruction Opportunity Zones (ROZs) that could facilitate further development in the FATA (and neighboring Afghanistan), an initiative of President Bush during his March 2006 visit to Pakistan, ran into political obstacles in Congress and is yet to be finalized. The ROZ program would provide duty-free access into the U.S. market for certain goods produced in approved areas and potentially create significant employment opportunities. While observers are widely approving of the ROZ plan in principle, many question whether there currently are any products with meaningful export value produced in the FATA. One senior analyst suggests that the need for capital and infrastructure improvements outweighs the need for tariff reductions. A Pakistani commentator has argued that an extremely poor law and order situation in the region will preclude any meaningful investment or industrialization in the foreseeable future. In March 2008, more than two years after the initiative was announced, S. 2776 , which would provide duty-free treatment for certain goods from designated ROZs in Afghanistan and Pakistan, was introduced in the Senate. A related bill, H.R. 6387 , was referred to House subcommittee four months later. Neither bill has emerged from committee to date.

Increasing militant activity in western Pakistan poses three key national security threats: an increased potential for major attacks against the United States itself; a growing threat to Pakistani stability; and a hindrance of U.S. efforts to stabilize Afghanistan. This report will be updated as events warrant. A U.S.-Pakistan relationship marked by periods of both cooperation and discord was transformed by the September 2001 terrorist attacks on the United States and the ensuing enlistment of Pakistan as a key ally in U.S.-led counterterrorism efforts. Top U.S. officials have praised Pakistan for its ongoing cooperation, although long-held doubts exist about Islamabad's commitment to some core U.S. interests. Pakistan is identified as a base for terrorist groups and their supporters operating in Kashmir, India, and Afghanistan. Since 2003, Pakistan's army has conducted unprecedented and largely ineffectual counterterrorism operations in the country's Federally Administered Tribal Areas (FATA) bordering Afghanistan, where Al Qaeda operatives and pro-Taliban insurgents are said to enjoy "safe haven." Militant groups have only grown stronger and more aggressive in 2008. Islamabad's new civilian-led government vows to combat militancy in the FATA through a combination of military force, negotiation with "reconcilable" elements, and economic development. The Pakistani military has in late 2008 undertaken major operations aimed at neutralizing armed extremism in the Bajaur agency, and the government is equipping local tribal militias in several FATA agencies with the hope that these can supplement efforts to bring the region under more effective state writ. The upsurge of militant activity on the Pakistan side of the border is harming the U.S.-led stabilization mission in Afghanistan, by all accounts. U.S. commanders in Afghanistan attribute much of the deterioration in security conditions in the south and east over the past year to increased militant infiltration from Pakistan. U.S. policymakers are putting in place a series of steps to try to address the deficiencies of the Afghan government and other causes of support for Afghan Taliban militants, but they are also undertaking substantial new security measures to stop the infiltration. A key, according to U.S. commanders, is to reduce militant infiltration into Afghanistan from Pakistan. To do so, U.S. General David McKiernan, the overall commander in Afghanistan, is "redefining" the Afghan battlefield to include the Pakistan border regions, and U.S. forces are becoming somewhat more aggressive in trying to disrupt, from the Afghan side of the border, militant operational preparations and encampments on the Pakistani side of the border. At the same time, Gen. McKiernan and other U.S. commanders are trying to rebuild a stalled Afghanistan-Pakistan-U.S./NATO military coordination process, building intelligence and information sharing centers, and attempting to build greater trust among the senior ranks of the Pakistani military.

Introduction Article III, Section I, of the Constitution provides, in part, that the "judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." It further provides that Justices on the Supreme Court and judges on lower courts established by Congress under Article III have what effectively has come to mean life tenure, holding office "during good Behaviour." Along with the Supreme Court, the courts that constitute the Article III courts in the federal system are the U.S. circuit courts of appeals, the U.S. district courts, and the U.S. Court of International Trade. This report concerns nominations made by President Obama and other recent Presidents to the U.S. circuit courts of appeals and the U.S. district courts. Outside the report's scope are the occasional nominations that these Presidents made to the Supreme Court and the U.S. Court of International Trade. In recent Congresses, there has been ongoing interest in the process by which U.S. circuit and district court judges are nominated by the President and approved by the Senate. During Senate debates over judicial nominations, differing perspectives have been expressed about the relative degree of success of a President's nominees in gaining Senate confirmation, compared with the nominees of other recent Presidents. Additionally, Senate debate often has concerned the pace by which the Senate has considered or approved a President's judicial nominees. Of related concern to Congress has been the percentage of vacant judgeships in the federal judiciary and the effect of delays in the processing of judicial nominations on filling vacancies. In light of continued Senate interest in the judicial selection and confirmation process, this report seeks to inform Congress by (1) comparing the number and percentage of judicial nominees confirmed during the first five and a half years of the Obama presidency with the number and percentage of nominees confirmed during the same period of time during the G.W. Bush and Clinton presidencies; (2) comparing the pace of judicial confirmations during the Obama presidency as well as during the G.W. Bush and Clinton presidencies; and (3) providing statistics related to vacancies existing at the beginning of each President's second term and on June 30 of each President's sixth year in office. The period of time for each presidency analyzed in the report is from January 20 of a President's first year in office to June 30 of his sixth year in office. So, for example, the statistics reported below for President Obama reflect the period from January 20, 2009, to June 30, 2014. This includes the period following the Senate's reinterpretation, on November 21, 2013, of the application of Senate Rule XXII to floor consideration of some presidential nominations (including nominations to U.S. circuit and district court judgeships). Specifically, For nominations other than to the Supreme Court, the new precedent lowered the vote threshold by which cloture can be invoked—from three-fifths of the Senate to a simple majority of those voting, thereby enabling a supportive majority to reach an 'up-or-down' vote on confirming a nomination. The statistics reported below for the Obama presidency include all nominations and confirmations that occurred on or before June 30, 2014. Please note that the purpose of this midyear report is to provide an overview and analysis of the number and percentage of U.S. circuit and district court nominees confirmed as of June 30 of President Obama's sixth year in office (and how such statistics compare to the number and percentage of nominees confirmed during the G.W. Bush and Clinton presidencies), while also providing information related to the pace of Senate approval of judicial nominees as well as judicial vacancies. Consequently, this report does not include other statistics focused on specific stages of the appointment process, such as the length of time it has taken President Obama and his predecessors to nominate individuals to vacant circuit and district court judgeships, or how long it takes nominees to advance through the Senate confirmation process (e.g., the length of time from nomination to committee hearing or from committee report to final Senate action). Such statistics are analyzed in a longer end-of-year report that tracks the progress of a particular President's judicial nominees in receiving Senate confirmation. Number and Percentage of Confirmed Judicial Nominees This section of the report compares, for Presidents Obama, G.W. Bush, and Clinton, the total number of U.S. circuit and district court nominees submitted to the Senate from January 20 of a President's first year in office to June 30 of his sixth year in office, as well as the number and percentage of circuit and district court nominees whose nominations were confirmed by the Senate during this same period. While Presidents sometimes nominate particular individuals to a court more than once, Table 1 counts such nominees only once. In other words, the analysis below does not account for multiple nominations of the same individual to the same court. Different institutional and political factors are responsible for variation across presidencies in the number and percentage of U.S. circuit and district court nominees confirmed by the Senate. Additionally, a judicial nomination may fail to receive Senate confirmation because (1) the full Senate votes against the nomination; (2) the President withdraws the nomination, either because the Senate Judiciary Committee (i) has voted against reporting it favorably, (ii) had made clear its intention not to act on the nomination, (iii) because the nomination, even if reported, is likely to face substantial opposition on the Senate floor, or (iv) the nominee himself or herself has requested that the nomination be withdrawn; or (3) the Senate, without confirming or rejecting the nomination, returns the nomination to the President under Rule XXXI, paragraph 6 of the Standing Rules of the Senate after it has adjourned or been in recess for more than 30 days, and the President does not subsequently resubmit the nomination. This report does not analyze or take a position on the number or percentage of a President's judicial nominees that would be appropriate for the Senate to confirm. U.S. Circuit Court Nominees Table 1 reveals that, as of June 30 of his sixth year in office, President Obama had nominated the fewest number of individuals to U.S. circuit court judgeships but had both the greatest number and percentage of his U.S. circuit court nominees confirmed by the Senate. Of 59 nominees, 49 (or 83.1%) have, thus far, been confirmed. In contrast, President G.W. Bush had, by June 30 of his sixth year in office, nominated the greatest number of U.S. circuit court nominees (67) and also had the lowest percentage of nominees confirmed (68.7%). Additionally, President Clinton, by June 30 of his sixth year in office, had the lowest number of circuit court nominees confirmed (44). During President Obama's second term, as of June 30, the Senate has confirmed 19 circuit court nominees, representing 38.8% of the 49 nominees confirmed thus far during his presidency. In comparison, during President G.W. Bush's second term (as of June 30 of his sixth year in office), the Senate had confirmed 11 circuit court nominees, representing 23.9% of the 46 nominees that had been confirmed by that point during his presidency. During President Clinton's second term (as of June 30 of his sixth year in office), the Senate had confirmed 14 circuit court nominees, representing 31.8% of the 44 nominees that had been confirmed by that point during his presidency. Confirmation of U.S. Circuit Court Nominees During a President's Sixth Year Considering just the first half of a President's sixth year in office (from January 1 to June 30), President Obama has had 8 circuit court nominees confirmed, President G.W. Bush had 4 nominees confirmed, and President Clinton had 7 nominees confirmed. As of June 30, 2014, there are 4 circuit court nominations that are either before the Senate Judiciary Committee or pending on the Executive Calendar . If, at a minimum, these 4 nominations are approved by the Senate prior to December 31, 2014, President Obama will have had at least 12 circuit court nominees confirmed during his sixth year in office, increasing the total number of circuit court nominees confirmed during his entire six years in office to 53. During the second half of President G.W. Bush's sixth year in office (from July 1, 2006, to December 31, 2006), the Senate confirmed an additional 5 circuit court nominees, bringing the total number of nominees confirmed during his six years in office to 51. During the second half of President Clinton's sixth year in office (from July 1, 1998, to December 1, 1998), the Senate confirmed an additional 6 circuit court nominees, bringing the total number of nominees confirmed during his six years to 50. U.S. District Court Nominees Table 1 shows that, as of June 30 of his sixth year in office, President Obama had nominated the second greatest number of individuals to U.S. district court judgeships and also had the second greatest number and percentage of his U.S. district court nominees confirmed by the Senate. Of 253 nominees, 219 (86.6%) have, thus far, been confirmed. President G.W. Bush had, by June 30 of his sixth year in office, nominated the fewest number of district court nominees (219) but had the highest percentage of nominees confirmed (91.3%). Additionally, President Clinton, by June 30 of his sixth year in office, had nominated the greatest number of district court nominees (267) and also had the greatest number confirmed (222). Note, however, that President Clinton also had the lowest percentage of his district court nominees confirmed by June 30 of his sixth year in office (83.1%). During President Obama's second term, as of June 30, the Senate has confirmed 78 district court nominees, representing 35.6% of the 219 nominees confirmed thus far during his presidency. In contrast, during President G.W. Bush's second term (as of June 30 of his sixth year in office), the Senate had confirmed 32 district court nominees, representing 16.0% of the 200 nominees that had been confirmed by that point during his presidency. During President Clinton's second term (as of June 30 of his sixth year in office), the Senate had confirmed 53 circuit court nominees, representing 23.9% of the 222 nominees that had been confirmed by that point during his presidency. Confirmation of U.S. District Court Nominees During a President's Sixth Year Considering just the first half of a President's sixth year in office (from January 1 to June 30), President Obama has had 46 district court nominees confirmed, President G.W. Bush had 18 nominees confirmed, and President Clinton had 24 nominees confirmed. As of June 30, 2014, there are 26 district court nominations that are either before the Senate Judiciary Committee or pending on the Executive Calendar . If, at a minimum, these 26 nominations are approved by the Senate prior to December 30, 2014, President Obama will have had at least 72 district court nominees confirmed during his sixth year in office (increasing the total number of district court nominees confirmed during his entire six years in office to 245). In contrast, during the second half of President G.W. Bush's sixth year in office (from July 1, 2006, to December 31, 2006), the Senate confirmed an additional 3 district court nominees, bringing the total number of district court nominees confirmed during his six years in office to 203. During the second half of President Clinton's sixth year in office (from July 1, 1998, to December 1, 1998), the Senate confirmed an additional 26 district court nominees, bringing the total number of nominees confirmed during his six years to 248. U.S. Circuit and District Court Nominees (Combined) Overall, combining the data in Table 1 for U.S. circuit and district court nominees, President Obama has had, as of June 30 of his sixth year in office, approximately the same percentage of nominees confirmed as President G.W. Bush (85.9% and 86.0%, respectively) and the greatest number of total nominees confirmed (268). President Clinton had the second-greatest number of nominees confirmed (266) during the same period of his presidency, while President G.W. Bush had the fewest number of nominees confirmed (246). The 246 nominees confirmed during the first five and a half years of the G.W. Bush presidency is 22 and 20 fewer than the total number of nominees confirmed, respectively, during the comparable periods of time of the Obama and Clinton presidencies. Total Nominees Confirmed During a President's Sixth Year If, at a minimum, the 30 circuit and district court nominations that are currently pending in the Senate (either before the Judiciary Committee or on the Executive Calendar ) are approved by the Senate by December 30, 2014, President Obama will have had at least a total of 298 nominees confirmed by the end of his sixth year in office. In contrast, by the end of President G.W. Bush's sixth year in office, the Senate had confirmed a total of 254 nominees, while by the end of President Clinton's sixth year in office, the Senate had confirmed a total of 298 nominees. Pace of Confirmation of Judicial Nominees This section of the report compares the pace of Senate confirmation of U.S. circuit and district court nominees as of June 30 of each President's sixth year in office. Specifically, the figures below report the number of circuit and district court nominees confirmed, on average, per six-month period during each President's (1) first term; (2) second term, up to June 30 of his sixth year; and (3) first and second term combined, up to June 30 of his sixth year. A six-month period is used to calculate the pace of confirmation of judicial nominees because it is a long enough period of time to generate a statistic greater than one for U.S. circuit court nominations (which the Senate approves less frequently than district court nominations), but is also a short enough period of time to provide information related to how many judicial nominations have been confirmed by the Senate during a period of time that is less than a full calendar year. The pace of confirmation of lower federal court nominees during any given year or presidential term might be affected by whether the Senate is also processing one or more nominations to the Supreme Court. Of the Presidents included in the analysis, both of President Obama's appointees (Sonia Sotomayor and Elena Kagan) were confirmed during the first half of his first term (as were President Clinton's two nominees—Ruth Bader Ginsberg and Stephen Breyer), while both of President G.W. Bush's appointees (John G. Roberts, Jr. and Samuel A. Alito, Jr.) were confirmed during the first half of his second term. Other factors that might influence the pace of confirmation of judicial nominees include how quickly the President submits nominations to the Senate; how quickly nominations are processed by the Judiciary Committee and sent to the full Senate for consideration; the length of time nominations remain pending on the Executive Calendar prior to final Senate action; the number of days the Senate is in session and available to act on nominations; and whether the Senate is focused on other matters, such as legislation or executive branch nominations. Additionally, during President Obama's second term, both (1) the adoption of a new standing order for the 113 th Congress (reducing post-cloture consideration of district court nominations from a maximum of 30 hours to 2 hours), as well as (2) the Senate's reinterpretation of the application of Senate Rule XXII (lowering the vote threshold by which cloture can be invoked on some presidential nominations, including those to U.S. circuit and district court judgeships, from three-fifths of the Senate to a simple majority of those voting) may have affected the pace by which the full Senate has approved judicial nominations, particularly during President Obama's sixth year in office. This report does not analyze or take a position on the pace by which it would be appropriate for the Senate to confirm a President's judicial nominees. U.S. Circuit Court Nominees Figure 1 shows the number of U.S. circuit court nominees confirmed, on average, per six-month period during a President's first term (over the course of 48 months). The number reported for a President's second term indicates the number of circuit court nominees confirmed, on average, per six-month period, as of June 30, during a President's second term (over the course of 18 months). Finally, the statistics reported for a President's entire five and a half years in office indicate the number of nominees confirmed, on average, per six-month period from January 20 of his first year to June 30 of his sixth year (over the course of 66 months). As shown by Figure 1 , when considering just a President's first term, President Obama had 3.7 circuit court nominees confirmed, on average, every six months (compared to 4.4 nominees confirmed, on average, every six months during President G.W. Bush's first term, and 3.7 nominees during President Clinton's first term). Considering just a President's second term, 6.3 circuit court nominees have been confirmed, on average, per six-month period during President Obama's second term (up to June 30, 2014). This is the greatest number of circuit court judges approved by the Senate, on average, for any six-month period during any of the three Presidents' first or second terms. The pace of circuit court confirmations during President G.W. Bush's second term (up to June 30, 2006) was, on average, 3.7 nominees per six-month period, while the pace of circuit court confirmations during President Clinton's second term (up to June 30, 1998) was, on average, 4.7 nominees per six-month period. President G.W. Bush is the only President of the three for whom the pace of confirmation for circuit court nominees slowed from his first term to June 30 of the sixth year of his second term. Finally, Table 1 shows that, from January 20 of President Obama's first year in office to June 30 of his sixth year in office, the Senate confirmed, on average, 4.5 circuit court nominees every six months. This is the greatest number of circuit court judges approved by the Senate, on average, every six months during the overall period from January 20 of a President's first year in office to June 30 of a President's sixth year in office. The comparable statistics for Presidents G.W. Bush and Clinton are 4.2 and 4.0, respectively. U.S. District Court Nominees Figure 2 shows the number of U.S. district court nominees confirmed, on average, per six-month period during a President's first term (i.e., over the course of 48 months). The number reported for a President's second term indicates the number of district court nominees confirmed, on average, per six-month period, as of June 30, during a President's second term (over the course of 18 months). Finally, the statistics reported for a President's entire five and a half years in office indicate the number of nominees confirmed, on average, per six-month period from January 20 of his first year to June 30 of his sixth year (over the course of 66 months). As shown by Figure 2 , when considering just a President's first term, President Obama had 17.6 district court nominees confirmed, on average, every six months (compared to 21.0 nominees confirmed, on average, every six months during President G.W. Bush's first term, and 21.1 such nominees during President Clinton's first term). Considering just a President's second term, 26.0 district court nominees have been confirmed, on average, per six-month period during President Obama's second term (up to June 30, 2014). As with the confirmation of circuit court nominees during President Obama's second term, this is the greatest number of district court judges approved by the Senate, on average, for any six-month period during any of the three Presidents' first or second terms. The pace of district court confirmations during President G.W. Bush's second term (up to June 30 of his sixth year in office) was, on average, 10.7 nominees per six-month period, while the pace of district court confirmations during President Clinton's second term (up to June 30) was, on average, 17.7 nominees per six-month period. The number of district court nominees confirmed, on average, per six-month period during President G.W. Bush's second term was the slowest pace of Senate approval of district court nominations during any of the three Presidents' first or second terms. Finally, Figure 2 shows that, from January 20 of President Obama's first year in office to June 30 of his sixth year in office, the Senate confirmed, on average, 19.9 district court nominees every six months. This is the second-greatest number of district court judges approved by the Senate, on average, every six months during the overall period from January 20 of a President's first year in office to June 30 of a President's sixth year in office. The comparable statistics for Presidents G.W. Bush and Clinton are 18.2 and 20.2, respectively. U.S. Circuit and District Court Nominees (Combined) Overall, combining the data in Table 1 and Table 2 for U.S. circuit and district court nominations, President Obama had, on average, 21.4 U.S. circuit and district court nominees confirmed per six-month period during his first term. The comparable statistics for Presidents G.W. Bush and Clinton are 25.4 and 24.9, respectively. During President Obama's second term, 32.3 circuit and district court nominees have been confirmed, on average, every six months. This is the greatest number of total nominees confirmed, on average per six-month period, during any of the three Presidents' terms (up to June 30 of a President's sixth year). In contrast, during President G.W. Bush's second term, 14.3 circuit and district court nominees were confirmed, on average, every six months (the lowest number per six-month period for any of the three Presidents). During President Clinton's second term, 22.3 circuit and district court nominees were confirmed, on average, every six months. Overall, from January 20 of his first year to June 30 of his sixth year, President Obama had 24.4 circuit and district court nominees confirmed, on average, per six-month period. The comparable statistics for Presidents G.W. Bush and Clinton were 22.4 and 24.2, respectively. Judicial Vacancies The percentage of vacant circuit and district court judgeships varies over the course of a presidency and is affected, in part, by the pace at which a President selects nominees for vacancies as well as the speed by which the Senate considers a President's nominees. The number of vacancies that exists during a presidency might also affect the statistics discussed in the two preceding sections (i.e., how many nominations are approved by the Senate during any given period of time, as well as the pace by which the Senate confirms a President's nominees). Table 2 compares, for Presidents Obama, G.W. Bush, and Clinton, (1) the percentage of U.S. circuit and district court judgeships vacant on January 1 of a President's fifth year in office; (2) the percentage of such judgeships vacant on June 30 of a President's sixth year in office; and (3) the change in the percentage of vacant U.S. circuit and district court judgeships from January 1 of a President's fifth year to June 30 of his sixth year. Note that a negative value in the "change" column means that the vacancy rate declined as a result of fewer judgeships being vacant on June 30 of a President's sixth year in office than on January 1 of his fifth year. U.S. Circuit Court Vacancies Table 2 reveals that the percentage of circuit court judgeships that were vacant at the beginning of a President's fifth year in office was greatest during the Clinton presidency (12.8%). As of June 30 of a President's sixth year in office, the percentage of circuit court vacancies was also greatest during the Clinton presidency (10.6%). For Presidents Clinton and Obama, there was a smaller percentage of vacant judgeships on June 30 of each President's sixth year in office than on January 1 of his fifth year in office. The percentage of vacant judgeships declined the most for President Obama, falling 3.3 percentage points from 8.9% to 5.6%. The percentage of circuit court judgeships that are vacant is, as of June 30, 2014, at its lowest point since August 2008. The percentage of vacant circuit court judgeships increased from January 1 of President G.W. Bush's fifth year in office to June 30 of his sixth year (8.4% and 8.9%, respectively). U.S. District Court Vacancies As with circuit court vacancies, the percentage of vacant district court judgeships on January 1 of a President's fifth year was greatest during the Clinton presidency (10.0%). The percentage of vacant district court judgeships on January 1 of President G.W. Bush's and Obama's fifth years in office was 3.1% and 8.8%, respectively. From the beginning of a President's fifth year to June 30 of his sixth year, the percentage of vacant district court judgeships declined during both the Clinton and Obama presidencies (-2.1% and -1.5%, respectively). In contrast, the percentage of vacant district court judgeships increased from the beginning of the fifth year to June 30 of the sixth year of the G.W. Bush presidency (+1.2%). The G.W. Bush presidency is the only one of the three for which the percentage of both vacant circuit and district court judgeships increased (albeit slightly for circuit judgeships) from January 1 of his fifth year in office to June 30 of his sixth year. Although the Senate has, as of June 30, 2014, confirmed 78 district court nominees during President Obama's second term (compared to 32 and 53 district court nominees confirmed, respectively, as of June 30, during the second terms of Presidents G.W. Bush and Clinton), the district court vacancy rate has declined by less than two percentage points from January 1 of President Obama's fifth year in office to June 30 of this sixth year. This is due, in part, to the number of relatively new district court vacancies occurring since January 1, 2014. Of the 49 district court judgeships that were vacant as of June 30, 2014, 16 (32.7%) became vacant after January 1 of this year.

The nomination and confirmation process for U.S. circuit and district court judges is of ongoing interest to Congress. Recent Senate debates over judicial nominations have focused on issues such as the relative degree of success of President Barack Obama's nominees in gaining Senate confirmation compared with other recent Presidents, as well as the pace of confirmation of his nominees compared to the nominees of other recent Presidents, and the relative prevalence of vacant judgeships compared to years past. This report addresses these issues by providing a statistical analysis of nominations to U.S. circuit and district court judgeships from January 20 of President Obama's first year in office to June 30 of his sixth year, and by comparing statistics during this period of the Obama presidency to statistics from comparable periods of time during the presidencies of his two most recent predecessors. Some of the report's findings include the following: Of President Obama's 59 circuit court nominees, 49 (83.1%) have, thus far, been confirmed. The 49 confirmed nominees and 83.1% confirmation rate represent the highest number and percentage of circuit court nominees confirmed, during the three most recent presidencies, from January 20 of a President's first year in office to June 30 of his sixth year. G.W. Bush had the lowest percentage of circuit court nominees confirmed (68.7%) during the comparable period of time of his presidency, while President Clinton had the lowest number confirmed (44). Of the 253 persons nominated by President Obama to U.S. district court judgeships, 219 (86.6%) have been confirmed. Of the three Presidents, this was both the second-highest number and percentage of district court nominees confirmed. Of the comparison group, President Clinton had the greatest number of district court nominees confirmed between January 20 of his first year and June 30 of his sixth year (222), while President G.W. Bush had the greatest percentage of district court nominees confirmed (91.3%). Overall, combining nominees to both circuit and district court judgeships, President Obama has had, as of June 30 of his sixth year in office, approximately the same percentage of nominees confirmed as President G.W. Bush (85.9% and 86.0%, respectively). President Obama, however, has had the greatest number of nominees confirmed (268), while President G.W. Bush had the fewest number of nominees confirmed (246). President Clinton had the second-highest number of nominees confirmed (266) and the lowest percentage confirmed (81.1%). During the Obama presidency the Senate has confirmed, on average, 4.5 circuit court nominees every six months. Of the comparison group, this is the highest number of circuit court nominees confirmed, on average, every six months. For Presidents G.W. Bush and Clinton, the number of circuit court nominees confirmed, on average, per six-month period was 4.2 and 4.0, respectively. During the Obama presidency, as of June 30, 2014, the Senate has confirmed, on average, 19.9 district court nominees every six months. Of the comparison group, this is the second-highest number of district court nominees confirmed, on average, every six months. For Presidents G.W. Bush and Clinton, the number of district court nominees confirmed, on average, per six-month period was 18.2 and 20.2, respectively. Overall, from January 20 of his first year to June 30 of his sixth year, President Obama had 24.4 circuit and district court nominees confirmed, on average, per six-month period. This was the highest number of nominees confirmed, on average, per six-month period during the three presidencies. The comparable statistics for Presidents G.W. Bush and Clinton were 22.4 and 24.2, respectively. The percentage of vacant circuit and district court judgeships declined from January 1 of President Obama's fifth year in office to June 30 of his sixth year. The percentage of vacant judgeships also declined over the same period during the Clinton presidency, while the percentage of vacancies increased during the same period of the G.W. Bush presidency.

Introduction There are an estimated 4 billion incandescent light bulbs (sometimes referred to as "lamps") in use in the United States. The basic technology in these bulbs has not changed substantially since they were first introduced over 125 years ago. They convert less than 10% of the energy they use into light and over 90% into heat. Some critics refer to traditional incandescent bulbs as "resistance heaters that also give off light." DOE estimates that about 10% of the average U.S. residential electricity bill is spent on lighting. Illuminating U.S. homes and businesses consumes nearly 300 billion kilowatt-hours of electricity each year, equivalent to the output from about 100 large power plants. The environmental impacts of the electricity production used to power that lighting—including greenhouse gas emissions—are well documented. Given rising attention to energy prices, energy insecurity, and climate change, Congress passed the Energy Independence and Security Act of 2007 (hereafter referred to as the "Energy Independence Act") to address, among other things, the efficiency of current incandescent light bulbs. By one projection, the new standards will cumulatively save more than $40 billion on electricity costs and offset about 750 million metric tons of carbon emissions by the year 2030. New Energy Efficiency Requirements for Light Bulbs The Energy Independence Act sets new performance requirements for certain common light bulbs. The Tier I requirements, set to take effect in 2012-2014, require these bulbs to be 25% to 30% more efficient than today's products (see Table 1 ). Stricter Tier II standards will be defined in an upcoming DOE rulemaking that may require that lamps produced in 2020 use at least 60% less energy than today's bulbs. Some bulbs are not covered by the requirements. There are 22 categories of special-use incandescent bulbs that are exempted from the standards, including appliance bulbs, plant lights, infrared bulbs, bug lights, rough-service lamps, and reflector (i.e, recessed or flood) bulbs. The DOE is required to undertake an additional rulemaking no later than June 2009 to set new standards for reflector lights. DOE is also directed to monitor sales of key categories of excluded bulbs to ensure that the exemptions are not exploited. Are Incandescent Bulbs Banned? Incandescent bulbs are not banned or prohibited by the new law. Instead, a performance standard is set for non-excluded categories of bulbs, requiring them to meet minimum energy efficiency requirements. If bulbs cannot meet the standards as defined above, suppliers are not allowed to continue selling them. The law does not specify technology winners and losers. Rather, the intent of the standard is to draw more efficient light bulbs into the market. Manufacturers are introducing advanced incandescent bulbs, such as halogen lamps with special coatings, that meet the standards or are very close to doing so. In October 2007, Philips Lighting Company introduced the Halogená Energy Saver incandescent bulb series that reportedly meets Tier I standards. The 70-watt bulb in this product line, for example, looks similar to "regular" light bulbs and can be used in table lamps, floor lamps, and ceiling fixtures. It provides high-quality light, equivalent to the output from many traditional 100-watt bulbs. Other new incandescent products will likely be introduced by the effective dates of the law. General Electric (GE), for example, says that it will have an incandescent bulb that uses half the energy of today's bulbs by 2010 and only a quarter by 2012. Non-incandescent products, including compact fluorescent lamps (CFLs) and light emitting diode (LED) bulbs, can already meet Tier I standards. Efficient Lighting Can Reduce Energy Costs and Use Energy efficient light bulbs can save significant quantities of electricity compared to traditional incandescent bulbs. Table 2 summarizes the characteristics of several types of bulbs. Although a CFL bulb is more expensive to purchase than a traditional incandescent bulb, its electricity savings recover the higher purchase price in several months, depending on use. The LED example in the table is not directly comparable to the other options because it produces a different type of light than incandescent and fluorescent bulbs. Evaluation of Lighting Options Consumers today have a wide range of product options to meet their lighting needs. Both traditional and efficient lighting products are now available at large retail stores and on the internet, as well as at some local supermarkets. These options often require consumers to decide what types of lighting best suits their needs. Incandescent Bulbs Traditional incandescent bulbs are preferred by some consumers because of their familiarity, low purchase price, and relatively high quality light. These bulbs are quiet, dimmable, and turn on instantly. Despite their high energy use and relatively short lifetimes, there is a reason this technology has survived for over 125 years. Advanced incandescent technology is now entering the market and could address the shortcomings of incandescent bulbs. Fluorescent Lamps Fluorescent lights have been used in commercial and industrial settings since the 1930s due to their lower operating costs. They were slower to enter residential markets until compact versions became available in the 1980s and 1990s. Early brands had poor light quality and higher purchase costs, which gave many consumers a negative first impression of CFLs. Two decades of market pull and technology push strategies has led to improved quality and cheaper CFLs today. There are now many varieties of CFLs that meet "Energy Star" certification requirements defined by the Environmental Protection Agency (EPA) and the DOE. In 2007, nearly 300 million Energy Star certified CFLs were sold in the United States, doubling previous year sales, and accounting for 20% of the light bulb market. There are inexpensive, high-quality CFLs available in retail stores and through the internet, but brands can vary significantly in quality. As described more fully below, CFLs have tradeoffs, including the fact that they contain small quantities of mercury. Light Emitting Diodes (LEDs) LEDs are ubiquitous. They are found in computers, radios, televisions, traffic lights, exit signs and holiday lights. However, they have only recently become available for general illumination. Manufacturers are developing new types of LED bulbs for general lighting and expect rapid cost reductions. Although LED bulbs are beginning to match CFL and incandescent alternatives in light quality, purchase costs are still an order of magnitude higher. LEDs produce light in a way that is fundamentally different from incandescent or fluorescent bulbs. LEDs used for general illumination are expected to be more efficient than CFLs in the near future, but remain slightly less so today. LEDs can produce almost any color light and last about five times longer than CFLs. They turn on instantly, contain no mercury, and—because they have no filament or fragile bulb—are not easily damaged by vibration or external shock. But LEDs are not widely available in general illumination markets. Besides high cost, LEDs can experience problems in cold (below 15°F) or hot (above 120°F) environments. With light that is highly directional or focused, LEDs currently seem better for task lighting than for general illumination. Some consumers complain that LED light is too cold or blue. These issues may be addressed as the technology matures. Consumer Criticism of CFLs Some consumers complain about the quality of CFL products. They report that CFLs generate harsh, unflattering light or that they don't last as long as advertised. Some of these objections may be due to experience with earlier bulbs that had poor color temperature rendition or that were used incorrectly. Some objections involve personal preference; CFLs may not be appropriate for every lighting application. CFLs are now available with a broad range of size, shape, brightness, and color temperature characteristics. Consumers have also reported objections to noise and flicker in CFL bulbs. Most of these problems have been solved with the introduction of improved electronic ballasts, although some low quality brands may still exhibit these problems. There is concern about mercury in CFL bulbs. Used and disposed of properly, CFLs can actually reduce mercury in the environment due to the lower demand for coal-fired electricity—which emits that element to the atmosphere. Still, the EPA recommends special precautions in using and disposing of CFL bulbs. For a more complete discussion of CFLs and mercury, see CRS Report RS22807, Compact Fluorescent Light Bulbs (CFLs): Issues with Use and Disposal , by [author name scrubbed]. Another concern involves difficulty dimming CFL bulbs. There are new varieties of CFLs designed to be used with dimming switches. These versions cost more than standard CFLs and usually have only three settings (off, low, and high) compared to a full range of light output in incandescent bulbs. Some consumers also complain about the time lag between when the light is turned on and when the bulb illuminates. Again, modern electronic ballasts have at least partially addressed this issue, but most CFLs still need to warm up before reaching full illumination. Advanced CFL products may overcome this consumer concern. Legislation On March 13, 2008, the Light Bulb Freedom of Choice Act ( H.R. 5616 ) was introduced to repeal the new lighting performance standards unless the Government Accountability Office finds that (1) consumers would obtain a net financial savings by switching to the more efficient bulbs, (2) no health risks would be introduced by the switch, and (3) total U.S. CO 2 emissions would decline by 20% by 2025 as a result of the switch.

The Energy Independence and Security Act of 2007 (P.L. 110-140) sets new performance standards for many common light bulbs. Tier I standards require a 25%-30% increase in the energy efficiency of typical light bulbs beginning in 2012, and still greater improvements through Tier II standards starting in 2020. Supporters expect these new measures to save consumers billions of dollars in electricity costs, offset the need to build dozens of new power plants, and cut millions of tons of greenhouse gas emissions in the United States. Efficient lighting products such as compact fluorescent lights and light emitting diodes have advanced rapidly in recent years. Light quality has improved, costs have declined, and consumer choice has expanded. Still, many consumers prefer traditional incandescent lighting products. Incandescent bulbs are not banned or outlawed by the new law, but they will need to meet the new efficiency standards to remain on the market. Some new incandescent products already available can meet Tier I requirements, and at least one manufacturer claims that it will have advanced incandescent products available in time to meet the Tier II requirements. The Light Bulb Freedom of Choice Act (H.R. 5616) was introduced on March 13, 2008, to repeal the new standards unless special provisions are met.

Introduction Federal highway and public transportation programs are funded mainly by taxes on motor fuel that flow into the Highway Trust Fund (HTF). The tax rates, set on a per-gallon basis, have not been raised since 1993, and motor fuel tax receipts have been insufficient to support the transportation programs authorized by Congress since FY2008. Increases in vehicle fuel efficiency and wider use of electric vehicles raise questions about the long-term viability of motor fuel taxes as a means of funding surface transportation. Economists have long favored mileage-based user charges as an alternative source of highway funding. Under the user charge concept, motorists would pay fees based on distance driven and, perhaps, on other costs of road use, such as wear and tear on roads, traffic congestion, and air pollution. The funds collected would be spent for surface transportation purposes. The concept is not new: Federal motor fuel taxes are a form of indirect road user charge insofar as road use is loosely related to fuel consumption. Some states have charged trucks by the mile for many years, and toll roads charge drivers based on miles traveled and the number of axles on a vehicle, which is used as a proxy for weight. Recent technological developments, as well as the evident shortcomings of motor fuel taxes, have led to renewed interest in the user charge concept, including establishment of a pilot program in legislation enacted in 2015. How Road User Charges Might Work A road user charge system would involve assessing owners of individual vehicles on a per-mile basis for the distance the vehicle is driven. Depending upon the details of such a program, a basic per-mile charge could be adjusted based on any number of factors, such as the time of day a trip is taken, the place of travel, the weight of the vehicle, and the emissions of the vehicle's engine. Most studies of road use charging envision a single national system that would distribute revenue to the HTF and directly to the states, which currently impose their own taxes on motor fuels for transportation purposes. Existing motor fuel taxes might be discontinued, phased out, or diverted to other uses as a user charge system takes effect. Proposed systems generally involve three functional components: 1. Metering: determining the number of miles traveled on roads subject to the user charge and any other information needed to determine fees owed. 2. Billing: communication of mileage and fees owed, issuance of bills, and collection of the revenue. Most charging proposals envision that fees would be charged to the vehicle owner's credit or bank card, as occurs on many toll roads today. 3. Enforcement: assuring that motorists have been charged correctly and have paid their fees. Enforcement actions could include checks for tampering with on-board units (OBUs) that might be used to collect data, checks of OBUs against odometer readings, and legal measures to collect unpaid charges. If some motorists were allowed to continue to pay motor fuel taxes rather than distance-based user charges, authorities would need to verify that such taxes were being paid. If a road user charge were to have multiple objectives, enforcement could become more complex. For example, if the system were to have lower charges for trucks with low-emissions engines than for trucks with high-emissions engines, it would be necessary to verify that each truck is using an OBU that identifies its emissions level correctly. There are numerous ways in which a nationwide road user charge could be structured and collected. One key issue in implementation would be whether individual vehicle owners could opt out—and, if so, how they would contribute to the cost of building and maintaining surface transportation infrastructure. GPS-Based Mileage Fee System Under this system, an OBU installed on each vehicle would receive global positioning system (GPS) location signals from a satellite. The location data could be used to inform the driver of the fee in real time or could be transmitted via mobile phone to a central processing office for calculation. In either case, the central office data center would use the information to prepare the user's invoice. The on-board unit (OBU) offers the ability to vary the charges on a particular vehicle based on multiple objectives. However, it also raises the greatest concern about privacy, as the operators of the system would be able to track each vehicle's movements. This may have legal implications as well. Although the technology would be quite different from existing electronic tolling systems, such as E-ZPass, the experience would be quite similar for drivers, who would not need to take any special action to figure out their liability and pay their bills. Pay at the Pump A different approach to distance-based user charges would mimic the way Americans now pay their fuel taxes. Two states have tested user charges of this sort. A test in Nevada simply estimated each vehicle's mileage based on the vehicle's fuel efficiency and the amount of gasoline purchased. When the vehicle pulled up to the gas pump, a transponder installed in the vehicle transmitted this information to a transponder in the pump. The pump transponder retransmitted the mileage information to a central office, which calculated the road user fee and sent the information back to the pump for inclusion in the price of fuel. The participant received a receipt, printed at the pump, specifying the cost of fuel and the user charge. Oregon ran similar tests with and without installation of a GPS-based recording device in the vehicles. Participants expressed privacy concerns about the GPS devices. The systems without GPS devices, however, cannot charge variable rates depending upon time of day or road congestion, as they reveal only how many miles the vehicle was driven, not where or when it was driven. Pay-at-the-pump systems might allow a mileage-based user charge to coexist with a motor fuels tax, with vehicle owners having the option of paying one or the other. However, it could be administratively complex. The current federal fuels taxes are collected from fuel dealers prior to the wholesale level, not from retail gas stations, so charging in this way would require the federal government to establish thousands of new collection points. Odometer Readings A simple mileage-based user charge could be assessed based on each vehicle's odometer reading, perhaps taken during an annual inspection. The advantage of the basic odometer system is its simplicity. Also, it would likely raise fewer privacy issues than a GPS-based system. But an odometer-based system would have numerous limitations. Fraud could be a major problem, as drivers might have incentives to install defeat devices and software. A straightforward odometer reading would not support higher user charges at peak times or on congested roads, and it would not be able to avoid double-charging vehicles that use toll roads. Oregon has implemented an odometer-based system, known as OReGO, on a voluntary basis. The system uses a plug-in device to collect revenue at a rate of 1.5 cents per mile. Taxpayers have a choice of a device with no GPS that tallies charges for all miles driven or a device with GPS that tallies only miles within the state. Each vehicle's mileage is transmitted to an account manager, who then bills participants. To prevent double taxation, participants receive a state motor fuel tax credit equal to the amount of road user charge they pay. Prepaid Manual Mileage Fee System Under this system, the driver would purchase a license or card that permits a certain number of miles of driving based on an odometer reading at the time of purchase. No information on the vehicle's location is collected. This is the New Zealand system discussed later in this report. Offering Users a Choice of Charging Methods Providing a variety of charging methods to motorists might make road user charges more acceptable. So, for example, some drivers could install OBUs while others could opt for an annual odometer reading. The federal motor fuels tax could continue to be an option for those who reject the use of any road charging system and for foreign drivers, although this could require significant changes in the way the federal motor fuels tax is collected. Providing choices could mitigate opposition by road users who have privacy concerns. However, it would likely raise administrative costs and lower the net revenue per dollar collected. Cost of Collection and Administration One of the advantages of the federal motor fuels tax is that nearly all of the revenue is collected from roughly 850 registered taxpayers when the fuel is removed from the refinery or tank farm. This has been the case since 1986, when the U.S. Treasury shifted its collection of the gas tax to the refinery "rack" to reduce tax administration problems and curb fuel tax evasion. The federal government has no need to assess taxes at 111,000 gasoline stations or charge millions of vehicle owners individually. Tax administration costs are generally estimated to be less than one cent per dollar of revenue. The road user charge would reverse this by taking a small and simple tax administration problem and making it large: A mileage-based road user charge that encompasses all private vehicles could require as many as 256 million points of collection. Electronic Billing and Collection In principle, the cost of operating an electronic road user charge scheme based on distance driven should be minimal, thereby leaving most of the revenue available for transportation use. However, experience in the United States and other countries suggests that the administrative and enforcement costs of collecting user fees would be in the range of 5% to 13% of collections. U.S. toll road agencies that make extensive use of electronic toll collection experience costs of roughly 7% to 12% of revenues. For example, the New Hampshire Turnpike system reported that its E-ZPass processing fees were 7.3% of total E-ZPass revenues in FY2015. Fees charged by banks for processing transactions and enforcement costs are not included in that percentage. While a federal system based on equipping all vehicles with standardized OBUs with GPS technology could bring the costs down eventually, the cost of operating the system seems likely to be above 5% of revenue under the best of circumstances. Credit and Bank Card Fees Credit card and bank fees will be difficult for any road user charging system to avoid. The experience of electronic toll collection can shed some light on these costs. An evaluation of operational costs by the Washington State Department of Transportation in 2007 found that credit card fees paid on collections by toll facilities were equal to 3.45% of adjusted gross revenue. More recently, the New Hampshire Turnpike System reported that for the 2015 fiscal year, bank and credit card fees were 2.7% of its electronic E-ZPass revenues. This indicates that the cost of any electronic user charge scheme relying on users paying via credit and bank cards would likely be more than double the cost of collecting the federal motor fuels tax, even before administrative or enforcement costs are considered. Charging Unbanked and Underbanked Users About 7.7% of U.S. households are "unbanked," lacking any bank account at an insured institution. Another 20% are "underbanked," having a bank account of some kind but also using alternative financial services such as postal money orders, payday loans, pawn shop loans, or auto title loans. Over 30% of consumers do not have a credit card, and 20% do not have a debit card. Unbanked and underbanked road users would not be easily brought into a charging system based on electronic payments. This is also the portion of the population that may find it most difficult to purchase and install an OBU or purchase a new vehicle equipped with one. Allowing these motorists to pay road user charges through a cash alternative would increase administrative costs. Billing and Enforcement In any form of mileage-based road user charge, the amounts owed would have to be determined, the vehicle owner would have to be billed, and tax evasion would have to be prevented. This could be done by the U.S. Internal Revenue Service, which administers the federal fuel taxes. A nationwide federal road user charge might benefit from economies of scale and keep costs down. Alternatively, billing and enforcement could be contracted out to a commercial account manager, which could provide these administrative services in return for a reasonable profit. Electronic tolling systems typically engage commercial account managers. Operators of U.S. toll facilities generally assume a "leakage rate"—the share of transactions for which payment is not received—of 5% to 10%. Enforcement costs are difficult to evaluate because the cost of on-road enforcement by state police is not always reflected in turnpike authorities' financial reports. However, figures from toll authorities that do break out enforcement costs suggest that the cost of policing toll roads—including stopping toll evaders—is generally about 5% of toll revenues. The cost of enforcing road user charges could be quite different, especially if the charges for a particular trip are based on congestion, number of passengers in the vehicle, or other factors in addition to mileage traveled. The administrative and enforcement costs matter. If a road user charge were designed to raise the same amount of revenue as the current motor fuels tax but were far more costly to administer, it would generate less money for transportation purposes. If, on the other hand, a road user charge were designed to raise the same amount of net revenue for transportation as the current motor fuels tax, it would need to raise significantly greater gross revenue in order to cover administration and enforcement costs. Which Vehicles Would Be Charged? A mileage-based road user charge could be designed to encompass all non-government vehicles or only certain categories of vehicles. In general, the more vehicles covered, the lower the per-mile charge would need to be to produce a given amount of revenue. There is no limit to the number of vehicle categories that could be established. For example, given its past support for low-emission vehicles, Congress might wish to exempt electric vehicles from the mileage-based charge. Similarly, vehicles owned by nonprofit organizations could be exempt from the charge, or vehicles owned by disabled individuals could face a lower charge per mile. Such provisions would either reduce revenues or require other vehicle owners to pay higher rates to produce the same amount of gross revenue. Creating numerous categories with distinct charges would increase the complexity of administration and enforcement, likely raising the cost of operating the system. One option, widely adopted in Europe, is to limit mileage-based road user charges to trucks. Fitting trucks with OBUs based on GPS technology would raise fewer privacy concerns than a system encompassing all vehicles, and implementation costs would be lower. Trucks could be categorized by weight, number of axles, engine emissions, or other measures, assessing higher charges on classes of vehicles that cause greater wear to highway infrastructure or emit higher levels of pollutants. Federal-State Relations A road user charge at the federal level could raise significant questions about federal-state relations. If Congress were to create a road user charge and order state officials to implement it directly in statute, the charge could be subject to legal challenges under legal precedents limiting federal authority over state officials. Providing states with financial incentives to implement distance-based road user charges, rather than mandating that they do so, may obviate such concerns. Treatment of Existing Toll Facilities A nationwide mileage-based road user charge would be analogous to a national toll. This raises the prospect that vehicles using toll roads might be charged twice, although this effectively happens now in that toll road users also pay tax on the motor fuel they consume while using the toll road. Technically, it would be possible for a road user charge to replace an existing toll, but this could cause complications with respect to the servicing of bonds funded by toll-road revenue. Road User Charge and Non-road Programs Since 1982, the HTF has financed most federal public transportation programs as well as highway programs. If a distance-based road user charge were to be used strictly for highway purposes, it might reasonably be characterized as a user fee even if the amount paid by each individual driver does not correspond precisely to the social cost of that user's driving. In this case, however, Congress would need to find another source of funds if it wishes to continue supporting public transportation. A road user charge that funded both highways and public transportation might arguably be seen more as a tax than a user fee. This distinction raises a number of legal issues. Any legislation establishing a road user charge would have to clearly identify what the charge would be spent on. If the existing HTF were to be retained, legislation would have to specify what share of the revenue would be credited to the separate highway and mass transit accounts within the fund. FAST Act Section 6020 Pilot Program On December 4, 2015, President Barack Obama signed the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ), which authorized federal surface transportation programs for five years. Section 6020 of the FAST Act authorized $95 million over the life of the bill to provide grants to states to "demonstrate user-based alternative revenue mechanisms that utilize a user fee structure to maintaining the long term solvency of the Highway Trust Fund." Any state or group of states may apply for funding. The state matching share is 50%. The Government Accountability Office (GAO) called for establishment of such a pilot program in 2012. The objectives of the program include testing the design, acceptance, and implementation of two or more future user-based alternative mechanisms; improving their functionality; conducting outreach to increase public awareness; and minimizing the administrative costs of potential mechanisms. The grant awardees are to address the potential hurdles to the adoption of user-based alternative mechanisms, the protection of personal privacy, the use of independent and private third-party vendors to collect fees, market-based congestion mitigation, equity concerns, ease of compliance, and the reliability and security of technology. One important issue such a pilot program would need to study is the ability of a distance-based charging system to deal with vehicles crossing jurisdictional lines. Currently, states impose motor fuel taxes at varying levels, and in some cases regions within states impose additional taxes on fuel. An eventual national user charge scheme would need to be able to determine the distance a vehicle has driven in each jurisdiction and assess the appropriate per-mile charge levied by that jurisdiction, if any, in addition to the federal charge. To test this capability, the pilot will likely need to equip and track the actual movements of several thousand vehicles over several years as well as billing and collecting revenue from the users. The cost of a pilot study has been estimated to be $2,000 to $4,000 per participant. At that cost, the $95 million of federal funds, matched with a like amount of state funds, could provide enough funds for a pilot program with 45,000 to 90,000 participants. However, Section 6020(e) requires that the Secretary of Transportation consider geographic diversity in awarding grants for the pilot program. If this provision is understood to require that funds be disbursed across many states, relatively small numbers of users will be able to participate in any single state, potentially limiting the value of the findings. State-Level Experiments Several states have conducted trials of mileage-based road user charge systems. It is important to note that nearly all of these tests have been small in scale, so none of them sheds much light on the potential administrative costs of running a large-scale system. Also, few of the trials to date have addressed interstate issues, such as those that might arise if different states were to impose different systems. Perceptions of privacy risks have had an impact on studies of road user charges at the state level. Virtually all the outreach in connection with state-run studies identified privacy concerns both during participant recruitment and in follow-up surveys. The concerns included the use of a GPS device to track vehicle movements and possible disclosure of drivers' personal information to law enforcement agencies or private companies. Because of these concerns, Oregon and Nevada decided not to use GPS-based systems in any future pilot studies. (Privacy also developed as a major concern in the Netherlands, where Dutch officials suspended plans to implement a road user charge due to negative media coverage of the program's potential to compromise personal privacy.) Oregon Oregon conducted a study of mileage fees with almost 300 voluntary participants in 2006-2010. Each vehicle was equipped with a GPS metering unit. The amount owed was reported via wireless communications when participants bought fuel at two specially equipped gas stations. One group of drivers was charged 1.2 cents per mile for all travel within Oregon. The second group was charged less at non-rush hours (0.43 cents per mile) and more during peak hours in congested areas (10 cents per mile). The study showed that the drivers did respond to mileage-based pricing by reducing travel, especially during rush hours. Precautions were taken during the course of the study to protect participant privacy. In a follow-up study that started in 2012, Oregon responded to public concerns regarding privacy by allowing allowed drivers to select among different metering technologies, including a method that eliminated any ability of an outside party to determine the location of travel. A flat annual fee was also considered. The pilot program ended in March 2013. In July 2013, the Oregon legislature enacted Senate Bill 810 (Or. Rev. Stat. §319.883-319.947 [2015]) directing the Oregon Department of Transportation to deploy a road charging system by 2015. The result of the bill is OReGO, which allows for up to 5,000 volunteers to sign up to pay a state road usage fee of 1.5 cents per mile rather than a state gas tax. To prevent double taxation, participants receive a fuel tax credit for the amount charged under the Oregon road user charge. OReGO went online July 1, 2015, and has been providing revenue since then. The technology, billing, and collection services are all provided by a commercial account manager. California The California legislature enacted SB 1077 (Cal. Veh. Code §3093 [2015]) directing the California Department of Transportation to establish a road charge pilot by July 2016 and to provide a final report to the legislature in June 2017. The pilot is to analyze alternative means of collecting road usage data, including manual alternatives that do not rely on electronic vehicle location data; collect a minimum amount of personal information necessary to implement the road charge program, including location tracking information; and ensure that the processes for managing data are in place to protect the integrity of the data and safeguard the privacy of drivers' data. Recommendations to the legislature are to be presented in December 2017. University of Iowa The University of Iowa Public Policy Center conducted a mileage-based road user charging study in 12 states with funds provided by the Safe, Accountable, Flexible, Efficient, Transportation Equity Act: a Legacy for Users (SAFETEA-LU; P.L. 109-59 ) in 2005. The center tested a GPS mileage-fee system in the vehicles of 2,600 volunteer participants from October 2008 to June 2010. The system computed hypothetical mileage fees for federal, state, and local jurisdictions and periodically uploaded the information over a cellular communications link to a central billing office. The billing center sent monthly bills to the participants. Researchers found that mileage-based road user charges were feasible using current technology but that installing charging equipment in existing vehicles could pose a significant challenge. Puget Sound Regional Council Between July 2005 and February 2006, the regional council installed meters using GPS technology in roughly 500 vehicles in 275 households. Participants agreed to be charged tolls for using the otherwise untolled freeways in the Seattle metropolitan area. The OBU displayed the toll rates for the current road based on the time of day. Longitude and latitude coordinates and toll data were periodically transmitted to the central office, which withdrew the appropriate amount of money from the user's account. Drivers in the study did change their travel behavior in response to congestion charges. The equipment in the study functioned properly. Minnesota Minnesota tested a distance-based fee system that used smartphones with GPS receivers and mileage-metering applications. The phones were installed in 500 cars belonging to voluntary participants for three six-month test periods. Participants paid variable charges for peak and off peak times. They paid one cent per mile off peak in Minneapolis-St. Paul and three cents during peak, and there were no charges for driving out of state . Nevada Nevada has been running pilot tests using a pay-at-the-pump scheme. The system being developed does not use GPS but rather a wireless transponder that is connected to the vehicle's OBU and transmits mileage data to a wireless receiver at equipped fuel pumps. This information is then sent to a central office, which calculates the charge based on undifferentiated miles traveled. The central office sends back the mileage fee, which is indicated on the fuel receipt printed out at the pump. Foreign Use of Mileage-Based Road User Charges A number of foreign countries have imposed distance-based road user charges. These generally take different approaches from the charging schemes that have been proposed for the United States. Two fundamental differences are worth special note. First, of the road user charge schemes that are currently in operation, only New Zealand's taxes automobiles. The other schemes tax only large commercial vehicles. Although proposals have been made in some European countries to bring automobiles under mileage-based road user charges, no such measures have been implemented to date. Second, whereas discussion in the United States has emphasized the potential of road user charges to generate revenue, their adoption elsewhere has been based principally on environmental concerns, particularly the desire to reduce emissions of particulates and greenhouse gases and to minimize citizens' exposure to noise and vibration from heavy vehicles. Within the European Union (EU), it could be difficult for a single country to effectively enforce more traditional economic measures to meet environmental objectives, such as high taxes on diesel fuel and on high-emissions engines, because owners are free to register their trucks in any EU member state. Part of the attraction of road user charges is that they apply to all trucks passing through a country regardless of residence or fueling location. In addition, road user charges have the advantage of forcing foreign operators to cover a significant share of highway maintenance costs. Switzerland Since January 1, 2001, Switzerland has imposed "performance-related fees" on heavy goods vehicles. The fees were approved by Swiss voters in a 1998 referendum and apply to all vehicles weighing more than 3.5 metric tons (about 7,700 pounds) carrying goods on public roads. Part of the purpose of the system was to reduce road damage and environmental harm caused by the large number of foreign trucks transiting Switzerland on trips between Italy and Northern Europe. Switzerland has made significant investments in improving rail freight infrastructure, and the fees are meant to encourage shippers to send their goods by rail. The fees are based on three factors: the total weight of the loaded vehicle, the emissions of the engine, and the number of kilometers driven. As examples, a 10-ton delivery truck with an older engine would pay 0.31 Swiss francs per kilometer driven (approximately $0.52 per mile), and a 35-ton over-the-road truck with the most modern engine would pay 0.80 Swiss francs per kilometer ($1.33 per mile). A limited number of vehicles—including public safety vehicles, buses, and farm equipment—are exempt from the fees. A heavy vehicle registered in Switzerland must be equipped with an OBU, which must be installed by an approved installer. If the truck is pulling a trailer, the driver uses a chip card to input trailer data into the device before departure. The OBU is mounted behind the windshield, so enforcement personnel can observe lights indicating whether the device is operating and trailer information has been entered. The OBU is linked to the tachograph, which all heavy goods vehicles in Western Europe have been required to use since the 1980s to record distance and driving time. The OBU is automatically switched off by a microwave beacon at the border crossing if the vehicle leaves Switzerland, and it is automatically turned on in the same way when the vehicle reenters. The system does not employ real-time data collection. Instead, the vehicle owner must download the data from the OBU on a periodic basis and forward them to the Swiss Customs Administration, which is responsible for collecting payment. The system therefore does not generate information about a specific vehicle's itinerary except when it leaves or enters the country. Vehicles registered in other countries are not required to have OBUs to use Swiss roads. As an alternative, the driver may stop at a border crossing, register the vehicle, and receive an identification card. Each time the truck enters Switzerland, the driver inserts the card in a terminal at the border crossing and enters the vehicle's weight and odometer reading. The same information is provided upon exit from Switzerland, when the driver must charge the cost of kilometers traveled to an approved card or a Swiss Customs account or pay in cash. The Swiss road user charge system appears to be less costly than others, notably the German system (see below), as it does not track vehicles' movements in real time. According to the Swiss authorities, installation of the system cost the government 290 million Swiss francs (approximately $290 million). Annual operating costs are said to be 5% to 6% of receipts. Each truck owner must bear the cost of purchasing an OBU (estimated to be 1,000 Swiss francs) and having it installed (300-700 francs). Germany The German charging system covers all trucks weighing more than 7.5 metric tons (16,535 pounds) using 12,174 kilometers (7,565 miles) of expressways and 2,300 kilometers (1,429 miles) of four-lane roads linked to expressways. In 2018 the charging system is to be expanded to all federal motorways. The toll-collection system is complex, in part because EU law prohibits Germany from requiring foreign truckers to install OBUs that allow a truck's location to be identified by GPS. The OBUs contains mobile telephone equipment that automatically communicates the vehicle's position (as determined by GPS) to Toll Collect, the private contractor that operates the system. Drivers of trucks without OBUs must pay the toll by credit card or direct debit either on the Internet or at kiosks installed at gas stations and highway rest stops. Because the toll varies with the number of axles and engine emissions, the German system requires an extensive surveillance effort, including overhead cameras, roadside measurement stations, and random checks of trucking companies to ensure that each vehicle has paid the correct toll. The toll rates vary from €0.125 per kilometer ($0.21 per mile) for a truck with a low-emissions engine and three or fewer axles to €0.214 per kilometer ($0.344 per mile) for a truck with four or more axles and an engine with the highest allowable emissions level. There is no adjustment for an increased number of axles beyond four. The road user charge in Germany is assessed on the basis of kilometers rather than ton-kilometers, as in Switzerland. This fee structure gives operators an incentive to load their vehicles to the maximum permissible weight. Maximum loading may be desirable from an environmental perspective, as it encourages efficient truck use, but it may be less desirable from the perspective of road maintenance, as highway damage caused by a truck increases with the weight on each axle. In 2015, Germany raised €4.3 billion ($4.9 billion) from truck road user charges. Foreign-registered trucks accounted for 40.1% of the kilometers subject to the charge. Poland was by far the largest source of foreign trucks paying the road user charge, accounting for more than 13.6% of all travel covered by the charge. Direct taxes on German-registered trucks were reduced by as much as €929 per year when the charge was introduced. Approximately €150 million per year raised from the charge is distributed to German states in compensation for revenue forgone when previous truck taxes were reduced. Toll Collect does not disclose operating costs. However, the U.S. GAO determined that the German government paid the system operator roughly $664 million per year—or about 13% of average annual revenue—to manage the system from 2007 through 2011. In addition, about $740 million is spent annually to assist German trucking firms in complying with the system. The German government does not consider this to be part of the cost of operating the system, but it does reduce by roughly 15% the revenues available to be used for other purposes. The 2011 law now governing the German truck road user charge system includes significant provisions intended to protect privacy. The system operator is prohibited from disclosing data on any vehicle's toll payments, route, time of travel, registration number, number of axles, and engine characteristics, and such data may not be transferred to any other party. Except when a vehicle is under investigation for toll evasion, the system operator must destroy data communicated by the OBUs immediately upon payment. Data and photographs from surveillance devices must be destroyed as soon as the operator confirms that the road user charge has been paid or that the vehicle is not subject to charge. Austria Austria's mileage-based road user charge system, inaugurated in 2004, requires all trucks and buses weighing more than 3.5 metric tons to pay by the kilometer for use of expressways and certain other high-speed roads. Unlike the Swiss and German systems, the Austrian system provides for three different size classifications for vehicles with two axles, three axles, and four or more axles. Rates for vehicles with four or more axles are more than twice those for two-axle vehicles with engines of similar vintage. A three-axle truck with a recent engine pays €0.2198 per kilometer ($0.40 per mile), and a four-axle truck with an older engine may pay as much as €0.4473 per kilometer ($0.82 per mile). The Austrian system does not rely on GPS but uses a microwave transponder mounted behind the truck windshield to communicate with toll-collection devices on road-spanning gantries. It is technically compatible with the Swiss system, so trucks with Swiss OBUs are able to travel on Austrian roads. Trucks equipped with German OBUs may also use them in Austria. However, Austrian transponders will not work in Switzerland or Germany. The transport ministers of Austria's federal states have proposed extending mileage-based road user charges to all federal and state highways—in part to address complaints that heavy trucks are using these roads to avoid paying the user charges and in part to produce additional revenue for state governments. Such a change would require Austria to shift from its microwave-based system to a GPS-based system such as Germany's, at considerable cost. Other EU Countries Several other EU member states also impose mileage-based road user charges on trucks. Each has a different schedule. Poland has separate rate scales for trucks weighing between 3.5 and 12 metric tons, trucks weighing over 12 metric tons, and buses, with different per-kilometer rates within each vehicle class depending upon engine emissions. Rates per kilometer on national highways are 20% less than those on expressways. The Czech Republic uses a microwave system similar to Austria's. Road user charges are based on the number of axles rather than vehicle rate, but engines are divided into three emissions classes rather than four, as in Poland. User charges on express roads are more than twice those on other highways, and charges on Friday afternoon are significantly higher than on other days of the week. Slovakia uses a GPS-based system similar to Germany's. For the moment, it is the most extensive anywhere, covering 17,770 kilometers of expressways, highways, and local roads. Hungary implemented a GPS-based charging system in 2013, but the European Commission concluded that its charges were disproportionate to the cost of the infrastructure. The government has reportedly agreed to review the charges every six months and adjust them as required. Future EU Developments The European Commission, the governing body of the EU, adopted a directive in 2004 requiring that all future electronic tolling systems within the EU be interoperable. This directive applies to road user charging systems as well as systems with more traditional toll structures. It does not require any changes in toll systems that were in place at the time the directive took effect. An EU directive adopted in 2011 requires that road user charges for motorways reflect the environmental burdens caused by trucks. New Zealand Road User Charge New Zealand first imposed road user charges on all diesel vehicles and on all vehicles over 3.5 metric tons in 1977. The charges were based on distance driven and a nominal vehicle weight, as opposed to the actual weight of a vehicle on each trip. The charges were applied to diesel passenger cars as well as heavy goods vehicles. The policy decision to include diesel cars was taken because New Zealand does not assess a road tax on diesel fuel, as more than one-third of all diesel fuel sold in the country is used for off-road purposes. Drivers of vehicles powered by gasoline, compressed natural gas, and liquid petroleum gas pay a road tax collected at the wholesale level and are not subject to road user charge. Revenue from both the road user charge and the road tax, as well as from an annual registration fee on all vehicles, is expended on surface transportation. The actual charges assessed on individual vehicles are based on a cost-allocation model that aims at forcing individual users to pay the long-run marginal social cost of their use of New Zealand's road network. The most significant of these costs is road wear. The charge for a heavy truck with five axles, for example, is lower than for a heavy truck with three or four axles, because distributing the vehicle weight across more axles reduces the amount of road wear caused. In practice, however, it has been difficult for New Zealand authorities to adjust charges for road wear without compromising simplicity and ease of enforcement. For example, wide tires are known to reduce the pavement wear caused by a heavy vehicle, but adjusting individual vehicles' charges based on the width of their tires would make the charging system more complex and compliance more difficult to monitor. Road users subject to the road user charge must purchase distance licenses in units of 1,000 kilometers. The license, a placard that must be displayed on the passenger side of the windshield, specifies the vehicle odometer readings at the start and end of its validity. Each vehicle subject to the charge is required to have a hub odometer installed on the left-hand side of one axle, and police and New Zealand Transport Agency inspectors can readily check the hub odometer to determine whether the license is valid. The cost for a standard passenger car is 62 New Zealand dollars per 1,000 kilometers (US$0.07 per mile). This is approximately the same cost per mile paid in the form of petrol excise duty by a gasoline vehicle with fuel efficiency of 25 miles per gallon. A four-axle tractor-trailer combination must pay 361 New Zealand dollars per 1,000 kilometers (US$0.41 per mile). The New Zealand Transport Agency estimates that the road user charge represents about 10% of truckers' total costs. The agency also assesses a transaction fee of 4.80 New Zealand dollars (US$3.35) each time a license is purchased online, with higher charges for licenses purchased from machines at service stations and over-the-counter at retailers. Continuous licensing is required, so a driver must be in possession of a new license at the time the previous 1,000-kilometer allotment has been used.

A mileage-based road user charge would involve assessing owners of individual vehicles on a per-mile basis for the distance the vehicle is driven. Currently, federal highway and public transportation programs are funded mainly by motor fuel tax receipts that flow into the Highway Trust Fund (HTF). The tax rates, set on a per-gallon basis, have not been raised since 1993, and receipts have been insufficient to support the transportation programs authorized by Congress since FY2008. The long-term viability of motor fuels taxes is also questionable because of increasing vehicle fuel efficiency and the wider use of electric vehicles. Economists have favored the use of mileage-based user charges as an alternative to motor fuels taxes to support highway funding. Congress, in Section 6020 of the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94), provided $95 million to fund large-scale pilot studies by states or groups of states to demonstrate "user-based revenue systems" to maintain the solvency of the HTF. Under this user charge concept, motorists would pay based on distance driven and, perhaps, other costs of road use, such as wear and tear on roads, traffic congestion, and air pollution. Mileage-based road user charges could range from a flat cent per mile charge based on a simple odometer reading to a variable charge based on a global positioning system (GPS). Other proposals envision mileage-based road user charges that would mimic the way Americans now pay their fuel taxes by collecting the charge at the pump. Most road user charge systems would require electric vehicle users to pay for their use of the roads. Charging by the mile could in itself provide an incentive to drive less. Such a reaction would reduce revenue, however. Implementation of a mileage-based road user charge would have to overcome a number of potential disadvantages relative to the motor fuels tax, including public concern about personal privacy; the higher costs to establish, collect, and enforce (estimates range from 5% to 13% of collections); the administrative challenge of the billing process given the size of the private vehicle fleet (estimated at roughly 256 million vehicles or points of collection); and the setting and adjusting of the road user charge rates, which would likely face as much opposition as increasing the motor fuels taxes. Experiments with road user charges have been conducted in the United States. Although useful, most of these have been small-scale experiments done at the state or local level. Other countries have implemented full-scale road user charge systems that offer more information on the potential costs and benefits. These include road user charges on trucks in Germany, Switzerland, and Austria, as well as charges on both trucks and automobiles in New Zealand.

Overview EPA was established in 1970 to consolidate federal pollution control responsibilities that had been divided among several federal agencies. EPA's responsibilities grew significantly as Congress enacted an increasing number of environmental laws as well as major amendments to these statutes. Among the agency's primary responsibilities are the regulation of air quality, water quality, pesticides, and toxic substances; regulation of the management and disposal of solid and hazardous wastes; and the cleanup of environmental contamination. EPA also awards grants to assist states and local governments in ensuring compliance with federal requirements to control pollution. Since FY2006, Congress has funded EPA programs and activities within the Interior, Environment, and Related Agencies appropriations bill. From FY1996 to FY2013, EPA's funding had been requested by the Administration and appropriated by Congress under eight statutory accounts. A ninth account, Hazardous Waste Electronic Manifest System Fund, was added during the FY2014 budget process. P.L. 113-235 ( H.R. 83 ), the Consolidated and Further Continuing Appropriations Act, 2015, was signed into law on December 16, 2014. The act included 11 of the 12 regular appropriations bills. P.L. 113-235 ( H.R. 83 ) provided a total of $8.14 billion for EPA in Title II of Division F—Department of the Interior, Environment, and Related Agencies Appropriations Act, 2015. The total EPA appropriation for FY2015 is $249.9 million above the President's FY2015 request of $7.89 billion but $60.1 million less than the FY2014 enacted level of $8.20 billion. No regular Interior, Environment, and Related Agencies appropriations bills for FY2015 were passed by the House or Senate appropriations committees prior to the end of the fiscal year. However, the House Committee on Appropriations reported H.R. 5171 , and the Senate subcommittee released a chairman's draft that formed the basis for negotiating the enacted levels in P.L. 113-235 . This report briefly summarizes actions on the FY2015 appropriations for EPA and presents a breakout of the FY2015 enacted appropriations for the agency by each of the nine appropriations accounts and by selected programs and activities within those accounts that received more prominent attention in the congressional debate. The discussions and tables presented in this report compare the FY2015 enacted appropriations for EPA to FY2015 levels proposed in the President's FY2015 budget request, the House committee reported bill and Senate subcommittee draft, and the FY2014 enacted appropriations. The Joint Explanatory Statement accompanying the Consolidated and Further Continuing Appropriations Act, 2015 (issued in the December 11, 2014, Congressional Record ) is the primary source of information presented in this report for the FY2015 enacted appropriations, the President's FY2015 budget request, and the FY2014 enacted appropriations unless otherwise specified. Information regarding the House committee reported bill is from the accompanying report H.Rept. 113-551 ; information regarding the Senate Subcommittee chairman's draft is from the accompanying explanatory statement. Congressional Action House Committee Reported Bill and Senate Subcommittee Draft The House Appropriations Committee completed its markup of the FY2015 Interior, Environment, and Related Agencies Appropriations bill ( H.R. 5171 , H.Rept. 113-551 ) on July 15, 2014. Title II of the House committee reported bill would have provided a total of $7.48 billion for EPA, $407.3 million (5%) less than the President's FY2015 request of $7.89 billion, and $717.3 million (9%) less than the FY2014 enacted appropriation of $8.20 billion. No Interior, Environment, and Related Agencies bill providing FY2015 appropriations was introduced in the Senate. However, on August 1, 2014, the chairman and the ranking Member of the Senate Appropriations Subcommittee on Interior, Environment, and Related Agencies released a chairman's draft for FY2015 with an accompanying explanatory statement. Title II of the chairman's draft would have provided a total of $8.18 billion for EPA, $699.3 million (9.3%) more than the $7.48 billion in the House committee reported bill for FY2015, $292.1 million (3.7%) more than the FY2015 request of $7.89 billion but $17.9 million (0.2%) less than the FY2014 enacted level of $8.20 billion. H.R. 5171 as reported included a number of provisions (Title IV General Provisions) proposed by the Subcommittee on Interior, Environment, and Related Agencies and an additional amendment adopted during full-committee markup that would have restricted or prohibited the use of FY2015 funds by EPA for implementing or proceeding with a number of regulatory actions. Amendments considered during House committee markup of the FY2015 appropriations that would have removed several of the funding prohibitions, including most of those affecting EPA, were not adopted. A subset of the provisions in the House committee reported bill, several of which were similar to those included in recent fiscal years' appropriations, were retained in P.L. 113-235 as discussed below (" Funding Restrictions/Prohibitions "). For a description of provisions included in the House committee reported bill but not retained in the Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235 , see Appendix A of this report. Continuing Resolutions On September 19, 2014, President Obama signed into law the Continuing Appropriations Resolution, 2015 ( P.L. 113-164 , H.J.Res. 124 ). Section 101 of the act continued appropriations for federal departments and agencies generally at FY2014 enacted levels minus a 0.0554% rescission. The continuing resolution (CR) was authorized until December 11, 2014, or until the enactment of FY2015 appropriations. Funding for EPA under the CR was subject to the authority and conditions provided in the Interior, Environment, and Related Agencies Appropriations Act, 2014 (Division G, P.L. 113-76 ). Section 104 of the CR further stated that continuing funding for all federal departments and agencies cannot be used to initiate or resume any project or activity that did not receive appropriations for FY2014. H.J.Res. 130 ( P.L. 113-202 ), enacted December 12, 2014, extended the provisions of P.L. 113-164 through December 13, 2014, and H.J.Res. 131 ( P.L. 113-203 ), enacted December 13, 2014, further extended the provisions of P.L. 113-164 through December 17, 2014. P.L. 113-235 , the Consolidated and Further Continuing Appropriations Act, 2015, enacted December 16, 2014, established final funding levels for the full fiscal year through September 30, 2015. Comparison of FY2015 Enacted, FY2015 Proposed, and FY2014 Enacted Appropriations Table 1 presents the FY2015 amounts for EPA enacted under Title II of Division F of P.L. 113-235 compared to amounts approved by the House Appropriations Committee in H.R. 5171 , recommended in the Senate subcommittee chairman's draft, requested in the President's FY2015 budget request, and enacted for FY2014 for the nine statutory accounts that fund the agency. The FY2015 enacted appropriations included both decreases and increases compared to the amounts proposed for 2015 and the 2014 enacted levels for individual programs and activities funded within each of the EPA appropriations accounts not specified in the bill itself but identified in the explanatory statement as reported in the Congressional Record . The explanatory statement also provided direction to EPA in implementing various aspects of individual programs and activities in its report. The administrative provisions in Title II of Division F of P.L. 113-325 included a rescission of $40.0 million from unobligated balances previously appropriated to carry out projects and activities funded through the State and Tribal Assistance Grants (STAG) account. The provision further specified that no amounts are to be rescinded from amounts that Congress stipulated as emergency requirements pursuant to a concurrent resolution on the budget or the Balanced Budget and Emergency Deficit Act of 1985. The President's FY2015 request had proposed a $5.0 million rescission of unobligated balances of prior EPA appropriations from the STAG account with the same restrictions. The FY2014 enacted appropriations did not include rescissions of unobligated balances of EPA prior fiscal years' appropriations, whereas EPA appropriations beginning in FY2006 through FY2013 did include them. The following sections highlight funding issues associated with certain accounts and program activities that have been prominent in the debate on EPA's FY2015 appropriations. Key Funding Issues Concerns regarding EPA's FY2015 funding focused particularly on prioritization and adequacy of funding for wastewater and drinking water infrastructure projects; categorical grants to assist states in implementing federal pollution control laws; implementation of air quality and climate change regulations, research, and related activities; and federal financial assistance for environmental cleanup of Superfund and Brownfields sites. There was also interest in funding for geographic-specific water quality initiatives (e.g., the Great Lakes Restoration Initiative and efforts to restore the Chesapeake Bay). In addition, several EPA regulatory actions received considerable attention during House and Senate oversight committee hearings, appropriations committee hearings, and House Appropriations Committee markup of the FY2015 appropriations. Funding Restrictions/Prohibitions EPA has proposed and promulgated a number of regulations intended to implement provisions of the various federal pollution control statutes enacted by Congress over time. Considerable debate over the past few years resulted in proposed legislation during the 112 th and 113 th Congresses. Some stakeholders and Members of Congress have expressed concerns that certain agency actions "overreached" the authority given it by Congress. Moreover, some reason that EPA's actions ignored or underestimated the costs and economic impacts of proposed and promulgated rules. Other Members, EPA, and some stakeholders have countered that EPA's actions are consistent with statutory mandates and in some circumstances are compelled by court ruling, that the pace of rulemaking in some ways is slower than a decade ago, and that costs and benefits are appropriately evaluated. Some states, industry groups, and environmental advocacy groups contend that in some cases EPA has not fully implemented its statutorily mandated authorities and that certain regulatory action has been delayed. Still others advocate that regulations should be stronger than those promulgated and proposed to more adequately protect public health and welfare and the environment. Recently promulgated and pending actions under the Clean Air Act, in particular EPA controls on emissions of greenhouse gases and efforts to address conventional pollutants from a number of industries, have received much of the attention within Congress. Several actions under the Clean Water Act, Safe Drinking Water Act, Resource Conservation and Recovery Act, Federal Insecticide, Fungicide, and Rodenticide Act, Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Superfund financial responsibility, and the Toxic Substances Control Act (TSCA) have also received attention in the congressional debate. The general provisions in Title IV of Division F of P.L. 113-235 included provisions restricting the use of funds for certain EPA actions similar to those contained in previous recent appropriations but incorporated only a subset of those included in H.R. 5171 as reported (see Appendix A ). A brief description of these EPA provisions in P.L. 113-235 follows: Section 419 (Prohibitions on Use of Funds) continues a provision included in the FY2014 appropriations ( P.L. 113-76 , Title IV §420) and other previous fiscal years beginning with the FY2010 appropriations ( P.L. 111-88 , Title IV §424) that would prohibit the use of funds made available "in this or any other Act" to promulgate or implement any regulation requiring the issuance of permits under Title V of the Clean Air Act (42 U.S.C. Chapter 85, Subchapter V) to reduce emissions of carbon dioxide, nitrous oxide, water vapor, or methane resulting from biological processes associated with livestock production. Section 420 (Greenhouse Gas Reporting Restrictions) continues a provision included in the FY2014 appropriations ( P.L. 113-76 , Title IV §421) and other previous fiscal years beginning with the FY2010 appropriations in P.L. 111-88 (Title IV §425), that prohibits the use of funds made available "in this or any other Act" to implement any provision in a rule if that provision requires mandatory reporting of greenhouse gas (GHG) emissions from manure management systems. Section 424 (Use of American Iron and Steel) prohibits the use of funds made available by the drinking water state revolving loan fund (SRF) (provision does not explicitly specify that this applies only to those funds made available in this act) authorized under the Safe Drinking Water Act (SDWA, 42 U.S.C. 300j–12) for a project for the construction, alteration, maintenance, or repair of a public water system or treatment works unless all iron and steel used in the project are produced in the United States unless otherwise exempted as specified in this section of the act. Section 425 (Funding Prohibition) prohibits the use of funds made available "by this or any other Act" to regulate the lead content of ammunition or fishing tackle under the TSCA (15 U.S.C. 2601 et seq.) or any other law. Wastewater and Drinking Water Infrastructure18 Historically, funding within the STAG account for grants to aid states and territories in capitalizing their Clean Water and Drinking Water State Revolving Funds (SRFs) has represented a sizable portion of the total appropriations for EPA, ranging from one-fourth to one-third of the agency's funding in recent fiscal years. The combined total enacted amount for the Clean Water and the Drinking Water SRFs for FY2015 of $2.36 billion was the same as recommended in the Senate subcommittee chairman's draft and FY2014 enacted but $580.9 million (32.7%) more than the $1.77 billion proposed in the FY2015 budget request and recommended in H.R. 5171 as reported. P.L. 113-235 appropriated $1.45 billion for the Clean Water SRF capitalization grants and $906.9 million for the Drinking Water SRF capitalization grants for FY2015—$430.9 million and $149.9 million more than the $1.02 billion and $757.0 million requested by the President and proposed in the House-reported bill, respectively, as shown in Table 1 . The SRFs help finance local wastewater and drinking water infrastructure projects, such as constructing and modifying municipal sewage treatment plants and drinking water treatment plants, to facilitate compliance with the Clean Water Act and the Safe Drinking Water Act, respectively. EPA awards SRF capitalization grants to states and territories based on formulas. An ongoing issue for Congress has been the extent of federal financial assistance still needed to help states maintain sufficient capital in their SRFs to meet local water infrastructure needs. While expressing recognition of the importance of the Clean Water and Safe Drinking Water SRFs, some Members have contended that funding these accounts through regular appropriations is unsustainable, and during the 113 th Congress authorizing committees examined potential funding mechanisms for the SRFs that are sustainable in the long term. Some advocates of a prominent federal role have cited estimates of hundreds of billions of dollars in long-term needs among communities, and the expansion of federal water quality requirements over time, as reasons for maintaining or increasing the level of federal financial assistance. Others have called for more self-reliance among state and local governments in meeting water infrastructure needs within their respective jurisdictions. Water Infrastructure in Geographic-Specific Areas As in past appropriations, P.L. 113-235 also included funding within the STAG account for FY2015 to support other water infrastructure projects in two geographic-specific areas: Alaska Native Villages and the U.S.-Mexico Border region. The FY2015 amount for the construction of wastewater and drinking water facilities in Alaska Native Villages was $10.0 million, the same as proposed for FY2015 in the President's FY2015 request, the House committee reported bill, and the Senate subcommittee chairman's draft and enacted for FY2014. The FY2015 enacted appropriations included $5.0 million within the STAG account for wastewater infrastructure projects along the U.S.-Mexico border, the same as proposed in FY2015 in the President's request and the House committee reported bill and enacted for FY2014 but less than the $7.5 million recommended for FY2015 in the Senate subcommittee chairman's draft. See Table 1 earlier in this report for a comparison of FY2015 enacted appropriations for these other water infrastructure grants to funding proposed in the House committee reported bill, the Senate subcommittee chairman's draft, and the FY2015 President's budget request and included in the FY2014 enacted appropriations. Categorical Grants to States and Tribes P.L. 113-235 included $1.05 billion for the STAG account for FY2015 to support state and tribal "categorical" grant programs, the same as the FY2014 enacted level but $76.0 million (6.7%) below the President's FY2015 request of $1.13 billion. These funds are allocated among multiple grants generally to states and tribes to support the day-to-day implementation of federal environmental laws and regulations and to support various activities that address particular environmental media (air, water, hazardous waste, etc.). Implementation by states involves a range of activities such as monitoring, permitting and standard setting, training, and other pollution control and prevention activities. These grants also assist multimedia projects such as pollution prevention, pesticides and toxic substances enforcement, the tribal general assistance program, and environmental information. Categorical grants to assist states and tribes with the implementation of federal air quality requirements are discussed in more detail in the following section on " Air Quality and Climate Change Activities ." Table 2 below presents the FY2015 enacted funding levels for EPA categorical grant programs compared to the President's FY2015 request and FY2014 enacted appropriations. Amounts proposed in H.R. 5171 as reported and the Senate chairman's draft are also presented in the table. Air Quality and Climate Change Activities Several EPA air quality and climate change activities received attention during the consideration of FY2015 appropriations. Many of these activities are associated with regulations under the Clean Air Act (CAA), in particular those that address GHGs. The agency's response to a 2007 U.S. Supreme Court decision finding that the CAA definition of air pollutants was broad enough to include GHGs remains a prominent issue in association with EPA's climate change activities. EPA's January 8 and June 2, 2014, proposed rules regarding GHG emission standards for new and existing fossil fueled power plants in particular have garnered considerable attention. The impacts of these and other CAA actions on various sectors of the economy have been a topic of multiple hearings before the appropriations committees and various other committees. Other recently proposed or promulgated EPA actions under the CAA that received some attention in the FY2015 appropriations debate included certain air quality issues regarding certain aspects of livestock operations. P.L. 113-235 included two general provisions in Title IV of Division F preventing EPA from using any funds provided in the act ("or any other Act") for two specific air quality regulatory activities related to GHG emissions. Section 420 addresses regulations for the issuance of permits under Title V of the Clean Air Act that would govern GHG emissions from biological processes associated with livestock production. Section 421 addresses reporting requirements for GHG emissions associated with manure management systems. (See " Funding Restrictions/Prohibitions .") An additional general provision included in Section 435 of H.R. 5171 as reported that would have restricted funding to implement certain aspects of GHG New Source Performance Standards (NSPS) for, or modifications to, existing fossil-fuel-fired electricity utility generating units (see Appendix A ) was not included in P.L. 113-235 . Similar to the general provision included in Title IV of the Consolidated Appropriations Act, 2014 ( P.L. 113-76 , §419), Section 418 in P.L. 113-235 (Title IV of Division F) requires the President to submit a comprehensive report to the House and Senate Appropriations Committees detailing all federal (including EPA) obligations and expenditures, domestic and international, for climate change programs and activities by agency for FY2014 and FY2015. EPA is one of as many as 17 federal agencies that have received appropriations for climate change activities in recent fiscal years. EPA's share of this funding is relatively small, but EPA's policy and regulatory roles are proportionately larger than those of other federal agencies and departments. Appropriated funds for EPA's climate change and air quality activities are distributed across several program activities under multiple appropriations accounts. Because of variability in these activities and modifications to account structures from year to year, it is difficult to compare the overall combined funding included in appropriations bills with the President's request and prior-year enacted appropriations. However, comparisons can be made among certain activities for which Congress does specify a line-item in the appropriations process. As presented in Table 3 , EPA "clean air and climate" activities constitute the single largest air quality program area funded within the Environmental Programs and Management (EPM) and Science and Technology (S&T) accounts. The combined total of the two accounts enacted for FY2015 for this program area was $389.6 million—$34.6 million (8.1%) less than the President's FY2015 request of $424.2 million and $8.3 million (2.1%) less than the FY2014 enacted level of $397.9 million. State and Local Air Quality Management grants are the single largest air quality activity funded within the STAG account. The FY2015 enacted appropriation for these grants in P.L. 113-235 was $228.2 million, the same as FY2014 enacted but $15.0 million (6.2%) less than the President's FY2015 request of $243.2 million. States use these grants to help pay the costs of operating air pollution control programs. Much of the day-to-day operations of these programs (i.e., monitoring, permitting, enforcement, and developing site-specific regulations) are done largely by the state and local agencies with Clean Air Act authorities delegated by EPA. In the STAG account, the FY2015 enacted appropriation included $30.0 million for FY2015 for the Diesel Emission Reduction Grants program, $10.0 million (50.0%) more than the FY2014 enacted level of $20.0 million. The FY2015 President's budget request had proposed no funding. Of note, the FY2013 post-sequestration funding level was $18.9 million, and the FY2012 enacted level was $30.0 million. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) had provided an additional $300.0 million in supplemental funds for these grants in FY2009 for a total of $360.0 million in that fiscal year, much of which was awarded in FY2010. The Energy Policy Act of 2005 had originally authorized $200.0 million annually for these grants from FY2007 through FY2011. The FY2015 enacted appropriations included funding for "Targeted Airshed Grants" within the STAG account to reduce air pollution in areas designated as nonattainment, which was proposed by the House Appropriations Committee in H.R. 5171 as reported. As specified in the explanatory statement accompanying H.R. 83 , the FY2015 Consolidated and Continuing Further Appropriations Act, these grants are to be distributed "on a competitive basis to non-attainment areas that EPA determines are ranked as the top five most polluted areas relative to annual ozone or particulate matter 2.5 standards." No funding was requested for these grants or included in the FY2014 enacted appropriations. P.L. 113-235 included $8.1 million for state indoor radon (categorical) grants within the STAG account, the same as the FY2014 enacted amount. The President had not requested any funding to continue this program in FY2015. As in the FY2014 request, the President's FY2015 request proposed eliminating the radon grant program, noting the Administration's position that states and local agencies had established the necessary technical expertise and program funding in place to continue radon protection efforts without federal funding. Additionally, the President's FY2015 proposal to eliminate the radon program within the S&T and the EPM account was rejected in the explanatory statement accompanying H.R. 83 , although no funding for the radon program was specified in either account within the total appropriated for the Indoor Air and Radiation program area. Cleanup of Superfund Sites The Hazardous Substance Superfund account (hereinafter referred to as the Superfund account) supports the assessment and cleanup of contaminated sites administered under EPA's Superfund program. CERCLA authorized this program and established the Superfund Trust Fund to finance discretionary appropriations to fund it. As indicated in Table 1 , P.L. 113-235 included a total of $1.09 billion for the Superfund account for FY2015 (prior to transfers to other EPA accounts), the same as the FY2014 enacted appropriations and slightly higher than the Senate subcommittee chairman's draft but $67.8 million (5.9%) below the $1.16 billion total proposed in the President's FY2015 request and in H.R. 5171 as reported. Funding levels for the Superfund account have been declining each fiscal year since FY2010. Prior to that time, Superfund appropriations had continued at a level of approximately $1.25 billion annually for over a decade, with the exception of $600.0 million in supplemental funds provided for FY2009 in P.L. 111-5 . Most of the funding within the Superfund account is allocated to the cleanup of sites that EPA has placed on the National Priorities List. Debate regarding the sufficiency of funding for the Superfund program has centered primarily on the pace and adequacy of cleanup at these sites. The source of funding for the program has also been an issue. There has been some interest in reinstating Superfund taxes on industry to help support the Hazardous Substance Superfund Trust Fund. Congress appropriates monies out of this trust fund to support EPA's Superfund program. The President's FY2015 budget request included a proposal to reinstate Superfund taxes beginning in tax year 2015 and ending in tax year 2024, which would be subject to the enactment of reauthorizing legislation. Superfund tax reauthorization legislation has been introduced in each Congress since the taxing authority expired at the end of 1995, including the 113 th Congress. Reauthorization legislation has not been enacted to date in any Congress since 1995. P.L. 113-235 did not include language to reauthorize Superfund taxes. Brownfields EPA also administers a separate Brownfields program to provide financial assistance to clean up sites not addressed under the Superfund program but where the known or suspected presence of contamination may present an impediment to economic redevelopment. Funding for EPA's Brownfields program awards two different categories of grants, one competitive and one formula-based. Section 104(k) of CERCLA authorizes EPA to award competitive grants to state, local, and tribal governmental entities for the assessment and remediation (i.e., cleanup) of eligible brownfields sites, job training for cleanup workers, and technical assistance. Section 128 authorizes EPA to award formula-based grants to help states and tribes enhance their own similar cleanup programs. These grants are funded within the STAG account, whereas EPA's expenses to administer the Brownfields program are funded within the Environmental Programs and Management (EPM) account. Within these two accounts combined, P.L. 113-235 included $153.3 million for EPA's Brownfields program in FY2015: $25.6 million within the EPM account; and within the STAG account, $80.0 million for Section 104(k) grants (see Table 1 ) and $47.7 million for Section 128 grants (see Table 2 ). The program total for FY2015 is a $7.7 million (4.8%) decrease from the President's FY2015 request of $161.0 million, $10.4 million (6.4%) less than the $163.7 million included in the Senate subcommittee chairman's draft for FY2015 and in the FY2014 enacted appropriation but a $6.6 million (4.5%) increase above the $146.4 million proposed in the House committee reported bill. Geographic-Specific/Ecosystem Programs EPA's Environmental Programs and Management (EPM) account includes funding for several ecosystem restoration and wetlands protection programs to address water quality and sources of pollution associated with environmental and human health risks, including those in a number of geographic-specific areas of the United States. The funding adequacy for these geographic programs garnered considerable attention during the FY2015 appropriations debate, as in previous fiscal years. Included are funding for the National Estuary Program (NEP) and Coastal Waterways program area and for certain specific water bodies including the Great Lakes and Chesapeake Bay. These programs often involve collaboration among EPA, other federal agencies, state and local governments, communities, and nonprofit organizations. Table 4 presents the FY2015 enacted appropriations for EPA's ecosystem restoration and geographic specific programs compared to the FY2015 proposed funding levels included in H.R. 5171 as reported and the Senate subcommittee chairman's draft, the President's FY2015 request, and the FY2014 enacted amounts. National (Congressional) Priorities P.L. 113-235 included a total of $16.8 million for "National Priorities" within the S&T and EPM accounts for FY2015, roughly the same amount appropriated for this purpose for FY2014. As in previous fiscal years, the President's FY2015 request did not include funding for these priorities, which the Administration has characterized as "Congressional Priorities" because it has not sought funds for these purposes. Of the $16.9 million total, $4.1 million was included within the S&T account for FY2015 for "Research: National Priorities." These funds are to be used for competitive extramural research grants to support high-priority water quality and availability research of national scope by "not-for-profit organizations who often partner with the Agency." The grants are to be independent of the Science to Achieve Results grant program. The grants are subject to a 25% matching funds requirement. The remaining $12.7 million was included within the EPM account for FY2015 for "Environmental Protection: National Priorities." These funds are to be used for competitive grants to qualified not-for-profit organizations to provide rural and urban communities or individual private well owners with technical assistance to improve water quality or safe drinking water. The grants are subject to a 10% matching funds requirement (including in-kind contributions). Of the $12.7 million, $11.0 million was allocated for training and technical assistance on a national level or multi-state regional basis, and $1.7 million was allocated for technical assistance to individual private well owners. Although Congress has dedicated funding for these "National" or "Congressional" priorities, they have not been categorized as earmarks by the House or Senate generally because the language would not direct the funding to one specific entity or specific location, and the funding would be awarded on a competitive basis. The House and Senate Appropriations Committees have adhered to an earmark moratorium during the 112 th and 113 th Congresses as put forth by the leadership in both chambers. This moratorium has generally precluded earmarks in annual appropriations bills for FY2011, FY2012, FY2013, and FY2014. The moratorium followed the adoption of definitions of earmarks in House and Senate rules. While there is no consensus on a single earmark definition among all practitioners and observers of the appropriations process, the Senate and House both in 2007 adopted separate definitions for purposes of implementing new earmark transparency requirements in their respective chambers. In the House rule, such a funding item is referred to as a congressional earmark (or earmark ), while in the Senate rule, it is referred to as a congressionally directed spending item (or spending item ). EPA Staff Level Figure 1 below provides a trend in EPA's authorized "Full Time Equivalent" (FTE) employment ceiling from FY2001 through FY2014, and as requested for FY2015 as reported in the EPA FY2015 Congressional Justification. The FY2015 requested level of 15,325 is reportedly the lowest since FY1989. Information prior to FY2001 is available on EPA's Budget and Planning website at http://www2.epa.gov/planandbudget/budget . Also, in March 2000, the Government Accountability Office (GAO) reported that EPA FTEs increased by about 18% from FY1990 through FY1999, with the largest increase (13%, from 15,277 to 17,280 FTEs) occurring from FY1990 though FY1993. From FY1993 through FY1999, GAO indicated that EPA's FTEs grew at a more moderate rate: less than 1% per year. As indicated in Figure 1 , with the exception of increases in four fiscal years, the general trend has been downward since FY2001. Appendix A. Funding Prohibitions Proposed in H.R. 5171 as Reported but Not Retained in P.L. 113-235 A number of EPA regulatory actions and related issues were the focus of considerable debate regarding EPA's FY2015 appropriations. More than a dozen provisions directed at EPA were included in the general provisions in Title IV of H.R. 5171 as reported by the House Appropriations Committee, including several that would have prohibited or restricted the use of appropriated funds. As noted earlier in this report (see " Funding Restrictions/Prohibitions ") relatively few of the prohibitive provisions proposed in the House committee reported bill were retained in the Consolidated and Further Appropriations Act, 2015 ( P.L. 113-235 ). The proposed provisions, if enacted, generally would have restricted or prohibited the use of funds as appropriated in the bill (and in some cases "other Acts") to carry out certain EPA regulatory actions across the various environmental pollution control statutes. The funding prohibitions proposed in H.R. 5171 but not retained in P.L. 113-235 would have impacted various ongoing and anticipated EPA activities, including EPA's proposed standards for reducing GHG emissions from existing and new (or substantially modified) stationary sources and a proposed rule intended to clarify jurisdictional issues and the definition of navigable waters under the Clean Water Act. Other provisions proposed in the House committee reported bill would have limited any EPA activities that would address lead-based paint removal, the definitions of the terms ''fill material'' or ''discharge of fill material" under the Clean Water Act, and financial responsibility with respect to Superfund cleanup. An amendment adopted during the markup would have prohibited EPA from using funds to finalize a rule entitled "Administrative Wage Garnishment" (79 Federal Register 37704 et seq., July 2, 2014). Descriptions of selected provisions included in H.R. 5171 but not retained in the Consolidated and Further Appropriations Act, 2015 ( P.L. 113-235 ) are presented below. The following bulleted list is a summary of the language included in the House-reported bill, not an analysis of each, which is beyond the scope of this report. Section 429 (Waters of the United States ) would have prohibited the use of funds made available in "this act" (referring to the bill as proposed) or any other act for any fiscal year to develop, adopt, implement, administer, or enforce a change or supplement to a rule or guidance documents pertaining to the definition of waters under the Federal Water Pollution Control Act (33 U.S.C. §1251, et seq.), including the provisions of the rules dated November 13, 1986, and August 25, 1993, relating to said jurisdiction and the guidance documents dated January 15, 2003, and December 2, 2008. Section 433 (Lead Test Kit) would have prohibited the use of funds made available by this act to implement, administer, or enforce the lead renovation rule under the "Lead; Renovation, Repair, and Painting Rule" or any subsequent amendments to such regulations until the EPA administrator approved and publicized the agency's recognition of a commercially available lead test kit that meets both criteria under 40 C.F.R. 745.88(c). Section 434 (Financial Assurance) would have prohibited the use of funds made available by this act to develop, propose, finalize, implement, enforce, or administer any regulation that would establish new financial responsibility requirements pursuant to Section 108(b) of CERCLA (42 U.S.C. 9608(b)). Section 435 (GHG NSPS) would have prohibited the use of funds made available by this act to propose, implement, or enforce (1) any standard of performance under Section 111(b) of the Clean Air Act (42 U.S.C. 7411(b), CAA) for any new fossil-fuel-fired electricity utility generating unit if the EPA administrator's determination that a technology is adequately demonstrated includes consideration of facilities for which assistance is provided under Subtitle A under Title IV of the Energy Policy Act of 2005 or Section 48A of the Internal Revenue Code of 1986; or (2) any regulation or guidance under Section 111(b) of the CAA establishing any standard of performance for emissions of any greenhouse gas (GHG) from any modified or reconstructed source that is a fossil-fuel-fired electricity utility generating unit or under Section 111(d) of the CAA that applied to the emission of any GHG from any existing source that is a fossil-fuel-fired electricity utility generating unit. Section 436 (Protection of Personal Information) would have prohibited the use of funds made available by this act by the EPA administrator to compile, publicly disclose, or compel the consent of public disclosure of any personally identifiable information of owners, operators, and employees of any livestock, poultry, or dairy operations unless such personally identifiable information was transformed into a statistical or aggregated form at the county level or higher unless the personally identifiable information or such information is voluntarily offered by consent of the owner, operator, or employee. Section 439 (Definition of Fill Material) would have prohibited the use of funds made available in this act or any other act to make any change to the regulations in effect on October 1, 2012, pertaining to the definitions of the terms ''fill material'' or ''discharge of fill material" for the purposes of the Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.). Section 441 (Funding Prohibition) would have prohibited the use of funds made available in this act or any other act to promulgate any rule that "identifies, lists, or treats" certain scrap metals or certain shredded circuit boards as hazardous wastes under Subtitle C of the Solid Waste Disposal Act (42 U.S.C. 6921 et seq.). Section 443 (Wage Garnishment) would have prohibited the use of funds made available by this act to finalize, implement, administer, or enforce the proposed rule entitled "Administrative Wage Garnishment" published by EPA in the Federal Register on July 2, 2014 (79 Federal Register 37704 et seq.), under which EPA would adopt procedures previously established by the Department of the Treasury for purposes of garnishment of wages to satisfy delinquent non-tax debt owed to the federal government. Appendix B. Historical Funding Trends Table B-1 presents the level of FY2008-FY2014 enacted appropriations for EPA by each of the agency's statutory accounts. EPA's funding over the long term has generally reflected an increase in overall appropriations to fulfill a rising number of statutory responsibilities. EPA's historical funding trends tend to parallel the evolution of the agency's responsibilities over time, as Congress has enacted legislation to authorize the agency to develop and administer programs and activities in response to a range of environmental issues and concerns. In terms of the overall federal budget, EPA's annual appropriations have represented a relatively small portion of the total discretionary federal budget (just under 1% in recent years). Without adjusting for inflation, EPA's funding has grown from $1.0 billion when EPA was established in FY1970 to a peak funding level of $14.86 billion in FY2009. This peak includes regular fiscal year appropriations of $7.64 billion provided for FY2009 in P.L. 111-8 and the supplemental appropriations of $7.22 billion provided for FY2009 in P.L. 111-5 , the American Recovery and Reinvestment Act of 2009. However, in real dollar values (adjusted for inflation), EPA's funding in FY1978 was slightly more than the level in FY2009.

Enacted on December 16, 2014, Title II of Division F of the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235; H.R. 83) provided $8.14 billion for the Environmental Protection Agency (EPA) for FY2015. The act appropriated funding for the full fiscal year through September 30, 2015, for 11 of the 12 regular appropriations acts, including "Interior, Environment, and Related Agencies," under which EPA is funded. Total discretionary appropriations available in FY2015 for all federal departments and agencies were based on a cap of $1.014 trillion set in the Bipartisan Budget Act of 2013 (P.L. 113-67, Division A). No regular appropriations acts for FY2015—including the Interior, Environment, and Related Agencies—were enacted prior to the start of the fiscal year. Instead, EPA and other federal departments and agencies operated under a series of continuing resolutions prior to the enactment of P.L. 113-235. The total FY2015 enacted appropriations of $8.14 billion for EPA was a $249.9 million (3.2%) increase above the President's FY2015 request of $7.89 billion but $60.1 million (0.7%) below the FY2014 enacted appropriations of $8.20 billion. The July 15, 2014, House Appropriations Committee–reported bill H.R. 5171, for the Interior, Environment, and Related Agencies would have provided $7.48 billion for EPA for FY2015. The chairman of the Senate Interior, Environment, and Related Agencies Appropriations Subcommittee recommendations for FY2015 in the form of a draft bill on August 1, 2014, would have provided a total of $8.18 billion for EPA. There were both increases and decreases across the individual program activities funded within the nine EPA appropriations accounts when comparing the FY2015 enacted appropriations with those proposed for FY2015 and the FY2014 enacted levels. Considerable attention during the debate and hearings on EPA's appropriations for FY2015 focused on federal financial assistance to states for wastewater and drinking water infrastructure projects, various categorical grants to states to support general implementation and enforcement of federal environmental programs as delegated to the states, funding for the agency's implementation and research support for air pollution control requirements, EPA actions to address climate change and greenhouse gas emissions, and funding for environmental cleanup. In addition to funding for specific programs and activities, several recent and pending EPA regulatory actions received attention during hearings on FY2015 appropriations for EPA—similar to the debate regarding appropriations for the agency for recent fiscal years. The general provisions in Title IV of Division F of P.L. 113-235 included provisions restricting the use of funds for certain EPA actions similar to those contained in previous recent appropriations but only a subset of those included in the House committee reported bill, H.R. 5171. Provisions retained in P.L. 113-235 address EPA air quality regulation of livestock operations and reporting requirements for manure systems, use of U.S. iron and steel for drinking water infrastructure projects, and EPA regulation of lead in ammunition and fishing tackle. This CRS report provides an overview of funding levels for EPA accounts and certain program activities specified in P.L. 113-235 compared to H.R. 5171 as reported, the Senate subcommittee chairman's draft, the President's FY2015 request, and FY2014 enacted appropriations. The report also highlights issues associated with a subset of accounts and programs that were prominent in the debate on EPA's FY2015 appropriations during the 113th Congress.

Introduction Article I, Section 7, clause 1 of the U.S. Constitution, is known generally as the "Origination Clause" because it requires that All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills. As generally understood in both the House and Senate, this clause carries two kinds of prohibitions. First, the Senate may not originate any measure that includes a provision for raising revenue, and second, the Senate may not propose any amendment that would raise revenue to a non-revenue measure. The Senate, however, may generally amend a House-originated revenue measure as it sees fit. These prohibitions can be enforced in either the House or the Senate, and there are ample precedents for both. As with many provisions of the Constitution, the precise meaning and application of these few words has been refined through practice and precedent since it was first ratified. This report examines the historical record with regard to the origins of the clause, and analyzes its evolution, describing congressional and court precedents, to provide a summary of how the clause is currently understood. This report also examines the various procedures by which disputes concerning the Origination Clause have been resolved. The Constitutional Convention and the Origination Clause Among the most significant issues debated at the constitutional convention in Philadelphia were those relating to the respective roles for the proposed House of Representatives and Senate. Vesting the authority to originate revenue measures in the House exclusively was one aspect of the compromise whereby delegates from small and large States agreed in principle to a bicameral Congress. What role each chamber would play, and what authority each would exercise, was not easily arrived at. In particular, how authority would be assigned with regard to legislation concerning money was one of the more salient aspects of that debate. The idea that some or all money bills should originate in the popularly elected chamber of the legislature was a product of British and colonial experience, an experience that had been rekindled when the newly independent states adopted new constitutions in 1776 or shortly thereafter. A number of delegates to the Philadelphia Convention felt strongly that, for the federal government, the power to originate money bills should also reside solely in the House of Representatives, because it, unlike the Senate, would be directly elected by people. In the words of Elbridge Gerry, a delegate to the convention from Massachusetts: Taxation and representation are strongly associated in the minds of the people, and they will not agree that any but their immediate representatives shall meddle with their purses. As first proposed by Gerry on June 13, 1787, the convention rejected, 3-8, a proposal to add language providing that "money bills ... shall originate in the first branch of the national legislature." The issue was addressed again by the Compromise Committee on Representation, chaired by Gerry, on July 3. The committee's report recommended that [A]ll Bills for raising or appropriating money and for fixing the salaries of the Officers of the Government of the United States, shall originate in the first Branch of the Legislature, and shall not be altered or amended by the second Branch—and that no money shall be drawn from the public Treasury but in pursuance of appropriations to be originated by the first Branch. This proposal was paired by the committee with one providing that "in the second Branch of the Legislature each State shall have an equal Vote." This time the convention voted, 5-3, to retain the restriction. On August 8, the question was raised again on the grounds that the provision unnecessarily restricted the legislative role of the Senate. Although George Mason of Virginia feared that striking the provision could "unhinge the compromise of which it made a part," the convention voted, 7-4, to strike it. Edmund Randolph of Virginia subsequently suggested that the problem of the earlier language was that it could be interpreted so broadly that it could apply to legislation that only incidentally raised money, and proposed modifying it. His proposal made the language more specific regarding what legislation the Senate might originate, prohibiting only "bills for raising money for the purpose of revenue or for appropriating the same." However, the same proposal also included language to restrict the Senate's role in considering such legislation by providing that it could not be "amended or altered by the Senate as to increase or diminish the sum to be raised, or change the mode of levying it, or the object of its appropriation." Randolph's arguments invoked the clause's part in the compromise which had given the smaller States equal representation in the Senate, and called on them to support the proposal. On August 11, he successfully moved that the convention to reconsider the question, but on August 13 the new language was rejected, 4-7. On August 15, Caleb Strong of Massachusetts again raised the question of the original Gerry language, this time altered to allow the Senate to "propose or concur with amendments as in other cases." The convention postponed deciding the question that day, and again on September 5. Finally, on September 8, the language of Strong's proposal was revised, and the Origination Clause was adopted by the convention, 9-2, in the form that was later ratified. Interpreting the Origination Clause Although the application of the Origination Clause was discussed at the Philadelphia convention, the Constitution does not provide specific guidelines as to what constitutes a bill for raising revenue. The meaning of a "Bill for raising Revenue" is therefore a question of interpretation. As a result, Congress and federal courts both have played roles in establishing the precedents that guide interpretation and application of the Origination Clause. The House As it is the House that is most frequently called upon to enforce the Origination Clause, its precedents have played a primary role in defining what makes a bill for raising revenue. The rules and practices of the House use the concept of "revenue" in two separate, but related, procedures. First, in connection with enforcing House prerogatives under the Origination Clause when considering a resolution to return a bill to the Senate (a "blue-slip resolution"), and second, when enforcing within the House the exclusive jurisdiction of the House Committee on Ways and Means over all measures "carrying a tax or tariff." The connection between the two uses is made explicit when, at the beginning of each Congress, the Speaker of the House enunciates certain policies with respect to several aspects of the legislative process. One of these policies concerns "guidance concerning the referral of bills, to assist committees in staying within their appropriate jurisdictions ... and to protect the constitutional prerogative of the House to originate revenue bills." In both instances the House applies a broad standard, based on whether the measure in question has revenue-affecting potential, and not simply whether it would raise or lower revenues directly. For example, any change in import restrictions may be regarded by the House as falling within the purview of the Origination Clause, because it could have an impact on tariff revenues. In 1992, the House returned to the Senate a bill ( S. 884 , 102 nd Congress) to require the President to impose economic sanctions, including a ban on certain imports, against countries which fail to eliminate large-scale driftnet fishing. In 1999, the House returned to the Senate a bill ( S. 254 , 105 th Congress) effectively banning the import of certain assault weapon attachments. House precedent, as articulated by the policy of recent Speakers of the House, construes the chamber's prerogatives broadly to include "any meaningful revenue proposal," but may also include other types of receipts which may not fall strictly within a technical definition of revenues. This interpretation is framed by the Speaker in terms of House committee jurisdictions and referrals, but it also informs the House's understanding of what constitutes non-revenue receipts that are not subject to the Origination Clause. While the House rules grant exclusive jurisdiction over revenues to the Ways and Means Committee, they also allow for various other standing committees of the House to consider legislation concerning non-revenue receipts, such as: user, regulatory and other fees, charges, and assessments levied on a class directly availing itself of, or directly subject to, a governmental service, program, or activity, but not on the general public, as measures to be utilized solely to support, subject to annual appropriations, the service, program, or activity ... for which such fees, charges, and assessments are established and collected and not to finance the costs of Government generally. The fee must be paid by a class benefitting from the service, program or activity, or being regulated by the agency; in short, there must be a reasonable connection between the payors and the agency or function receiving the fee. One example of the distinction between revenue and non-revenue receipts having an impact on the House's interpretation of the Origination Clause is the case of S. 104 (105 th Congress). This legislation would have repealed one fee and replaced it with another. It was the repeal of the original fee, but not Senate origination of a new fee, that triggered House action. The new fee was to be limited to the amount appropriated to cover the cost of nuclear waste disposal. Due to the fact that the new fee was tied to the actual cost of the activity, and was to be borne by the entities directly involved, the House did not question the Senate's authority to originate it. The proceeds from the original fee, however, were uncapped, and fees collected in excess of the associated costs were deposited in the general fund in the Treasury and used to finance the federal government generally. Repeal of the original fee was determined by the House to have a direct impact on revenues, and therefore subject to the Origination Clause, resulting in the measure being blue-slipped. Overall, House precedents indicate a wide spectrum of tax and tariff actions that have been excluded on the basis of the Origination Clause. In addition to the above, examples of measures that the House has returned to the Senate include the following: a concurrent resolution reinterpreting a definition in the tariff act of 1922; bills providing for a bond issue; amending the Silver Purchase Act; exempting receipts from the operation of the Olympic Games from taxation; and redetermining a sugar quota involving a combination of tariff duties and incentive payments. The Senate Although the Senate's role in determining what constitutes a bill for raising revenues is less prominent than that of the House, its precedents have, nevertheless, also shaped the application of the Origination Clause. The Senate's practices have influenced the definition of revenues in two ways: (1) when the Senate rules certain measures out of order, and (2) when the Senate declines to take up certain measures absent a House-originated revenue bill. The primary impact of Senate practices, however, has been to underscore the House's interpretation of what constitutes revenue in a constitutional sense. Some examples of this include the following: The Senate has sustained a point of order against a bill that included revenues that would be paid into the general fund of the Treasury, rather than being set aside for a specific purpose; The Senate has declined to sustain a point of order against a bill that included postal rates on the grounds that postal charges are not considered revenue, even though they would be deposited into the general fund, because the payments would be made in exchange for specific services; The Senate has refused to consider a bill concerning international commerce in oil and oil products on the grounds that import restrictions have a direct impact on tariff revenues. Article I, Section 7, provides that the Senate may propose or concur with amendments as on other bills, but there have been occasions on which either the House or Senate has debated the question of how expansively the Senate's amending authority should be interpreted. Some of the earliest precedents show that in the 19 th century the House sometimes exhibited a fairly restrictive view of the Senate's authority to amend a revenue bill, and regarded the Origination Clause as limiting the Senate only to germane amendments. For example, in 1807, the House objected to consideration of Senate amendments to a tariff bill that went beyond the details of the bill, and in 1872, the House tabled a Senate substitute to a House revenue bill when it sought to expand significantly the scope of the underlying measure. In the latter example, the House had passed H.R. 1537 (42 nd Congress) which repealed duties on coffee and tea, whereas the Senate amendment contained a general revision, of various laws imposing duties and internal taxes. In the House, James A. Garfield, stated that I do not deny their [the Senate's] right to send back a bill of a thousand pages as an amendment to our two lines. But I do insist that their thousand pages must be on the subject matter of our bill. In reaction to the House, the Senate Committee on Privileges and Elections issued a report stating that it has been urged that to permit the Senate to ingraft, by way of amendment, a general tariff bill upon a bill of the House laying a duty on peanuts, is entirely to disregard the spirit of the clause of the Constitution before quoted. In reply it may be said, however, that any other construction of this constitutional provision would deny to the Senate the power to amend a House bill laying a duty on peanuts so as to lay a duty upon English walnuts; that is, would deny to the Senate the power of making to the bill anything more than mere formal amendments. The report, however, conceded that the Senate's amendment authority is not unlimited; that it cannot propose an amendment raising revenue to any House-originated bill, only to a bill for raising revenue. More recent precedents exhibit no general restriction on the Senate's amendment authority, leaving the Senate free to propose any amendment allowed under Senate rules to House originated revenue measures. As currently understood, because the Senate has no rule requiring that amendments to revenue bills be germane, the constitutional provision allowing the Senate to "propose or concur with amendments as on other Bills" opens the door to Senate action on a wide range of possible alternatives. In this way, the Senate may "originate" specific tax provisions, even though it may not originate tax measures. Chief Justice Edward White, writing the majority opinion in Rainey v. United States stated that the section was proposed by the Senate as an amendment to a bill for raising revenue which originated in the House. That is sufficient .... it is not for this Court to determine whether the amendment was or was not outside the purposes of the original bill. Similarly, in 1968, the House refused to hold that a Senate amendment to add a general surtax on income to a House-originated bill concerning excise tax rates was a violation of the Origination Clause. Another, illustration of the Senate's latitude is the Tax Equity and Fiscal Responsibility Act of 1982. In this instance, the Senate took a House originated measure concerning tariffs that had passed the House in 1981 ( H.R. 4961 , 97 th Congress), and amended it to include major revenue increases. The Supreme Court The Supreme Court has established its own understanding of the phrase "a bill for raising revenues." In general, the Court's definition has had a somewhat narrower application than that used by the House. Some cases that the House has regarded as a violation of its prerogative might not fall within the Court's understanding of a violation of the Origination Clause. This may be because by the time the Court hears a dispute, the measure in question has been passed by the House and Senate and become law, and therefore carries a presumption of constitutionality. The Court has traditionally been reluctant to void a duly enacted law unless plainly in violation of the Constitution. The Court's direct involvement in defining the meaning of the Origination Clause dates back at least to 1813 when Justice Joseph Story wrote that revenue laws are those made for the direct and avowed purpose for creating and securing revenue or public funds for the service of the government. No laws, whose collateral and indirect operation might possibly conduce to the public or fiscal wealth, are within the scope of the provision. Later, in his Commentaries on the Constitution , Story reiterated this position when he wrote that the meaning of the Origination Clause was confined to bills to levy taxes in the strict sense of the words, and has not been understood to extend to bills for other purposes, which may incidentally create revenue. The meaning of "revenue" was further discussed in United States ex rel. Michels v. James where a circuit court held that a bill to increase postage rates that had originated in the Senate did not violate the Origination Clause because it did not fall within the definition of a revenue bill. Certain legislative measures are unmistakably bills for raising revenue. These impose taxes upon the people, either directly or indirectly, or lay duties, imposts or excises, for the use of the government, and give to the persons from whom the money is exacted no equivalent in return, unless in the enjoyment, in common with the rest of the citizens of the benefit of good government .... A bill regulating postal rates for postal service, provides an equivalent for the money which the citizen may choose voluntarily to pay. The court's understanding of the Origination Clause is therefore based on two central principles that tend to narrow its application to fewer classes of legislation than the House: (1) raising money must be the primary purpose of the measure, rather than an incidental effect; and (2) the resulting funds must be for the expenses or obligations of the government generally, rather than a single, specific purpose. These principles are illustrated in two often cited cases. In Twin City Bank v. Nebeker , the Supreme Court held that an act to establish a national currency backed by United States bonds, that also imposed a fee on banks based on the average amount of notes in circulation, did not violate the clause because it was not a revenue bill. In this case, the Court ruled that the primary purpose of the bill was to establish a national currency, and the fee on banks was incidental to that purpose. In Millard v. Roberts , the Court held that a bill to impose a tax on property in the District of Columbia to raise money for the express purpose of providing railroad terminal facilities was not a bill to raise revenue because the money raised was for a specific purpose, rather than to meet the general expenses or obligations of the government. A more recent ruling based on these principles appeared in United States v. Munoz-Flores . In this case, the law being challenged required federal courts to impose a monetary "special assessment" on any person convicted of a federal misdemeanor, to be used for some part of the expenses associated with compensating and assisting victims of crime. In the opinion of the Court, the fact that this requirement would create new income for the federal government was not alone sufficient for the measure to be considered a revenue bill. The Court held that the case "falls squarely within the holdings in Nebeker and Millard . In a footnote to the opinion, however, the Court cautioned that A different case might be presented if the program funded were entirely unrelated to the persons paying for the program.... Whether a bill would be "for raising Revenue" where the connection between payor and program was more attenuated is not now before us. In other words, the method by which funds are raised, the purposes for which they are raised, and the connection between these two elements, are issues that may affect the Court's interpretation of the Origination Clause's application in a given case. It should also be noted that federal courts have generally declined to equate the phrase "raising revenue" with "increasing revenue." To do so would be an attempt to apply a "slippery and potentially chameleonic" label to legislation that "may have an effect of increasing revenue under certain economic conditions and decreasing revenue under others." Instead, contemporary courts have adopted the construction given by Congress, that is, relating to, or providing for, revenue. Enforcing the Origination Clause The House The House's primary method for enforcement of the Origination Clause is through a process known as "blue-slipping." Blue-slipping is the term applied to the act of returning to the Senate a measure that the House has determined violates its prerogatives as defined by the Origination Clause. It is called blue-slipping because historically the resolution returning the offending bill to the Senate has been printed on blue paper. This process is provided for under House Rule IX, clause 2(a)(1), which states: A resolution reported as a question of the privileges of the House, or offered from the floor by the Majority Leader or the Minority Leader as a question of the privileges of the House, or offered as privileged under clause 1, section 7, article I of the Constitution [emphasis added], shall have precedence of all other questions except motions to adjourn. Any Member of the House may offer such a resolution, but normally it is the Chairman of the Ways and Means Committee who would do so. Occasionally, another member of the committee may be designated. Consideration of the resolution takes place in the House of Representatives under the one-hour rule. Clause 2(a)(2) further provides that The time allotted for debate on a resolution offered from the floor as a question of the privileges of the House shall be equally divided between (A) the proponent of the resolution, and (B) the Majority Leader, the Minority Leader, or a designee, as determined by the Speaker. It should be noted that because enforcement of the Origination Clause in the House is based on a question of the constitutional privilege of the House, it is not subject to restrictions based on timeliness. The House can assert its privilege at any time it is in possession of the bill and related papers (that is, anytime the actual documents are not physically in possession of the Senate or a conference committee). Therefore, the House is not limited to enforcing its prerogative only through blue-slipping a measure upon its initial receipt from the Senate. Historically, the House has used a variety of methods for enforcement. On a number of occasions the House has chosen to ignore a Senate passed bill, and instead to take action on a House bill. The House may also refer a questionable Senate measure to a committee. In such instances, the committee may choose simply to report a House bill, rather than consider the Senate bill further. The House may also decide to use a conference committee as a venue for deciding Origination Clause questions. It may do so by having the subject committed to conference, or it may determine that an offending provision can be removed in conference without having to take the formal step of blue-slipping. Such an accommodation would not prevent the House from enforcing its prerogatives through blue-slipping after a conference if the offending provision remained in the measure. The House may also move to take up the measure and disagree to the offending Senate amendment, giving the Senate the option of deciding how to proceed. The Senate could then insist on its amendment and attempt to go to conference regardless of House concerns. The Senate could also recede from its amendment and concur with a new amendment not violating House prerogatives. Such a course of action, however, would require unanimous consent. It would also be possible for the Senate simply to recede to the House-passed version, although politically this would be less likely. The Senate According to Riddick ' s Senate Procedure , when a question is raised in the Senate regarding the constitutionality of a measure, including whether the measure contravenes the Origination Clause, it is submitted directly to the Senate for its determination. Similarly, an amendment proposing to raise revenues would be out of order on the same grounds if offered to a non-revenue measure. A point of order against such an amendment would also be submitted by the Presiding Officer directly to the Senate. Such a point of order generally would be debatable and decided by majority vote. The Supreme Court As with other provisions of the Constitution, if the Court were to find that a revenue bill had been passed in violation of the Origination Clause, the consequence would be for the statute or provision to be held invalid. In most instances in which the courts have ruled with regard to Origination Clause matters, it has been as to whether the particular measure was a revenue bill within the meaning of the clause, not as to the question of its origin. Historically, the Court's role in enforcing the Origination Clause has been limited. In most circumstances, Supreme Court Justices have been reluctant to look behind a bill as enrolled to determine its validity. That is, the Court primarily limits its role to determining whether a given measure fits the definition of a bill for raising revenue. Under this approach, when questions of origination are involved, the Court would look to the measure's designation as a House or Senate bill, but not examine the journals of the House or Senate to determine in which house a specific revenue provision may actually have originated. This "enrolled bill rule" generally precludes the courts from questioning the certification by the presiding legislative officers of the House and Senate that an enrolled bill was passed pursuant to proper procedures. The application of the enrolled bill rule to the Origination Clause is illustrated in two cases. In Flint v. Stone Tracy Co. , the Court refused to look beyond the designation of the underlying measure as a House bill. In this case, a House bill that included inheritance tax provisions had been amended by the Senate to contain corporate taxes instead. The Court held that "The bill having properly originated in the House, we perceive no reason in the constitutional provision ... why it may not be amended in the Senate in the manner which it was in this case." In Hubbard v. Lowe , the Cotton Futures Act was voided based on the same idea. In this case, the bill had originated in the Senate, and it was instead the House which had amended the bill. The original Senate bill had sought to prohibit certain contracts by banning them, and all related matters, from the mail, but had been silent with regard to taxes. The House had amended the bill to prohibit these contracts by imposing a prohibitive tax instead. The Supreme Court agreed with the District Court's refusal to go behind the measure's designation as a Senate bill to determine that the tax provision had actually originated in the House. The application of the enrolled bill rule to insulate cases arising from the Origination Clause, however, does not appear to be absolute. In his concurring opinion in United States v. Munoz-Flores , Justice Antonin Scalia stated that under the enrolled bill rule the Court should not look behind the legislation's origination as H.J.Res. 648 (98 th Congress) to determine its validity. To do otherwise would "manifest a lack of respect due a coordinate branch." Further, the Court "should no more gainsay Congress' official assertion of the origin of a bill than we would gainsay its official assertion that the bill was passed by the requisite quorum." In the majority opinion, however, the Court held that while a judicial finding that Congress had passed an unconstitutional law might in some sense be said to entail a "lack of respect" for Congress' judgement, that this was not sufficient to make a question nonjusticiable, on the basis either of the enrolled bill rule or as a political question. Justice Thurgood Marshall, writing the majority opinion of the Court, stated that If it were, every [italic in original] judicial resolution of a constitutional challenge to a congressional enactment would be impermissible .... Congressional consideration of constitutional questions does not foreclose subsequent judicial scrutiny. As a consequence, the Court held that the House was not the sole authority with respect to determining the meaning or enforcement of its prerogatives under the Origination Clause. Although the House certainly can refuse to pass a bill because it violates the Origination Clause, that ability does not absolve this Court of its responsibility to consider constitutional challenges to congressional enactments.... Nor do the House's incentives to safeguard its origination prerogative obviate the need for judicial review. ... In short, the fact that one institution of government has mechanisms available to guard against incursions into its power does not require the judiciary remove itself from controversy by labeling the issue a political question. The opinion further stated that A law passed in violation of the Origination Clause would thus be no more immune from judicial scrutiny because it was passed by both Houses and signed by the President than would a law passed in violation of the First Amendment. Thus, the Court may review a question concerning the Origination Clause, and not rely solely on the enrolled bill doctrine when determining its applicability. The House certainly may determine whether the Origination Clause does or does not apply in a particular case, but a House determination that it does not apply may be subject to Court review. As with other questions brought before it, whether the Court actually would review a case would depend on whether it was brought by someone whom the Court determined had standing, and whether the Court regarded it as a true case or controversy. As a consequence, unlike its rules, which the House may choose not to enforce at its discretion, the House may not choose simply to waive the Origination Clause. Other Legislation and the Origination Clause Appropriations Legislation Historically, the House has asserted from time to time that the Origination Clause applies not only to bills to raise revenues, but to bills to spend revenues as well. Due to this interpretation, the House has customarily originated all money bills, including appropriations bills. The House and Senate disagree on the validity of this position, however. Proponents of the House's position have maintained that the phrase "bills for raising revenues" that appears in the Constitution is synonymous with the more inclusive phrase "money bills." This view has its basis in the fact that when the Constitution was drafted, the British House of Commons possessed the undivided authority to originate all types of money bills. Proponents argue that because the British Parliament was the model for much of the constitutional convention's work, the drafters intended to mirror this authority and grant control over all money bills to the House. They suggest that the debate at the convention concerned primarily whether the Senate should have the authority to amend—not whether the House should have exclusive authority to originate—money bills, and they point to Federalist No. 58 (attributed to Madison), which states: The House of Representatives cannot only refuse, but they alone can propose the supplies requisite for the support of government. They, in a word, hold the purse .... This power over the purse may, in fact, be regarded as the most complete and effective weapon with which any constitution can arm the immediate representatives of the people .... In addition, they argue that the practice of the House to insist upon originating appropriations dated back to the First Congress, and therefore must have been deliberate rather than accidental. In the words of Senator William H. Seward: whatever the Convention may have proposed, and however they may have understood the Constitution which they have framed, the fact is a stubborn one that the Senate has never an appropriations bill, but that it has always conceded to the House of Representatives the origination of appropriations bills ... Opponents counter that by specifically rejecting more inclusive phrases, such as "money bills" or "bills for raising or appropriating money," the drafters were clearly deviating from the British model. They argue that the custom of the House originating appropriations was an outgrowth of mere practice, and gradually developed into a doctrine despite lacking specific constitutional sanction. As with the question of the extent of the Senate's authority to amend House-originated revenue bills, the historical record shows that Congress has examined this issue on several occasions with sometimes conflicting results. In 1856, during a prolonged contest over election of the Speaker and the organization of the House, the House was unable to transact any legislative business. The Senate debated and adopted a resolution directing that, in the name of expediency, the Committee on Finance should prepare and report appropriations bills rather than wait for House action. However, no appropriations appear to have actually been reported as a result. In 1880, a Senate bill making an appropriation was referred to the House Judiciary Committee, with instructions that it inquire into the right of the Senate to originate bills making appropriations. The majority of the committee concluded that the right to originate appropriations was not exclusive to the House, and recommended the House adopt a resolution supporting this position. The minority filed dissenting views reaching the opposite conclusion, and recommended that the House adopt a resolution supporting their position, and return the Senate bill. The House took no action on either recommended resolution, nor on the Senate bill. In 1885, the House again declined to investigate the authority of the Senate to originate appropriations. The House, however, has never formally acknowledged that the Origination Clause does not apply to appropriations, and has returned to the Senate appropriations bills originated by that chamber. In 1953, the House returned to the Senate a measure making appropriations for the District of Columbia, and in 1962, the House returned a measure making appropriations for the Department of Agriculture. In response to the latter episode, the Senate adopted a resolution (S.Res. 414, 87 th Congress) asserting its authority to originate bills appropriating money, and requesting that the question be submitted either to the federal courts for a declaratory judgment, or a commission. The House took no action on this proposal. The following year, during hearings on creating a joint committee on the budget, the Senate Committee on Government Operations heard testimony regarding concerns that the proposal might infringe on the House's prerogatives under the Origination Clause. The committee subsequently requested a study on the question that was published both with the hearing and separately as a Senate document. The study reached the same conclusion as the 1881 House Judiciary Committee study: that there was no constitutional basis for the practice of the House originating appropriations. No further action was taken to incorporate this conclusion into congressional practice, however. Although the constitutional question has never been definitively resolved, in practice the Senate has generally deferred to the House's insistence on originating appropriations. Debt Limit Legislation Questions concerning the level of public debt are often closely related to questions of revenue, since the federal government must use borrowed funds to finance obligations when the level of revenues available is not sufficient. In addition, legislative jurisdiction over these two issues is exercised by the same committees that exercise jurisdiction over tax legislation in both the House and Senate. Historically, it has been the custom that the House has originated legislation to provide for the issuance of federal debt or to establish a limit on the level of federal debt. Neither chamber has asserted that public debt legislation is subject to the Origination Clause, however. Furthermore, questions concerning the purpose or usage of debt securities are not subsumed under questions of origination. The actions of the House in 1946 with regard to debt legislation are consistent with this interpretation. On the broad question of whether or not all legislation concerning public debt was subject to the Origination Clause, the House concluded that it is not. In May 1946, the House debated what course of action to take regarding S.J.Res. 138 (79 th Congress). The proposed joint resolution would have amended the Second Liberty Loan Act by adding to and expanding the purposes for which the proceeds from the sale of federal debt could be used. In the course of debating House action on the Senate measure, Representative John W. McCormack inserted a memorandum in the Congressional Record that stated: [I]t appears to be clear that a bill to raise funds through the sale of Government obligations does not violate the privilege of the House as set forth in article I, section 7, clause 1 of the Constitution. Even if it should be concluded, however, that a bill to raise funds by selling Government bonds violates the privilege of the House, it would be necessary for the House to reach the additional conclusion that Senate Joint Resolution 138 does provide for the raising of funds through the sale of Government obligations ... [The resolution] merely instructs the Secretary of the Treasury how to use funds he is already authorized to raise ... not increase the limit of public-debt issues .... An unnumbered House resolution to return S.J.Res. 138 to the Senate on the grounds that it infringed on the House's prerogatives under the Origination Clause was subsequently referred to the Judiciary Committee, which undertook no action with regard to the constitutional question. On the narrower question of whether legislation specifically concerning the amount of federal debt is subject to the Origination Clause, the House also concluded that it does not apply. In June 1946, the Senate passed a bill to lower the debt limit, which was received in the House and referred to the Committee on Ways and Means. The Committee voted not to recommend that the House return the bill to the Senate, but declined to report the bill to the full House for further action. Instead, the Committee reported a House bill on the same subject which was subsequently passed by the House and Senate and became law. In more recent years, Congress has on two occasions used a Senate bill to increase the limit on the public debt. Conclusion The system of government formulated by the framers of the Constitution in 1787 incorporated an intricate balancing of authorities and prerogatives, between the federal and state governments, among the branches of the federal government, and within the legislative branch, between the House and Senate. On the issue of taxation, the framers sought to mirror British practice by requiring that "All Bills for raising Revenue" originate in the popularly elected House, but balanced this by allowing the Senate the right to amend such bills. Left ambiguous was a precise definition about which measures would comprise revenue bills, and how far the Senate's right to amend them extended. Over the course of more than two centuries of experience, the meaning of the Origination Clause has been honed by congressional and judicial precedents. Today, the clause applies unambiguously only to those bills that have as their primary purpose raising funds for the general operation of the federal government. However, it remains for the House, Senate, and federal courts to employ this understanding to enforce the application of the clause. The primary method for ensuring the enforcement of the Origination Clause has historically been blue-slip resolutions adopted by the House of Representatives. This remains true today, although other avenues of enforcement, from simple House inaction on Senate-originated bills to review by the Supreme Court, also play significant roles. Select Bibliography Cannon, Clarence. Cannon ' s Precedents of the House of Representatives of the United States including references to provisions of the Constitution, the laws, and Decisions of the United States Senate , vol. VI, chap. CLXXX. Washington: GPO, 1935. Deschler, Lewis. Deschler ' s Precedents of the United States House of Representatives including references to provisions of the Constitution and laws, and to decisions of the courts , vol. 3, chap. 13, part C. Washington: GPO, 1977. Evans, Michael W., 'A Source of Frequent and Obstinate Altercations': The History and Application of the Origination Clause , Tax History Project, 2004 (accessible at http://www.taxhistory.org/ thp/ readings.nsf/ ArtWeb/ 8149692C128 8 46EF85256F5F000F3D67? OpenDocument ). Farrelly, Marie T. "Special Assessments and the Origination Clause." Fordham Law Review 58 (December 1989): 447-69. Hoffer, John L., Jr. "The Origination Clause and Tax Legislation." Boston University Journal of Tax Law 2 (May 1984): 1-22. Hinds, Asher C. Hinds ' Precedents of the House of Representatives of the United States including references to provisions of the Constitution, the laws, and decisions of the United States Senate , vol. II, chap. XLVII. Washington: GPO, 1907. Jipping, Thomas L. "TEFRA and the Origination Clause: Taking the Oath Seriously." Buffalo Law Review 35 (Spring 1986): 633-92. Madara, F. G. "Annotation: Application of Constitutional Requirement that Bills for Raising Revenue Originate in Lower House." In American Law Reports Annotated, 2d Series , editor-in-chief Edwin Stacey Oakes, vol. 4, 973-990. Rochester, NY: The Lawyers Co-Operative Publishing Co., 1949. Supp. 2002. Medina, J. Michael. "The Origination Clause in the American Constitution: A Comparative Survey." Tulsa Law Journal 23 (Winter 1987): 165-234. U.S. Congress. House. Committee on the Judiciary. Power of the Senate to Originate Appropriations Bills , 46 th Congress, 3 rd session, 1881, H.Rept. 147. U.S. Congress. House. Committee on Ways and Means. Report on the Legislative and Oversight Activities of the Committee on Ways and Means During the 1 11 th Congress , 111 th Congress, 2 nd session, 2011, H.Rept. 111-708 . U.S. Congress. Senate. Committee on Government Operations. Create a Joint Committee on the Budget: Hearing before the Committee on Government Operations on S. 537. 88 th Congress, 1 st session, March 19-20, 1963. U.S. Congress. Senate. Committee on Government Operations. The Authority of the Senate to Originate Appropriation Bills . 88 th Congress, 1 st session, 1963, S.Doc. 17.

Article I, Section 7, clause 1 of the U.S. Constitution is known as the Origination Clause because it provides that "All Bills for raising Revenue shall originate in the House of Representatives." The meaning and application of this clause has evolved through practice and precedent since the Constitution was drafted. The Constitution does not provide specific guidelines as to what constitutes a "bill for raising revenue." This report analyzes congressional and court precedents regarding what constitutes such a bill. The precedents and practices of the House apply a broad standard and construe the House's prerogatives broadly to include any "meaningful revenue proposal." This standard is based on whether the measure in question has revenue-affecting potential, and not simply whether it would raise or lower revenues directly. As a result, the House includes within the definition of revenue legislation not only direct changes in the tax code, but also any fees paid to the government that are not payments for a specific service, and any change in import restrictions, because of the potential impact on tariff revenues. The precedents of the Senate reflect a similar understanding. The Supreme Court has occasionally ruled on Origination Clause matters, adopting a definition of revenue bills that is based on two central principles that tend to narrow its application to fewer classes of legislation than the House: (1) raising money must be the primary purpose of the measure, rather than an incidental effect; and (2) the resulting funds must be for the expenses or obligations of the government generally, rather than a single, specific purpose. Second, this report describes the various ways in which the Origination Clause has been enforced. Given the fact that originating revenue measures is the House's prerogative, it falls to the House to enforce this provision of the Constitution most frequently. The House's primary method for enforcement is through a process known as "blue-slipping." Blue-slipping is the term applied to the act of returning to the Senate a measure that the House has determined violates its prerogatives. This is done by voting on a privileged resolution. Less typically, the House may choose to enforce its prerogative by taking no action on the disputed Senate measure, or referring it to committee. The Senate may also address whether a measure contravenes the Origination Clause. As with any question of constitutionality, it may be submitted directly to the Senate for its determination. Such a question would be debatable and decided by majority vote. The Supreme Court has a role in enforcing the Origination Clause as well, as it would in any question of constitutionality. Finally, this report looks at the application of the Origination Clause to other types of legislation. It examines precedents concerning public debt legislation, as well as the unanswered question of whether the Origination Clause grants the House the exclusive prerogative to originate bills to appropriate money, as well as to raise revenues. This report will be updated to reflect any changes in practice.

Most Recent Developments On October 19, following a series of temporary continuing resolutions, aconference report ( H.Rept. 105-825 ) was submitted on H.R. 4328 , theOmnibus Consolidated and Emergency Supplemental Appropriations for FY1999. The total for Interior and Related Agencies was $14.1 billion, matching FY1998(including the Emergency Supplemental) and higher than passed the House orreported to the Senate. The conference report and the bill passed the House onOctober 20 and the Senate on October 21, and was signed as P.L. 105-277 by thePresident on October 21. Introduction The annual Interior and Related Agencies Appropriations bill includes fundingfor agencies and programs in five separate federal departments, as well as numeroussmaller agencies and diverse programs. The President's FY1999 budget request forInterior and Related Agencies totals $14.23 billion compared to the $13.79 billionenacted by Congress for FY1998. Title I of the bill includes agencies within theDepartment of the Interior, which manage land and other natural resource programs,the Bureau of Indian Affairs, and Insular Affairs. Title II of the bill includes theForest Service of the Department of Agriculture, research and development programsof the Department of Energy, the Naval Petroleum and Oil Shale Reserves, and theStrategic Petroleum Reserve, and the Indian Health Services in the Department ofHealth and Human Services. In addition, Title II includes a variety of relatedagencies, such as the Smithsonian Institution, National Gallery of Art, John F.Kennedy Center for the Performing Arts, the National Endowment for the Arts, theNational Endowment for the Humanities, and the Holocaust Memorial Council. Status 1. Status of Department of the Interior and Related AgenciesAppropriations, FY1999 On February 2, 1998, the President submitted his FY1999 budget to Congress. The FY1999 request for Interior and Related Agencies totals $14.26 billion comparedto the $13.79 billion enacted by Congress for FY1998 ( P.L. 105-83 ), an increase of$470 million. The actual increase for Title I and Title II agencies in the FY1999request is $1.17 billion, offset by a nonrecurring appropriation of $699 million forpriority land acquisitions and exchanges in Title V of the FY1998 Interior andRelated Agencies Appropriations Act. However, the Emergency Supplemental ( P.L.105-174 ) increased the FY1998 enacted level to a total of $14.1 billion. Significant requested increases above the FY1998 enacted level include: the Department of Energy (+ $185.9 million), the Forest Service (+ $91.3 million), theBureau of Indian Affairs (+ $140.9 million), the National Park Service (+ $98million), the Bureau of Land Management (+ $97.7 million), the Fish and WildlifeService (+ $49.6 million), the U.S. Geological Survey (+ $46.5 million), theNational Endowment for the Arts (+ 38 million), the National Endowment for theHumanities (+ $25.3 million), the Smithsonian Institution (+ $17.5 million), and theDepartmental Offices of the Department of the Interior (+ $6.7 million). The onlysignificant decreases include: the Minerals Management Service (- $21.8 million),and the Institute of American Indian and Alaska Native Culture and ArtsDevelopment (- $1.1 million). On June 18, 1998, the Interior Subcommittee of the House Appropriations Committee marked up the Interior Appropriations bill and reported the bill to the fullcommittee. The Subcommittee recommended a $13.4 billion funding bill to include: $1.3 billion for operation of the National Park System, $246 million for NationalWildlife Refuges, $940 million for wildland fire management, $80 million forEverglades restoration, $2.2 billion for the Indian Health Service, $772 million forBureau of Indian Affair's (BIA) tribal priority allocations, $10 million increases forboth BIA education and BIA law enforcement, and $398 million for the Smithsonian. Cuts included terminating the $98 million National Endowment for the Arts, $163million less for energy programs, and termination of the $50 million timberpurchasing road credit program in the Forest Service. The Subcommittee also recommended extending the recreational fee demonstration program for 2 years allowing National Parks, Wildlife Refuges, andNational Forests to keep 100% of the fees collected which would result in more than$400 million of added revenue to help reduce backlogs of maintenance andoperational shortfalls. In response to public and congressional criticism of NPSconstruction spending, the Subcommittee also recommended imposing major reformsfor the NPS Construction program, a 50% reduction of staff at the Denver ServiceCenter and to require NPS to contract out 90% of construction projects. On June 23, 1998, the Senate Interior Subcommittee marked up the Interior bill. The Subcommittee recommended $13.4 billion in funding, including: $1.2 billion forthe Bureau of Land Management, $797.3 for the Fish and Wildlife Services, $1.66billion for the National Park Service, $1.7 billion for the Bureau of Indian Affairs,$2.6 billion for the Forest Service, $1.25 billion for the Department of Energy, $2.1billion for the Indian Health Service, $100 million for the National Endowment forthe Arts, and $110.7 million for the National Endowment for the Humanities. On June 25, 1998 the House and Senate Appropriations Committees met to mark up their respective versions of the FY1999 Interior Appropriations bill. TheHouse Appropriations Committee approved total mandatory and discretionaryfunding of $13.43 billion and the Senate Appropriations Committee approved $13.46billion. Both bills included mandatory funding of $58.5 million. On July 23, 1998, the House passed H.R. 4193 , the FY1999 Interior and Related Agencies Appropriations bill by a vote of 245-181 and increasedfunding by $60 million to $13.49 billion. The House-passed bill is $800 millionbelow the President's request and $700 million below the FY1998 enacted level. Itshould be noted that during the consideration of H.R. 4193 , the Housevoted 253-173 to restore $98 million for the National Endowment for the Arts (NEA)following a point of order which had deleted $98 million since NEA had no programauthorization. It should be noted that the House and Senate totals reflect scorekeeping adjustments (see Table 3 ). In the absence of these scorekeeping adjustments, theSenate bill ( S. 2237 ) is $168 million more than the House bill( H.R. 4193 ). Changes from the House bill are included in parenthesis:$1.2 billion for the Bureau of Land Management (+ $20 million), $797.3 million forthe Fish and Wildlife Service (+ $52.5 million), $1.66 billion for the National ParkService (+ $55.5 million), $1.71 billion for the Bureau of Indian Affairs (- $11.5million), $2.62 billion for the Forest Service (+ $99.7 million), $1.25 billion for theDepartment of Energy (+ $18.4 million), and $2.25 billion for the Indian HealthService (+ $94 million). On September 8, 1998, the Senate began debating S. 2237 , but suspended action after September 17 in favor of other legislative business. TheOffice of Management and Budget in a September 8, 1998 Statement ofAdministration Policy suggested the possibility of a Presidential veto if the billremained in its then-current form. On October 19, following a series of temporary continuing resolutions, a conference report ( H.Rept. 105-825 ) was submitted on H.R. 4328 , theOmnibus Consolidated and Emergency Supplemental Appropriations for Fiscal Year1999. The total included for the Department of the Interior and Related Agencieswas $14.1 billion, matching FY1998 (including emergency supplementalappropriations) and higher than passed the House or reported to the Senate. Theconference report and the bill passed the House on October 20 and the Senate onOctober 21, and was signed as P.L. 105-277 by the President on October 21. 2. Interior and Related Agencies Appropriations, FY1994 to FY1998 (budget authority in billions of currentdollars) a a These figures exclude permanent budget authorities, and reflect rescissions. Major Funding Trends From FY1991 to FY1995, Department of the Interior and Related Agencies appropriations increased by 16%, from $11.7 billion to $13.5 billion, about 4%annually. Adjusting for inflation, Interior appropriations remained essentially flatduring this period. However, the Omnibus Consolidated Rescissions andAppropriations Act of 1996 ( P.L. 104-134 ) provided funding of $12.54 billionreducing FY1996 budget authority 9% below the FY1995 level. FY1997 fundingincreased to $13.1 billion and FY1998 to $13.8 billion. (See Table 3 for acomparison of FY1998 enacted and the FY1999 budget request for InteriorAppropriations, and see Table 5 for a budgetary history of each agency, bureau, andprogram from FY1993 to FY1998.) Key Policy Issues Title I: Department of the Interior For further information on the budget of the Department of the Interior, see the World Wide Web site of DOI's Office of the Budget at http://www.ios.doi.gov/budget For further information on the Department of the Interior , see its World Wide Web site at http://www.doi.gov For information on the Government Performance and Results Act for the DOI or any of its bureaus, see DOI's Strategic Plan Overview FY1998-FY2002 WorldWide Web site at http://www.doi.gov/fyst.html Bureau of Land Management. The Bureau of Land Management (BLM) manages approximately 264 million acresof public land, primarily in the West. The agency manages an additional 300 millionacres of minerals underlying federal and private lands throughout the country, andhandles wildfire management and suppression on 388 million acres. Themanagement of public lands has been controversial in recent years, particularly withrespect to grazing, mining, logging, recreation, access across public lands, and wildhorses and burros. For FY1999, the Omnibus Consolidated Appropriations law ( P.L. 105-277 ) contained a total of $1.191 billion for the Bureau of Land Management. This figureis $54.7 million higher than the amount appropriated for FY1998, but $43.0 millionlower than the sum requested by the President for FY1999. The total BLMappropriation is divided among ten activities, as described below. About half the total--$619.3 million--is provided for management of lands and resources. The appropriation funds BLM land activities including protection, use,improvement, development, disposal, cadastral survey, classification, acquisition ofeasements and other interests, as well as other activities such as maintenance offacilities, the assessment of the mineral potential of public lands, and the generaladministration of the agency. The figure is $37.2 million higher than the amountappropriated for FY1998, but $41.0 million lower than the amount requested by thePresident for FY1999. Approximately another quarter of the BLM appropriation--$286.9 million--is provided for wildland fire management. This appropriation supports Interior's fireactivities including preparedness, suppression, emergency rehabilitation, andhazardous fuels reduction. The appropriation is $6.8 million higher than theappropriation for FY1998, but $11.5 million lower than the President's FY1999request. The next largest portion of the BLM appropriation, $125.0 million, is for payments in lieu of taxes (PILT). Under the PILT program, local governments arepaid under a complex formula for certain federally owned land because the federalgovernment does not pay taxes on land it owns. The PILT money may be used forany local government purpose including schools, firefighting, and law enforcement. The appropriation is $5.0 million more than both the sum enacted for FY1998 andrequested by the President for FY1999. (For more information on PILTappropriations issues, see CRS Report 98-574, PILT (Payments in Lieu of Taxes):Somewhat Simplified , June 24, 1998.) For the Oregon and California grant lands, the law provides $97.0 million, which is $1.9 million lower than both the FY1998 enacted amount and thePresident's request for FY1999. The appropriation is used for activities on therevested Oregon and California Railroad grant lands and related areas, including forland improvements and the management, protection, and development of resourceson these lands. Smaller portions of the BLM appropriations support other activities. For land acquisition, a total of $14.6 million is provided. The funding is to be derived fromthe Land and Water Conservation Fund (LWCF), the principal source of funds foracquiring recreation lands. (For more information on the Fund, see CRS Report 97-792, Land and Water Conservation Fund: Current Status and Issues , March 6,1998.) The sum is $3.4 million higher than that enacted for FY1998, but $0.4 millionlower than the President's FY1999 request. The joint explanatory statementaccompanying the conference report on the omnibus funding measure explains thatmost of the $14.6 million is to be distributed among 12 projects. For construction, the law appropriates $11.0 million, which is more than double both the amount enacted for FY1998 ($5.1 million) and requested for FY1999 ($4.2million). The law also specifies the portion of the BLM appropriation allocated forthe central hazardous materials fund ($10.0 million); range improvements ($10.0million); miscellaneous trust funds ($8.8 million); and service charges, deposits, andforfeitures ($8.1 million). Some of the general provisions in the omnibus law affect BLM activities, with a handful pertaining to mining and mineral claims. For instance, the omnibus lawcontinues the moratorium on patenting mining claims under the General Mining Lawof 1872, with certain exceptions (Section 312). It postpones for one year the revisionof hardrock mining regulations (43 CFR 3809), pending a study by the NationalAcademy of Sciences (Section 120). The law reauthorizes through FY2001 theannual hardrock claim maintenance fee at $100 per claim or site, and provides for a60-day period to correct any defects to small miner waiver applications(administrative provisions to the BLM section). General provisions also affect otherissues. For instance, one provision directs the BLM to reauthorize grazing permitsprior to completion of reviews under applicable laws, such as the NationalEnvironmental Policy Act (Section 124). A number of provisions of the omnibus law cut across agency jurisdictions. One such provision prohibits the Interior Secretary from purchasing land in Alaskawithout first attempting to acquire such lands through exchange of unreserved publicland (Section 127). Because it addresses land purchases by the Secretary of theInterior, the provision could affect the National Park Service (NPS) and the Fish andWildlife Service (FWS), in addition to BLM, although it is likely that the landsinvolved in the exchange would be BLM lands. Other cross-cutting provisionsaffecting BLM, such as that extending the recreation fee demonstration program(Section 327), are included elsewhere in this report. (For further discussion of therecreation fee demonstration program in particular, see the section on the NationalPark Service.) Site specific provisions, which do not deal with general policy issues,generally are not discussed in this report. Still other cross-cutting provisions were dropped from the omnibus measure before enactment. For example, the law did not include earlier bill language thatwould have terminated the Interior Columbia Basin Ecosystem Management Project(ICBEMP), a joint BLM-Forest Service effort to provide coordinated, long-termmanagement direction for 72 million acres of Forest Service and BLM land. The development of the BLM appropriation for FY1999 began with the Administration's FY1999 request for $1.23 billion, $97.7 million more than enactedfor FY1998 ($1.14 billion). The largest increases were for management of lands andresources ($78.2 million) and wildland fire management ($18.2 million). The House Appropriations Committee recommended $1.16 billion for the BLM for FY1999, $78.1 million less than requested and $19.6 million more than enactedfor FY1998. The House Committee recommended $596.4 million for themanagement of lands and resources; $63.9 million less than requested, but $14.3million more than enacted for FY1998. For wildland fire management, theCommittee recommended $286.9 million, $11.5 million less than requested but $6.8million more than enacted for FY1998. For the Payments in Lieu of Taxes program(PILT), the Committee recommended $120 million; the same amount was requestedfor FY1999 and was appropriated for FY1998. The Senate Appropriations Committee reported an appropriation of $1.20 billion for the BLM in FY1999, approximately $33 million less than requested, and$64.7 million more than enacted for FY1998. The Senate Committee recommended$633.1 million for the management of lands and resources; approximately $36.7million more than the House bill. The Committee recommended approximately $289million for wildland fire management; $9.4 million less than requested, but $8.9million more than enacted for FY1998. The House and Senate committee-reportedversions also addressed BLM policy issues in Title III, the General Provisions Title. For instance, sections in both bills continued the moratorium on patenting newmining claims under the General Mining Law of 1872 (with certain exceptions in theHouse bill), and limited the use of funds for continuation of the ICBEMP in thePacific Northwest. The House-passed bill contained $1.18 billion for BLM functions, $39.6 million more than enacted for FY1998 but $58.1 million less than requested. As passed, themeasure retained the amounts recommended by the House Appropriations Committeeexcept that a floor amendment increased the funding for PILT by $20 million to atotal of $140 million. During House floor consideration, the House also consideredbut rejected several key amendments. These amendments proposed to 1) strikelanguage terminating the ICBEMP, 2) strike language extending the recreational feedemonstration program for another 2 years, and 3) increase funding for the Land andWater Conservation Fund. As noted earlier in this report, the Senate did not pass afree-standing bill appropriating funds for BLM and other Interior agencies. For further information on the Bureau of Land Management , see its World Wide Web site at http://www.blm.gov/ . Fish and Wildlife Service. The Administration recommended $818.2 million (1) forFWS--an increase of $45.7million (5.9%) over FY1998. Congress appropriated $802.2 million, an increase of3.8%. The increase falls almost entirely within Resource Management (whichincludes the endangered species program, fisheries, and refuge management, amongother things) which would go from $594.6 million to $661.1 million. The Endangered Species program increased overall from $96.2 million to $124.8 million, an amount close to the President's request. As the following table shows, the detailed distribution is quite different. Of the congressional increase, $20million is for salmon and steelhead recovery in Washington state, and smallerincreases were provided for programs to conserve candidate species (therebyobviating the need to list some of them), and for consultation with other federalagencies whose actions might affect listed species. Funding for endangered species programs, FY1998-FY1999 (millions of dollars) *The president proposed, and Congress approved, a $5 million Landowner IncentiveInitiative in Recovery. The Administration proposed continuing language that would cap the money spent on listing. Congress accepted this language and cap. The language limits thediscretion of the agency to transfer funds for additional listings, e.g., if lawsuitsmandate agency action on listing certain species. It exempts steps to de-list ordown-list a species from the cap. Without a cap, funding would either have to betransferred away from ongoing listing activities to meet the additional requirementsof a lawsuit, or from other programs within the agency's Resources Managementfunction. With the cap, a court order to carry forward a listing decision on particularspecies makes listing into a zero sum game, at least at a fiscal level: the listing ofsome species or designation of their critical habitats would preclude the listing ofothers. FWS supported this change to protect the budgets of other programs. In arelated subject, the Administration proposed transferring de-listing and down-listingactivities from the Listing function to the Recovery function. The step did notrequire congressional action, but combined with the above limitation, only newlistings or new designations of critical habitat will be affected by the limitation on thefunds. The Administration proposed $10.0 million (-7.2%) for the National Wildlife Refuge Fund, which provides payments to local governments in recognition ofreduction of the local tax base due to the presence of federal land. Congressappropriated $10.779 million, the FY1998 level. The payment levels have beencontroversial, since the small additions of land to the National Wildlife RefugeSystem over the last several years mean that reduced dollars must be spread stillfurther. The situation has produced calls for Congress to increase the appropriation,especially since local governments often (incorrectly) view the payments asentitlements, even though they are actually subject to annual appropriations. Land acquisition was proposed to decrease to $60.5 million (-3.4%), relative to FY1998. Congress cut the amount still further, to $48.0 million, a decrease of23.4%. For further information on the Fish and Wildlife Service , see its World Wide Web site at http://www.fws.gov/ National Park Service. The National Park Service (NPS) currently manages the 376 units that comprise theNational Park System, including 56 "full or actual" National Parks, the premier unitsof the System. In addition to the National Parks, the diverse Park System includesnational preserves, recreation areas, reserves, monuments, battlefields, seashores anda number of other categories. The System has grown to more than 80 million acres,in 49 states and the District of Columbia. In recent years over 270 million visitorshave visited the parks annually. The NPS has the often contradictory mission offacilitating access and serving Park System visitors while protecting and preservingthe natural and cultural resources entrusted to it. For nearly two decades the Park Service has operated with tight budgets. During this period, Congress restricted appropriations to operate and maintain thePark System while continuing to add new units to the System. Combined withincreased visitation, the essentially static funding had stretched personnel, impairedoperations, and generated a multibillion dollar backlog of deferred maintenance. However, spending for the NPS now appears to have a higher priority. Temporaryclosure of NPS units (part of a federal government-wide shutdown during the budgetdebates of late 1995 and early 1996) helped galvanize public support for increasingNPS operations and maintenance funding in FY1997, FY1998, and FY1999. The Administration's Operations budget request for the NPS for FY1999 totals $1.321 billion. The House recommended $1.333 billion and the Senaterecommended $1.288 billion. The conference agreement provides $1.286 billion foroperation of the National Park System. Deferred Maintenance. The Park System has a formidable maintenance burden, with thousands of permanentstructures, roads, bridges, tunnels, employee housing units, water and waste systems, etc . The NPS has valued these assets at over $35 billion, but they would deterioratewithout adequate care and maintenance. In FY1999, the Administration proposedattacking the deferred maintenance backlog with a $62 million increase in NPSmaintenance from FY1998, with a total request for $446 million. The HouseCommittee recommended a slightly larger increase ($64 million) and the SenateCommittee recommended a smaller increase, but still $18 million (5%) above theFY1998 level. The conference agreement provides $412 million for maintenance. Mounting concerns about the build-up of unmet maintenance needs has prompted Congress to seek new funding sources. Congress and the Administrationhave generally agreed to address problems and adequately fund the operation of thepark system and to aggressively attack the maintenance backlog. In the FY1999budget request, the Administration had a proposal that would add more than $25million annually for NPS management purposes from Park concessioners franchisefees. (A number of large concession contracts are due for renewal and the trend hasbeen for substantial increases.) The proposal is to keep the concession fees for thePark System, rather than having them returned to the General Fund of the Treasury(as is current practice). Recreation Fee Demonstration Program. The Administration's proposal for maintenanceparallels the recreation fee demonstration program being tested by the NPS and threeother federal land management agencies. The recreation fee program began inFY1996 to allow higher entrance and recreation user fees, with the added fees beingretained by the unit where the money is collected. It was hoped that the additionalfees would be incentives to agency managers to be more aggressive in pursuing"self-financing" for operating and maintaining their units. The NPS is expecting tocollect $136.5 million under this program in FY1999. The Omnibus Appropriationsbill extended the fee demonstration program for 2 additional years. Urban Park and Recreation Fund. The House had approved an amendment to the bill to fund the Urban Park and RecreationRecovery (UPRR) program at $2 million (the Administration's request). Althoughthe program was last funded in FY1994, previous appropriations were about $5million annually, with communities competing for many more grants than there wasmoney available for. The highly popular matching grant program had helped localgovernments rehabilitate playgrounds, recreation centers, ball courts, and playingfields in urban areas. The conference agreement did not provide the proposed $2million, stating that the Committee determined that this effort could not beaccommodated with the limited resources available this year. Related Legislation. Congress approved a bill ( S. 1693 , the National Parks Omnibus Management Actof 1998) under expedited procedures at the end of 105th. The bill provides for longanticipated park criteria and management reforms and an overhaul of the parkservices concessions policy to allow revenue generated from concession contracts tobe returned to appropriate National Park units without annual appropriations. Otherprovisions calling for new fee authorities and higher fees from film makers weredropped from the final version of this bill. In another "collateral initiative," NationalPark roads, considered an important maintenance priority, will receive a substantialboost ($31 million in FY1998 and $81 million annually for the next 5 fiscal years,nearly double previous funding) under the new surface transportation law (TEA-21, P.L. 105-178 ). For further information on the National Park Service , see its World Wide Web site at http://www.nps.gov/ Historic Preservation. The Historic Preservation fund, established within the U.S. Treasury and administered by theNational Park Service provides grants-in-aid to states and outlying areas for activitiesspecified in the National Historic Preservation Act. These preservation grants arenormally funded on a 60% federal-40% state matching share basis. TheAdministration's FY1999 budget estimate would have provided $100.61 million forthe Historic Preservation Fund, $50.61 million for the Historic Preservation Fundgrants-in-aid program (compared to $40.812 million total for the Fund in FY1998)and $50 million for a new initiative by the Administration, "Save America'sTreasures," part of the proposed Environmental Resources Fund for America. Thisinitiative would make preservation of "America's treasures"a priority including documents, artwork, manuscripts, photographs, sound recordings and historicstructures. Twenty-five million dollars of "America's treasures" funding wouldprovide grants to states and Indian tribes who would receive funds based uponsubmission of proposals for preservation and subject to matching provisions (exceptto Indian tribes who are not required to match funds.) The remaining $25 millionwould be for priority preservation projects in federal agencies. The Administration'sbudget for the Historic preservation fund included $15.4 million in grants targeted to specified Historically Black Colleges and Universities (HBCUs) for thepreservation and restoration of historic buildings and structures on their campuses.Funding in FY1998 ($4 million) provided preservation funds for the most needyhistorically black colleges including Knoxville College, (TN); Selma University,(AL), Allen University (SC); Tougaloo College (MS) and Fisk University (TN). Chartered by Congress in 1949, the National Trust for Historic Preservation is responsible for encouraging the protection and preservation of historic Americansites significant to the cultural heritage of the U.S. Although a private nonprofitcorporation, the National Trust receives federal funding through the authority of theNational Historic Preservation Act, Historic Preservation Fund. Federal assistancehas enabled the National Trust to support historic preservation work in localcommunities. The Administration's FY1999 budget estimate does not specifyfunding for the National Trust, in keeping with Congress' plan to replace federalfunds with private funding, and to help the Trust become self-supporting by FY1999. The National Trust received $3.5 million in FY1998, in keeping with the efforts toprivatize funding, within a period of transition. There is no specific appropriationmentioned in the FY1999 Omnibus Appropriations Act for the National Trust. On June 25, 1998 the House Appropriations Committee reported the FY1999 Interior Appropriations bill that would provide a total of $40.812 million for the Historic Preservation fund with $0 for the National Trust for Historic Preservationand $0 for the millennium initiative, "Save America's Treasures." A statement wasincluded in House report language that priority would be given to cultural projectsthat are backlogged and that the committee would continue to keep in mind proposedmillennium projects during consideration of the Interior bill. On June 25, 1998 theSenate Appropriations Committee ordered reported the Interior bill ( S. 2237 ), providing $55.612 million for the Historic Preservation Fund; including $0for the National Trust, $45.612 million for grants-in-aid, and $10 million for the"millennium program for historic preservation projects of national importance." OnJuly 23, 1998, the full House approved its Appropriations Committee'srecommendation. The Omnibus Appropriations Act for FY1999, P.L. 105-277 provides a total of $72,412,000 to the Historic Preservation Fund. Of that amount,$30 million would be provided to the "Save America's Treasures" program forpriority preservation projects, with $3 million reserved for restoration of the StarSpangled Banner, $500,000 for the Sewall-Belmont House, and sufficient funds forrestoration of the Declaration of Independence and the U.S. Constitution. From thetotal for the Historic Preservation Fund for FY1999, $7 million would remainavailable until expended for Section 507 (of P.L. 104-333 ), the Historically BlackColleges and Universities Historic Building Restoration and Preservation program. U.S. Geological Survey. As the nation's natural science organization, the U.S. Geological Survey (USGS) conductsresearch and provides basic scientific information concerning natural hazards,biological, and environmental issues, as well as water, land, and mineral resources. After debate in 1995 about its future, the U.S. Geological Survey had itsresponsibilities increased with consolidation into it of activities formerly conductedby other agencies within DOI (National Biological Service and Bureau of Mines). This consolidation maintains programs for biological research and minerals surveysand information activities. Currently the USGS conducts surveys, investigations, andresearch through four major program activities. These include the National MappingProgram; Geologic Hazards, Resources, and Processes; Water ResourcesInvestigations; and Biological Research. The Administration has requested $806.88 million for FY1999. This is an increase of $47.72 million over the 1998 enacted level, comprised of $30.23 millionin program increases and $17.50 million in uncontrollable and related changes. Program increases include $14.26 million for Water Resources Investigations, $13.58million for the National Mapping Program, and $9.73 for Biological Research. These increases will be partially offset by decreases in the Geologic Hazards,Resources, and Processes Program by $6.23 million and by $1.12 million in GeneralAdministration. No change in FTEs, which number 6,487, is requested. The FY1999 Budget Request for the USGS Water Resources Investigations Program Activity includes two proposed program increases totaling $17.5 millionand four proposed program decreases totaling $3.24 million. The major increasesproposed for the FY1999 budget for the USGS Water Resources Programs are relatedto water quality information. Program increases are proposed of $10.5 million forthe Administration's Clean Water and Watershed Restoration Initiative (with fundsbeing added to four programs) and of $7.0 million for the Water Quality InformationInitiative (with funds being added to three programs). Proposed program decreasesinclude three reductions to the Hydrologic Networks and Analysis Program (totaling$2.71 million) and one reduction of $526,000 to the Toxic Substances HydrologyProgram. The FY1999 Budget Request for the National Mapping Program includes $18.5 million in three proposed program increases and $4.92 million in two proposedprogram decreases. The proposed increases are in the Earth Science InformationManagement and Delivery subactivity ($15 million for the Disaster InformationNetwork and $2.5 million for Satellite Data Archive) and the Geographic Researchand Applications subactivity ($1 million for the Clean Water and WatershedRestoration Initiative). The proposed decreases are in the Mapping Data Collectionand Integration subactivity (a $3 million reduction to eliminate funds appropriatedin FY1998 for high-performance computing and communications; a $1.92 millionreduction to be achieved by planned savings from increased efficiencies). Additionalprogram highlights for the USGS National Mapping Program include changes in howit carries out its efforts and an increased emphasis on the civilian applications ofclassified data. The FY1999 Budget Request for Biological Research includes three proposed increases totaling $12 million and two proposed decreases totaling $2.27 million. The three program increases are proposed within the Biological Research andMonitoring subactivity for the Species and Habitat Initiative ($9 million), the CleanWater and Watershed Restoration Initiative ($2 million), and to replace twoinfectious waste incinerators that are not in compliance with state air qualityregulations ($1 million). The two proposed decreases within the Biological Researchand Monitoring subactivity reflect an across-the-board cut ($1.37 million) in researchand monitoring, and elimination of USGS participation in a federal and statepartnership program involving chemical and drug registration efforts ($899,000). The FY1999 Budget Request for the Geologic Hazards, Resources and Processes Activity includes two program increases totaling $5.0 million and sixprogram reductions totaling $11.23 million. Program increases are proposed for theEarth Surface Dynamics Program related to the Departmental Initiative regardinghabitat restoration and species conservation ($2.0 million) and within the MineralResources Program in support of the Administration's Clean Water and WatershedRestoration Initiative ($3.0 million). Program reductions are proposed for theMinerals Resources Program ($5.0 million), Coastal and Marine Geology Program($3.5 million), National Cooperative Geologic Mapping Program ($1.73 million),and Energy Resources Program ($1.0 million). The House Appropriations Committee recommends $774.838 million for the U.S. Geological Survey, a decrease of $32.045 million from the Administration'srequest. This would be a decrease of $12.791 million below the budget request forthe National Mapping Program; an increase of $1.811 million above the budgetrequest for Geologic Hazards, Resources, and Processes; a decrease of $13.480million below the request for Water Resources Investigations; a decrease of $7.441million below the request for Biological Research; a decrease of $119,000 below therequest for General Administration; and a decrease of $25,000 for Facilities. The Senate Appropriations Committee recommended $772.115 million for the U.S. Geological Survey, a decrease of $34.768 million from the Administration'srequest. For the National Mapping Program, this would be a decrease of $16 millionfrom the budget estimate; for Geologic Hazards, Resources, and Processes anincrease of $1.976 million; a decrease of $17.013 million in Water ResourcesInvestigations; and a decrease of $3.731 million for Biological Research. The conference agreement provided $797.896 million for the U.S. Geologic Survey, more than the House or Senate proposed. Of this amount, $69.596 millionshall be available for cooperation with states or municipalities for water resourcesinvestigations; $16.4 million shall be expended for conducting inquiries intoeconomic conditions affecting mining and materials processing industries; $161.221million for 2 years for biological research activity; and $6.6 million to the Universityof Alaska for marine research. For further information on the U.S. Geological Survey , see its World Wide Web site at http://www.usgs.gov/ Minerals Management Service. The Minerals Management Service (MMS) administers two programs: Royalty andOffshore Minerals Management and Oil Spill Research. The Offshore MineralsManagement Program administers competitive leasing on outer continental shelflands and oversees production of offshore oil, gas and other minerals. The RoyaltyManagement Program (RMP) seeks to ensure timely and accurate collection anddisbursement of revenues from all mineral leases on federal and Indian lands (oil,gas, coal, etc.). MMS anticipates collecting about $5.5 billion in revenues inFY1999. Revenues from onshore leases are distributed to states in which they werecollected, the General Fund of the U.S. Treasury and various designated programs. Revenues from the offshore leases are allocated among the coastal states, Land andWater Conservation Fund, the Historic Preservation Fund, and the U.S. Treasury. The Administration's FY1999 request of $128.5 million would provide $122.4 million for Royalty and Offshore Management program and $6.1 million for oil spillresearch, $15 million less than the FY1998 appropriation, but use of offsettingreceipts would grow from $65 million in FY1998 to $94 million in FY1999. Theoffsets would come from Outer Continental Shelf (OCS) revenues. Increasedrevenues from the recent record breaking lease sales in the Gulf of Mexico areexpected to continue for the next several years. Exploration activity in the ultradeepwaters (below 800 meters) has increased significantly. The House approved $122.5million to include: $116.4 million for the Royalty and Offshore Managementprogram and $6.1 million for oil spill research. The Senate AppropriationsCommittee approved $123.4 million to include: $117.3 million for Royalty andOffshore Management and $6.1 million for oil spill research. The conferenceagreement approved by both Houses allocates $117.9 million for royalty and offshoremanagement and $6.1 million for oil spill research. The Administration's request for supplemental funding of $6.7 million to oversee the surge of exploration and development activity in the Gulf of Mexico wasapproved by Congress ( H.Rept. 105-504 ). Increased receipts from OCS activity willoffset the supplemental funding. For further information on the Minerals Management Service , see its World Wide Web site at http://www.mms.gov/ Royalty Issues. At issue in the 105th Congress is how well MMS carries out its functions, and whether some of itsresponsibilities should be vested with the states. Critics of the agency, pointing toreported discrepancies between posted prices and fair market value prices that are thebasis for royalty valuation, argue that the U.S. Treasury is being underpaid. MMShas proposed a rule change for crude oil valuation that would rely less on postedprices and more on an index price to better reflect fair market value. Oil industryofficials have criticized using index prices as a benchmark and have offered a numberof other options for benchmarks. The MMS extended its comment period on thevaluation rule twice in July (7/9 - 7/24 and 7/24 - 7/31) to allow for additionalindustry and congressional input. Industry representatives believe that the extensionwas necessary to make further improvements to the proposal while critics of theextension argue that enough has been said on the proposed rulemaking and that noextension is necessary. Details on the oil valuation rule were provided to House andSenate Committees on August 31, 1998. Language in the Senate appropriationsreport ( S.Rept. 105-227 ) for FY1999 postpones the rules release until October 1,1999. Further, they would like the MMS to use the royalty in kind (RIK) approachthat would allow MMS to receive royalties in the form of oil produced, then resellthe oil for cash. However, as part of the FY1999 Omnibus Appropriation Act ( P.L.105-277 ), Congress and the Administration reached a compromise which postponesthe new oil valuation rule 8 months (June 1, 1999) instead of one year. House andSenate negotiators believe that the delay will allow for a rule that is fair to industryand the U.S. Government. However, critics argue that the delay will continue to costtaxpayers millions of dollars in underpaid royalties. An RIK Feasibility Study concluded that RIK could be workable and generate positive revenue for the U.S. Treasury. The MMS is preparing to conduct a secondpilot study on a RIK process that includes natural gas production in the Gulf ofMexico, oil production in Wyoming and Texas offshore (8g) natural gas. This pilotwill take several years to complete. Separate legislation enacted in the 104th Congress ( P.L. 104-185 ), authorized interested states that demonstrate competence, to collect royalties from federal oiland gas leases. The MMS functions that could be delegated to the states include:reporting of production and royalties, error correction and automated verification. OCS Moratoria. During FY1996, as the 104th Congress revisited many regulatory programs, the OCS (Outer ContinentalShelf) moratorium on leasing activity was debated in some depth but was extendedin several areas. The extension was continued through FY1998. In previousappropriations since the early 1980s, the moratoria had been approved annually,without extensive discussion. Each year, Congress banned the expenditure ofappropriated funds for any leasing activity in environmentally sensitive areas of theOCS. In 1990, President Bush issued a directive which parallels the moratoria,essentially banning OCS leasing activity in places other than the Texas, Louisiana,and Alabama offshore. The executive branch ban remains in effect. The moratoriaapply only to environmentally sensitive areas. With the exception of the CaliforniaOCS, little hydrocarbon production has occurred in these regions. Lease Sales in the Gulf of Mexico. Leasing continues in the Central and Western Gulf of Mexico, where recent leasesales have been quite robust. During 1996, the spring (Central Gulf) sale resulted in606 tracts leased for total bonuses of $352 million. The fall (Western Gulf) saleresulted in 902 tracts leased for $512 million. And the Central Gulf auction heldMarch 5, 1997 set an all time record, attracting 1790 bids for 1,032 tracts. High bidstotaled $824 million. This was the last sale under the 1992-1997 leasing plan. FY1996 and FY1997 included four record breaking sales which produced over $2.4 billion in bonuses. TheOCS Leasing Plan for the 1997-2002 period included a Western Gulf auction thattook place in August, 1997. This record breaking August sale ($680 million) was33% larger than the Western Gulf sale held a year earlier. Two additional sales in theGulf of Mexico were also record breakers. The new plan embodies the congressionalmoratoria, but envisions continued annual lease sales in Gulf Coast planning areas,where lease sales have attracted great interest during 1996 and 1997 as the nation'soil imports rose to half of total consumption. In addition to the Central and Western Gulf, sales are planned in the Beaufort Sea, Chukchi Sea, Hope Basin, Cook Inlet/Shelik of Straight, and the Gulf of Alaska.The timing of these lease sales is several years off, and the level of interest and theamount of revenues that might accrue to the government are uncertain since these arerelatively untested tracts. The development of deep water wells is expanding rapidly, as several new deep water discoveries have been made over the past couple of years. MMS is proposingto increase its effort in technological needs and potential environmental issuesassociated with deep water drilling. Currently the Gulf of Mexico accounts for overhalf of the worlds drilling rigs operating in deepwater. Office of Surface Mining Reclamation and Enforcement. The Surface Mining Control and Reclamation Act of1977 (SMCRA, P.L. 95-87 ) established the Office of Surface Mining Reclamationand Enforcement (OSM) to ensure that land mined for coal would be returned to acondition capable of supporting its pre-mining land use. SMCRA also establishedan Abandoned Mine Lands (AML) fund, with fees levied on coal production, toreclaim abandoned sites that pose serious health or safety hazards. Congress'intention was that individual states and Indian tribes would develop their ownregulatory programs to enforce uniform minimum standards established by law andregulations. As reliance upon the state agencies has increased, the regulatory part ofOSM's budget has decreased and the agency has been downsized. OSM is requiredto maintain oversight of state regulatory programs. The Administration request for FY1999 -- at $276.6 million -- is again essentially level with prior year funding. Of this total, $93.5 million is for Regulationand Technology programs -- a decrease of $1.7 million from adjusted FY1998levels. The Administration's AML request for FY1999 is $183.4 million, an increaseof $2.6 million over adjusted FY1998 levels. A requested increase of $2.0 millionfor acid main drainage remediation and prevention partly accounts for the increase. Senate appropriations reduced the request for the Abandoned Mine Land slightly ($360,000) while the House added $2 million to raise the authority for theAppalachian Clean Streams Initiative to $7 million and the total request for the AMLto $185.4 million, which was the level approved in the omnibus spending package. Both House and Senate appropriations committees modestly reduced the request forRegulation and Technology. The House approved $278.8 million. The SenateAppropriations Committee recommended $276 million for the OSM for FY1999. The final total approved by the 105th Congress was $278.8 million, including $93.4million for Regulation and Technology. Appropriations for AML activities are based on states' current and historic coal production. "Minimum program states" are states with lower coal production thatnevertheless have sites needing reclamation. The minimum funding level for eachof these states was increased to $2 million in 1992. However, over the objection ofthese states, Congress appropriated $1.5 million to minimum program states inFY1996-FY1998. The Administration budget proposed to keep minimum programstate funding at this level in FY1999, and the report from Senate Appropriationsexplicitly recommended keeping the current level as well. For further information on the Office of Surface Mining Reclamation and Enforcement , see its World Wide Web site at http://www.osmre.gov/osm.htm Bureau of Indian Affairs. The Bureau of Indian Affairs (BIA) provides a wide variety of services to federallyrecognized American Indian and Alaska Native tribes and their members, and hashistorically been the lead agency in federal dealings with tribes. Programs providedor funded through the BIA include government operations, courts, law enforcement,fire protection, social programs, education, roads, natural resource and real estatemanagement, economic development, employment assistance, housing repair, dams,Indian rights protection, implementation of land and water settlements, and partialgaming oversight, among others. The key issues for the BIA are reorganization and downsizing, the movement toward greater tribal influence on BIA programs and expenditures, and the equitabledistribution of BIA funding among tribes. Additional significant issues raised byproposed provisions of previous Interior appropriations bills include taxation ofcertain Indian businesses and tribal sovereign immunity from suit. The BIA is under intense pressure to reorganize, from tribes, the Administration, and Congress, but proposals from the three sources have not always been inagreement. Under the Administration's National Performance Review ReinventingGovernment initiative, the BIA had planned to pursue restructuring and downsizingthrough the "tribal shares" process (in which tribes and the BIA determine, first,which BIA functions are inherently federal and which are available for tribalmanagement, and, second, what each tribe's share of funds is for the latter functions),but the BIA states the Interior solicitor has advised against that procedure. Appropriations committee reports for FY1997 and FY1998 directed the BIA todevelop a reorganization plan and consolidate central, area, and agency offices, andthe BIA states it is developing reorganization plans and consolidation options. Greater tribal control over federal Indian programs has been the goal of Indian policy since the 1970s. In the BIA this policy has taken three forms: tribal contracting to run individual BIA programs under the Indian Self-Determination Act( P.L. 93-638 , as amended); tribal compacting with the BIA to manage all or most ofa tribe's BIA programs, under the Self-Governance program ( P.L. 103-413 ); andshifting programs into a portion of the BIA budget called Tribal Priority Allocations (TPA), in which tribes have more influence in BIA budget planning and within whicheach tribe has authority to reprogram all its TPA funds. In FY1998 TPA accounts for49.5% of the BIA's operation of Indian programs (including most of the BIA fundingfor tribal governments' operations, human services, courts and law enforcement,natural resources, and community development) and for 44.5% of total BIA directappropriations. The issue of the equitable distribution of BIA funding--often referred to as "means-testing"--has two aspects, one relating to how funds are distributed, theother relating to whether a tribe's other financial resources are taken into account. First, much if not most BIA funding, even while serving tribal needs, is not requiredto be distributed on a national per capita or other formula basis. Second, tribes' ownnon-BIA resources, especially business revenues, are not always required to be takeninto account. Both the Senate Appropriations Committee and the House InteriorAppropriations Committee take note of the issues. For both the FY1998 and FY1999Interior appropriations bills, the Senate Appropriations Committee has proposed (1)requiring the BIA to develop several alternate formulas for distributing TPA fundson the basis of need, taking into account tribal business revenues including gaming,and (2) requiring tribes to submit tribal business revenue information to BIA, and inthe FY1999 bill proposed implementing the new distribution formula in FY2000. Inaddition the Senate committee's FY1999 bill proposed reallocating half of TPAfunds from tribes (outside Alaska) in the top 10% of per-capita tribal businessrevenues to tribes in the bottom 20% of per-capita tribal business revenues. TheHouse Committee provided $250,000 in FY1999 to continue the FY1998TPA-allocation work group (see below) to develop needs-measurement methods,directed the BIA to develop TPA allocation criteria that address equity in TPAfunding, and included an administrative provision assuring tribes who return fundsto the BIA that the federal trust responsibility to them, and the federalgovernment-to-government relationship with the tribes, will not be diminished. Supporters of the Senate committee's proposals claim that BIA funding is inequitably distributed, that poorer tribes do not receive adequate funding, that tribalTPA funds received per capita do not correspond with indicators of tribal need, thatonly 30 percent of TPA funding is based on formulas, and that a GAO study showssome rich tribes got more TPA funds in FY1998 than tribes with no outside revenues. Opponents respond that almost all tribes are in poverty, that BIA funding isinsufficient to meet tribal needs, and that means-testing TPA funding would penalizetribes who still have severe needs, would violate the federal trust responsibility totribes, has not been fully analyzed, and would be unfair since it is not required ofstate or local governments receiving federal assistance. In considering similar proposals in the FY1998 appropriations bill, Congress had dropped the requirements for a formula and tribal income data, and instead haddistributed some FY1998 TPA funds so that each tribe might receive the minimumfunding recommended by the 1994 report of the Joint Tribal/BIA/DOI Task Force onBIA Reorganization ($160,000 per tribe, except $200,000 per tribe in Alaska), withallocation of any remaining TPA funds based on recommendation of a tribal/federaltask force. In addition, several Senators had requested the GAO to report on TPAdistribution issues. The tribal/federal TPA task force made its distributionrecommendations January 29, 1998, and also recommended creating a long-termwork group on TPA funding allocation, a recommendation the BIA supported. TheGAO presented its TPA distribution study in April and July, 1998. Among the GAOfindings were that two-thirds of FY1998 TPA funds were distributed based onhistorical levels and one-third was distributed based on formulas, that TPAdistribution per capita varied widely across BIA areas, and that tribal governments'reporting of revenues were inconsistent in including or excluding non-federalrevenues. The GAO results were used by the Senate Appropriations Committee indeveloping the FY1999 proposals described above. Congress, in the Interior appropriations portion of the FY1999 omnibus appropriations act, dropped the Senate Appropriations Committee's proposedreallocation scheme and dropped the requirement that tribes submit revenue data, butretained the requirement that the BIA develop proposals for alternative TPA fundingmethods. Congress also retained the House provision of $250,000 for the TPA workgroup and the language concerning tribes returning funds to the BIA. During congressional debates over FY1997 and FY1998 Interior appropriations, Congress considered but did not approve several additional controversial provisions. One proposal, considered in the House, would have prohibited the Interior Secretaryfrom using his general authority to take land into trust for a tribe unless the tribe hadagreed with state and local governments on the collection of state and local retailsales taxes from non-members of the tribe. (This proposal has also been put forwardin the 105th Congress in H.R. 1168 , on which hearings were held June24, 1998.) The other provision, proposed by the Senate Appropriations Committee,would have waived tribal governments' sovereign immunity to civil suit in federalcourt if a tribe accepted TPA funding. The tribal immunity waiver provision waswithdrawn on the Senate floor. The Senate Indian Affairs Committee held severalhearings this year on a bill ( S. 1691 , introduced February 27, 1998)restricting tribal sovereign immunity. One of the issues raised at the hearings was thedegree to which tribes are insured against torts and other liability claims. At theCommittee's mark-up of S. 1691 , consideration was postponed on themotion of the bill's sponsor, who later introduced five new, more specific bills. Neither of these proposals was offered during consideration of FY1999 Interiorappropriations. In the Interior portion of the FY1999 omnibus appropriations act,however, Congress required the Interior Secretary to study tribal liability insurancecoverage and make a report with legislative recommendations. In considering the FY1999 bill, both the Senate Appropriations Committees and the House took note of several further issues. Congress addressed most of theseissues in the FY1999 omnibus appropriations act. Both the House and the Senatecommittee supported placing BIA-funded law enforcement under centralized lineauthority and both made BIA law-enforcement funds unavailable for reprogramming;Congress approved these proposals. Concerning support costs for self-determinationcontracts and self-governance compacts, both forbade use of FY1999 funds to payfor unpaid contract support costs from earlier years, in spite of court decisionsconfirming federal responsibility for such costs; Congress again approved. TheHouse recommended a one-year moratorium on self-determination contracts andself-governance compacts, so that BIA and tribes can address the contract supportcosts problem. The Senate committee directed the GAO to conduct a study of theissue. Congress approved both ideas. Both the House and the Senate committee alsonoted environmental penalties against BIA for violations regarding undergroundstorage tanks and the Resource Conservation and Recovery Act (RCRA), and theHouse provided funds for environmental cleanup; Congress approved $3 million forthis purpose. Only the Senate committee included bill language restricting the"Huron Cemetery" in Kansas to use as a cemetery (an Oklahoma tribe has at timesproposed using it for gaming); Congress retained this provision. The Senatecommittee also prohibited taking lands into trust in Scott County in Minnesota, nearMinneapolis-St. Paul, but Congress dropped the provision because the BIA assertedit would make no decision on such lands in FY1999. The Senate committee alsodirected the Interior Secretary to develop a five-year plan for the repair orreconstruction of all BIA school facilities, and to review Indian post-secondaryinstitutions' current facility needs; Congress did not address this issue. The Senateduring debate on the FY1999 Interior appropriations bill approved an amendmentprohibiting the Interior Secretary from approving class III Indian gaming compactswithout state approval and from promulgating during FY1999 proposed regulationsfor approving gaming compacts in situations where a state invokes its immunity fromsuit over compact negotiations. Congress chose only to prohibit promulgation of theregulations, and that only for the first half of FY1999. Finally, Congress amendedthe Tribal Self-Governance Act of 1994 ( P.L. 103-413 ) to extend to self-governancecompacts the same requirements for repaying misused funds that already coverself-determination contracts. BIA's FY1998 direct appropriations enacted to date are $1.703 billion. For FY1999 the Administration proposed $1.84 billion--8.4% over FY1998--includingincreases of 4.5% in TPA (to $791.2 million), 5.8% in BIA school operations (to$486.9 million), 18.4% in aid under the Tribally Controlled Community CollegeAssistance Act (to $35.4 million), and 21.6% in total BIA construction (to $152.1million, including $86.6 million in education construction, a 59% increase overFY1998). Among the new proposals in the FY1999 BIA budget were a lawenforcement initiative, to meet the increasing rate of violent crime in Indian country,and an Indian land consolidation pilot program. The former would increase BIA lawenforcement spending by 29% in FY1999, to $103 million, in conjunction withDepartment of Justice (DOJ) spending on Indian-country jail construction and lawenforcement that would total $182 million. The land acquisition pilot program wouldprovide $10 million to consolidate fractionated ownership of allotted Indian trustlands, thereby reducing the costs and problems of managing millions of acres brokenup into tiny fractional interests. The House approved $1.714 billion for the BIA for FY1999, an increase of 0.6%, while the Senate Appropriations Committee proposed $1.702 billion, adecrease of 0.1%. Compared to FY1998, the House recommendation for FY1999included increases of $14.2 million (1.8%) in TPA, $9.6 million (2%) in BIA schooloperations, $0.4 million (1.3%) in aid to tribally-controlled community colleges, $4.2million (7.7%) for BIA school construction (within a decrease of $3.6 million in totalBIA construction), and $10 million for the joint BIA/Justice Department lawenforcement initiative. The Senate committee recommended a decrease of $62.3million (8%) in TPA (mostly from shifting $70.3 million in law enforcement fundsto another part of the BIA budget); increases of $12.4 million (2.7%) in BIA schooloperations, $3 million (10%) in aid to tribal colleges, and $6 million (11%) for BIAschool construction (within a decrease of $1.9 million in total BIA construction); andthe transfer of $70.3 million to another part of the BIA budget for the jointBIA/Justice Department law enforcement initiative. Congress in the Interior appropriations portion of the FY1999 omnibus appropriations act approved a total of $1.746 billion for the BIA, an increase of 2.5%from FY1998. Included is a net increase of $14 million in TPA (to $697.9 million)after transfer of law enforcement to another portion of the BIA budget. Alsoincluded are increases of $13.5 million (2.9%) in BIA school operations (to $473.9million), $1.4 million (4.7%) in aid to tribal colleges (to $31.3 million), and $6million (11%) in BIA school construction, to $60.4 million (within an overalldecrease of $1.9 million in total BIA construction, to $123.4 million). For theproposed BIA/DOJ law enforcement initiative, Congress provided a $20 millionincrease to fund the BIA portion of the initiative, and it transferred BIA lawenforcement out of TPA to another portion of the BIA budget, thereby reducingtribes' ability to reprogram these funds. For the land acquisition pilot project,Congress provided $5 million, half of the administration's request. For further information on the Bureau of Indian Affairs , see its World Wide Web site at http://www.doi.gov/bureau-indian-affairs.html Departmental Offices. National Indian Gaming Commission. The National Indian Gaming Commission (NIGC) was established by the IndianGaming Regulatory Act of 1988 ( P.L. 100-497 ) to oversee Indian tribal regulationof tribal bingo and other "Class II" operations, as well as aspects of "Class III"gaming (casinos, racing, etc.). The NIGC may receive federal appropriations but itsbudget authority has consisted chiefly of fee assessments on tribes' Class IIoperations. The FY1998 Interior Appropriations Act amended the Indian GamingRegulatory Act to increase the amount of assessment fees the NIGC may collect (to$8 million), to make Class III as well as Class II operations subject to fees, and toincrease the authorization of NIGC appropriations from $1 million to $2 million. The Act also prohibited the Commission from amending its definitions of electronicgaming devices but allowed it to gather information on the issue. For FY1998, NIGC appropriations were $1 million. The President proposed no appropriations for FY1999, recommending instead that all the NIGC's activities befunded from fees. The Senate Appropriations Committee and the House InteriorAppropriations Subcommittee agreed with the President's recommendation, as didthe full House. Likewise, the Interior appropriations portion of the FY1999 OmnibusAppropriations Act included no appropriations for the NIGC. Office of Special Trustee for American Indians. The Office of Special Trustee for American Indians,in the Secretary of the Interior's office, was authorized by Title III of the AmericanIndian Trust Fund Management Reform Act of 1994 ( P.L. 103-412 ). The Office ofSpecial Trustee (OST) is responsible for general oversight of Interior Departmentmanagement of Indian trust assets, the direct management of Indian trust funds,establishment of an adequate trust fund management system, and support ofdepartment claims settlement activities related to the trust funds. Indian trust fundswere formerly managed by the BIA, but numerous federal, tribal, and congressionalreports had shown severely inadequate management, with probable losses to Indiantribal and individual beneficiaries. Indian trust funds comprise two sets of funds: (1)tribal funds owned by 338 tribes in approximately 1,500 accounts, with a total assetvalue of about $2.5 billion; and (2) individual Indians' funds, known as IndividualIndian Money (IIM) accounts, in 345,356 accounts with a total asset value of $463.7million. (Figures are from the OST FY1999 budget justifications.) The fundsinclude monies received both from claims awards, land or water rights settlements,and other one-time payments, and from income from physical trust assets (e.g., land,timber, minerals), as well as investment income. In 1996, at Congress' direction,trust fund management was transferred from the BIA to the OST. The SpecialTrustee in 1996 estimated the eventual cost of recommended improvements intrust-fund management at $100 million. While a congressionally-required outside audit has been made of non-investment transactions--deposits and withdrawals--in tribal trust fundaccounts (for the 20-year period 1973-1992), Congress did not require that theoutside auditors examine transactions in the IIM accounts, so their reconciliationstatus has been in doubt. On June 11, 1996, a class-action suit was filed against thefederal government on behalf of all IIM account owners. The suit sought anaccounting of the IIM funds, establishment of adequate management systems, andfull restitution of any money lost from the IIM accounts. The case was certified asa class action in February 1997, and is scheduled to go to trial on March 15, 1999. In April 1997 the OST submitted its Strategic Plan for improving the management of Indian trust funds and trust assets. The plan recommended creationof a new federally chartered agency, to which trust funds and assets would betransferred, and management and investment of the funds and assets to assist Indianeconomic growth. While considering FY1998 Interior appropriations, Congressnoted departmental and some tribal opposition to the Strategic Plan, especially to theproposed new agency. Congress directed the OST not to implement the proposednew agency but to pursue trust funds systems improvements and OST responsibilitiesrelating to the settlement of financial claims made by tribal and individualbeneficiaries, before Congress and in court, because of BIA trust-fundsmismanagement. In August 1997 the Secretary of the Interior agreed to implementaspects of the Strategic Plan dealing with trust management systems, data cleanup,and trust asset processing backlogs. FY1998 funding for the Office of Special Trustee was set at $33.9 million, which supplemental appropriations have increased to $38.6 million. The Presidentproposed a FY1999 budget of $42 million, an increase of 8.9% over total FY1998appropriations. Included in the FY1999 request were $17.7 million for trust systemsimprovements (an increase of 33.2% from the original FY1998 appropriation), $5million for settlement and litigation support (up 129%), and $17.6 million for trustfunds management (up 4.9%). The Senate Appropriations Committee recommendedFY1999 appropriations of $38 million, a decrease of $0.557 million from totalFY1998 appropriations. The House Interior Appropriations Subcommitteerecommended $39.5 million, including $16.6 million for trust systems improvementand $4 million for settlement and litigation support. The House of Representativesagreed with its Appropriations Committee's recommendations. Congress, in theFY1999 omnibus appropriations act, approved the House figure of $39.5 million. In the same act, Congress authorized the expenditure of current (or past unobligated) BIA and OST appropriations to meet unfunded costs of trustmanagement improvement activities, and also authorized the OST to make fewerreports for, and allow account-holder withdrawals from, the thousands of trustaccounts with balances of $1 or less and no activity for at least 18 months. For further information on the Office of Special Trustee for American Indians , see its World Wide Web site at http://www.ost.doi.gov/ Insular Affairs. The Secretary of the Interior has primary federal responsibility for all U.S. territories except Puerto Rico,as well as certain responsibilities for the three freely associated states. The Secretaryhas delegated these responsibilities to the Office of Insular Affairs (OIA), under thegeneral supervision of the department's Assistant Secretary-Policy, Management andBudget. OIA provides the insular areas with funding for various types of activities,including capital improvements and technical assistance. The President requested $86.7 million in funding for insular affairs for FY1999; the FY1998 appropriation totaled $88.1 million. For FY1999 the President requesteddecreases in funding (compared to the amounts appropriated for FY1998) for severalitems including the general technical assistance program, while requesting anincrease of $1.0 million for brown tree snake control. (The FY1998 appropriation for brown tree snake control was $1.6 million. For more information on this issue,see CRS Report 97-507 ENR, Non-Indigenous Species: Government Responses tothe Brown Tree Snake and Issues for Congress. ) The House Appropriations Committee recommended $86.7 million in FY1999 insular affairs funding, the same amount as requested by the President. Thecommittee allocated the funding differently, however, providing $0.5 million lessthan the President's request for brown tree snake control and $0.4 million more thanthe President's request for technical assistance. The committee also recommendedthat funding for the Enewetak support program, which provides food assistance tothe people of Enewetak (in the Marshall Islands), remain at its FY1998 level (of $1.2million) rather than being reduced to $1.1 million, as requested by the President. TheFY1999 Interior Appropriations bill passed by the House contained $84.7 million ininsular affairs funding, $2.0 million less than the House committee recommendation. The Senate Appropriations Committee recommended $86.9 million in FY1999 insular affairs funding, $0.2 million more than requested by the President andrecommended by the House committee. The Senate committee provided $0.2 millionless for operations grants to American Samoa than either the President or the Housecommittee. (The President's FY1999 request for these grants was $23.1 million, thesame as the FY1998 appropriation.) The Senate committee also provided $1.5million for the Enewetak support program, $0.4 million more than the President'srequest and $0.3 million more than the House committee's recommendation. Thisproposed $1.5 million in funding for Enewetak support included $0.4 million toimprove food self-sufficiency. The conference report on the FY1999 Omnibus Appropriations bill provides $87.1 million in funding for insular affairs. The conference agreement generallyfollows the House Committee's recommended funding levels. It, however, provides$1.6 million in total funding for Enewetak support, more than the amountrecommended by either the House Committee (and approved by the House) or theSenate Committee. That $1.6 million includes the $0.4 million in special fundingrecommended by the Senate Committee. In its FY1999 budget justifications for OIA, the Interior Department described brown tree snake control as a major priority. The department believes that the browntree snake is "a significant ecological threat" to Guam and "represents an increasingthreat to other areas where it may migrate," including the Northern Mariana Islandsand Hawaii. The department requested a FY1999 budget increase for brown treesnake control in order to more fully implement a plan for "a coordinated operationaland research program involving control and eradication techniques." The HouseAppropriations Committee report noted that the committee provided a substantialincrease for the brown tree snake program, although not as much as requested by thePresident. Another key issue in FY1999 territorial appropriations is the financial condition of the American Samoa government. In recent years, the Interior Department andMembers of Congress have expressed concerns about the failure of the territorialgovernment to implement a financial recovery plan developed by representatives ofthe department and the American Samoa government. Both the House and SenateAppropriations Committees reiterated concerns about American Samoa's fiscalproblems in their FY1999 reports. The Senate report noted, in particular, theterritory's failure to pay for medical care provided to its people in Hawaii and calledfor aggressive action by the American Samoa government to pay these bills. A third issue is the alien labor situation in the Commonwealth of the Northern Mariana Islands (CNMI). The Interior Department and other federal agenciesparticipate in a joint federal-CNMI program established to address labor,immigration, and law enforcement problems in the CNMI. As requested by OIA tomeet the needs identified by the joint program, the bills reported by the House andSenate Appropriations Committees earmarked $5.0 million, of the $11.0 million in Covenant grant funding provided to the CNMI, for a prison facility and $0.5 millionfor a crime laboratory. The House-passed bill also included these earmarks. TheSenate report directed the Interior Department to use some of the funds provided forthe joint federal-CNMI program to establish an ombudsman's office in the CNMI toassist workers. The conference agreement endorsed that proposal. For further information on Insular Affairs , see its World Wide Web site at http://www.doi.gov/oia/index.html Title II: Related Agencies and Programs Department of Agriculture: U.S. Forest Service. The Administration requested $2.657 billion, $150 million(6%) more than was appropriated in FY1998. Most of the increase is $102 millionin emergency contingency appropriations for wildland fire management, offset by aproposed $30 million decrease in annual appropriations for fire operations. The House appropriated $2.523 billion, $43 million less than the FY1998 appropriation and $134 million less than the request, but with no contingent firefunds. The Senate Appropriations Committee recommended $2.623 billion, $57million more than FY1998 but $34 million less than the request; however, thisincluded $102 million emergency contingent fire funds and several other majormodifications. The Omnibus Consolidated Appropriations enacted $2.752 billion,including the $102 million contingent emergency fire funds. This is $95 millionmore than the Administration requested, $126 million more than the House passed,and $129 more than recommended by the Senate. Increasing Forest Service fiscal accountability was the focus of much debate. The House shifted maintenance of trails and recreation facilities from the recreationaccount to the infrastructure account; and road maintenance from the infrastructureaccount to the reconstruction/construction account. The Senate Committee concurredwith these changes. The House Committee also recommended restricting "indirect support activities" to 25% of obligations from the Knutson-Vandenberg Fund, but this wasstriken by a floor amendment, 236-182, and replaced with language prohibiting theuse of these funds for indirect support activities. The Senate Committee took adifferent approach, recommending $0 for general administration ($259 million wasrequested), $122 million allocated among the National Forest System accounts and$108 million among other Forest Service accounts for general administration, anddetails in the FY2000 budget request on overhead funding for each account. TheOmnibus Consolidated Appropriations rejected both of these approaches, and insteadrequired further reporting on "indirect expenditures" to the Committees and in theFY2000 budget request and restricting indirect expenditures from six specific trustfunds and special accounts to not more than 20% in FY2000. For further information on the Department of Agriculture: U.S. Forest Service , see its World Wide Web site at http://www.fs.fed.us/ For information on the Government Performance and Results Act for the U.S. Forest Service, see the USDA Strategic Plan World Wide Web site at http://www.usda.gov/ocfo/strat/index.htm Timber Sales and Forest Health. Timber sales, especially salvage timber, and forest health are likely to continue todominate debates over Forest Service budget and authorizing legislation. TheFY1999 budget request proposed declines both in salvage sales (from 1.251 billionboard feet, or BBF, to 1.083 BBF) and in new green sales (from 2.562 BBF to 2.356BBF); the proposed sale program of 3.4 BBF would be the lowest level sinceFY1950. The House Committee recommended timber sales offered of 3.6 BBF, andthe bill passed with no change in recommended funding; the Senate Committeerecommended sales sold (not just offered) of 3.784 BBF. An amendment by Rep.Furse to transfer $80.5 million from the timber program to recreation and watershedimprovements was offered and then withdrawn. Finally, in Section 334, the Houseexpanded the authorized use of the 10% Roads and Trails Fund "to improve foresthealth conditions and repair or reconstruct roads, bridges and trails �," emphasizingthe wildland-urban interface and areas with abnormally high risk from potentialwildfires. The Senate bill contains several additional provisions addressing timber sales. Section 338 would require the Forest Service to offer economically viable timbersales of at least 90% of the maximum allowable sale quantity (ASQ) under the 1997Tongass Land Management Plan Revision; this could be enforced through civil suitsby economically-dependent persons. In addition, Section 340 contains complicateddirections on timber sales and western red cedar shipments, to the lower 48 states orfor export, from the Tongass National Forest (continued from the FY1998 InteriorAppropriations Act). Section 332 would prohibit prescribed burning until "everyeffort has been made to remove all economically viable, commercial wood productsfrom the proposed burn area;" the regional foresters could grant waivers on asite-by-site basis, but this could stifle efforts to improve forest health usingprescribed fire to reduce undergrowth. Section 335 would authorize "StewardshipEnd Result Contracting Demonstration Projects" in each national forest in Idaho andMontana and in the Umatilla National Forest (WA and OR) through FY2002;contracts of up to 10 years can be used to "achieve land management goals � thatmeet local and rural community needs," with the value of the timber removedoffsetting the costs of other services. The Omnibus Appropriations bill enacted several (but not all) of these provisions. The complicated provision on timber sales and western red cedarshipments from the Tongass were enacted as Section 350, but the Tongass sale targetand the prescribed burning provisions were deleted. The Stewardship End ResultsContracting Demonstration was enacted as Section 347, but was modified toauthorize 28 projects, including 9 in Montana and northern Idaho. Finally, Section332 enacted the expanded use of the 10% Roads and Trails Fund to allow foresthealth improvements activities, as well as road, bridge, and trail repair andreconstruction. Land Management Planning. Management of the federal lands has been controversial for decades. Increasingconflicts among users in the 1960s and early 1970s led Congress to enact theNational Forest Management Act of 1976 (NFMA) and the Federal Land Policy andManagement Act of 1976 (FLPMA) to establish and guide land and resourcemanagement planning for the national forests and BLM lands. Despite lofty goals,the public participatory planning processes have not led to harmonious landmanagement. Bills to improve planning, some emphasizing forest health, have beenintroduced in both Houses, but none have been enacted. Both the House and Senate Appropriations Committees recommended that thescientific findings of the Interior Columbia Basin Ecosystem Management Project beincorporated into the land and resource management plans and the project terminated. A House floor amendment to strike this section was defeated, 202-221. Thisprovision was not enacted in the Omnibus Appropriations bill. The Senate Committee recommended several other provisions addressing planning. Section 321 would prohibit new land management plans for the nationalforests until the planning regulations had been revised, except for forests which hadbegun revisions before October 1997 or which were operating under court orders, andexcept for the White Mountain National Forest. The report language indicates thatplan revisions to incorporate ICBEMP findings (under Section 337) are alsoexcepted, but the language in Section 321 includes no reference to the latter section. Section 329 would direct the agency to continue management under existing plansuntil the plans were revised under the new regulations, despite the provision inNFMA requiring revisions within 15 years. Finally, Section 322 would prohibit theForest Service from spending to complete the RPA Program; the report languageindicates that the RPA Program is to become part of the agency's strategic planningunder GPRA. Two of these provisions were enacted in the Omnibus Appropriations:the prohibition on new plans (with noted exceptions) prior to the revision of theplanning regulations was enacted as Section 321, and the prohibition on completingthe RPA Program was enacted as Section 322. The Omnibus Appropriations bill also contains two titles affecting specific areas. Title IV enacts the Herger-Feinstein Quincy Library Group Forest RecoveryAct. This title directs a 5-year pilot project for managing 3 national forests inCalifornia under the plan devised by a local group of users, environmentalists, andothers (known as the Quincy Library Group). The provision excludes certain areas,and specifies management activities, funding sources, and annual and final reportingrequirements. Title V enacts the Land Between the Lakes Protection Act, to transferthis area from the Tennessee Valley Authority to the Forest Service and manage it asa National Recreation Area; similar provisions had been recommended by the SenateAppropriations Committee and passed (contingent upon certain Energy and WaterDevelopment appropriations) by the House. Forest Roads. Road construction in the national forests continues to be controversial. Some interests oppose new roadsbecause roads increase access to areas they believe should be preserved in a pristinecondition, because roads are a major source of erosion, stream sedimentation, andother environmental degradation, and because road funding is asserted to be acorporate subsidy for the timber industry. Supporters argue that access roads areneeded for forest protection ( e.g. , from wildfire) and for timber harvesting and otheron-site uses, and maintain that roads can be built without causing significantenvironmental problems. The Administration has again proposed to end the use of purchaser road credits to finance road construction. This system, authorized in Section 4(2) of the 1964National Forest Roads and Trails Act (P.L. 88-657), allows the Forest Service tobuild "forest development" roads through requirements on timber purchasers, and tocompensate those purchasers with credits that can generally be used to pay fortimber. (2) The House approved (in Section 332), andthe Senate AppropriationsCommittee recommended (in Section 339), to end the use of road credits, make thespecified road construction a contract requirement (to be paid like any other cost thepurchaser must incur), and to continue the "Purchaser Elect Program" whereby smallbusinesses may elect to have the Forest Service build the road and then pay theagency more for the timber (to cover the estimated road construction cost). Such aprovision was enacted as Section 329 of the Omnibus Appropriations. In separate action, the Administration has also issued an advance notice of proposed rulemaking to revise current regulations governing the management of theNational Forest System transportation system (63 Federal Register 9980-9987, Feb.27, 1998). At the same time, the Administration issued a proposed interim rule thatwould temporarily halt road construction into many roadless areas. Environmentalgroups objected to the limitations on areas covered by this road constructionmoratorium, while the timber industry and many Members of Congress decried themoratorium as needless national direction overriding locally agreed-upon plans formanaging the national forests. Department of Energy. For further information on the Department of Energy , see its World Wide Web site at http://www.doe.gov/ Fossil Energy Research, Development, and Demonstration. The Clinton Administration's FY1999budget request for fossil fuel research and development (R&D) continues to reflectits energy and environmental priorities. Fossil fuel R&D efforts will focus onenvironmental issues associated with electric power, particularly global climatechange concerns. Overall, the Administration's FY1999 request for fossil energy is $383.4 million, a 6% increase from the FY1998 appropriation of $362.4 million. Fundingfor coal R&D projects would rise by 21% and account for almost all of the increasefrom current FY1998 levels. Petroleum R&D would increase by 3.3% and natural gasR&D would decrease 1.5%. The Administration is requesting no new funding forthe Clean Coal Technology Program. However, $14.9 million was allocated foradministration of clean coal programs. The House approved $315.6 million and theSenate Appropriations Committee recommended $376.4 million for FY1999. Theconference agreement appropriates $384 million for fossil energy research. Natural gas research would decline by $47.6 million while coal research would increase by $6.4 million. The Senate Appropriations Committee differs significantlyfrom the House on natural gas research by approving $112.2 million. However, theapproved funding level of $117 million for coal research is much closer to the HouseCommittee level. The difference between the House and Senate marks is largely inthe Senate funding of the natural gas advanced turbine system while the House panelrecommended to move and consolidate that program under energy conservation. Theconference agreement keeps the natural gas advanced turbine system under fossilenergy R&D. The Administration's efforts are focused on new technology that would take advantage of natural gas as a clean fuel and would reduce or eliminate manyenvironmental problems associated with coal. Critics question the extent to whichfossil fuel R&D should be based on current trends and a view of natural gas as a"transition fuel" to non-fossil fuels. They question whether the Administration istaking too narrow a view of coal's potential for electric generation and technologyexports and whether these changes will have a negative impact on jobs and theeconomy or will develop new markets and opportunities. For further information on Fossil Energy , see its World Wide Web site at http://www.fe.doe.gov/ Strategic Petroleum Reserve. After purchases of oil for the Strategic Petroleum Reserve ended in FY1994, the programwas largely funded using previously authorized but unspent balances in the petroleumacquisition account. When this was no longer a practical source for funding, theAdministration and Congress approved sales of SPR oil to finance some programcosts in FY1996, and all of them in FY1997. In its FY1998 budget request, theAdministration asked for a conventional appropriation of $209 million to operate andmaintain the SPR, but Congress again authorized a sale. For FY1999, the Administration requested a conventional appropriation of $160.1 million. The lower level partly reflects completion of work at some storagesites for the SPR's Life Extension Program. Infrastructure is being replaced orupdated to assure the integrity of the SPR system well into the next century. In thecurrent budget climate, congressional authorization of another sale of SPR oil seemedunlikely, and neither the House or Senate appropriations committee proposed one. The House approved the Administration request. Senate appropriations, however,has proposed an appropriation of $155.1 million, a reduction of $5 million from theAdministration request and House recommendation. The omnibus spending billadopted the Administration-proposed and House-approved figure of $160.1 million. For further information on the Strategic Petroleum Reserve , see its World Wide Web site at http://www.fe.doe.gov/programs/reserves/ Naval Petroleum Reserves. The National Defense Authorization Act for FY1996 ( P.L. 104-106 ) authorized sale ofthe federal interest in the oil field at Elk Hills, CA (NPR-1), and established a 2 yeartimetable for completion of the sale. On Feb. 5, 1998, Occidental PetroleumCorporation took title to the site and wired $3.65 billion to the U.S. Treasury. Inanticipation of operating Elk Hills for only part of 1998, the Administration hadrequested $117 million for FY1998 and Congress approved $107 million. In settlement of a long-standing dispute between California and the federal government over the state's claim to Elk Hills as "school lands," the CaliforniaTeachers' Retirement Fund will receive 9 % of the sale proceeds after the costs ofsale have been deducted. The FY1999 budget enacted by Congress provides aninitial appropriation of $36 million; the hope is that future payments of thissettlement will be made directly from the proceeds of the sale rather than byappropriation. The Administration requested $22.5 million for the balance of the NPR program for FY1999 for close-out activities at Elk Hills, and for well-plugging andenvironmental restoration activities at NPR-3 (Teapot Dome) that are prerequisite toshutting the field down. Congress has mandated the transfer of the Naval Oil ShaleReserves to the Department of the Interior for possible commercial leasing. Thebudget provides for routine management of these reserves until transfer is completed. Both the House and Senate appropriations committees reduced the recommendedappropriation to $14 million through the use of unobligated balances in the Reserve'srevolving fund. This is the figure that was approved by Congress in the omnibusspending bill. For further information on Naval Petroleum Reserves , see its World Wide Web site at http://www.fe.doe.gov/programs/reserves/ Energy Conservation. The FY1999 request for DOE's Energy Efficiency Program seeks $808.5 million (including $35million in oil overcharge funding), a $196.8 million, or 32% increase. R&D wouldincrease by $160.8 million, or 35%, and grants would increase by $36 million, or23%. For FY1998, P.L. 105-83 appropriated $611.7 million (including $20.6 millionfrom oil overcharge funds). The House approved $675.3 million for DOE's FY1999 Energy Efficiency Program (including $43 million for a proposed transfer of the Advanced TurbinesProgram from the Office of Energy Research). This mark includes $45 million addedto the Appropriations Committee's recommendation in a floor amendment (Regula,Fox, Skaggs). The increase from the amendment includes $9 million more forWeatherization grants, $2 million more for State Energy grants, and $34 million thatis not specified for particular programs. Excluding transfer of the AdvancedTurbines Program (which the Administration did not request), the House mark totals$632.3 million, which is $176.2 million, or 22%, less than the AdministrationRequest; and it is $45.4 million, or 7%, less than the Senate mark. The Senate Appropriations Committee's mark for DOE's Energy Efficiency Program seeks $677.7 million. In contrast to the House, it does not propose totransfer the Advanced Turbines Program from the Office of Energy Research. Also,it seeks $130.8 million, or 16%, less than the Administration request. This differencefrom the request includes $31.5 million less for Transportation, $17.4 million less forBuildings R&D, $9.1 million less for FEMP, $23.4 million less for Industry, $25.1million less for Weatherization grants, and $5.8 million less for State Energy grants. In the Omnibus Appropriations bill, the conference mark is $692 million, an $80 million, or 13% increase over the FY1998 level. This includes $526 million forR&D, a $69 million increase; and $166 million for grant programs, an $11 millionincrease. Further, the mark for R&D includes $202 million for Transportation, a $9million increase; $96 million for Buildings, a $17 million increase; $24 million forFEMP, a $4 million increase; and $166 million for Industry, a $30 million increase. (For more details, see CRS Issue Brief 97027, Energy Efficiency: Key to Sustainable Energy Use .) For further information on Energy Efficiency , see its World Wide Web site at http://www.eren.doe.gov/ Department of Health and Human Services: Indian Health Service. The Indian Health Service (IHS) carries out thefederal responsibility of assuring comprehensive preventive, curative, rehabilitative,and environmental health services for approximately 1.3 million American Indiansand Alaska Natives who belong to more than 545 federally recognized tribes in 35states. Care is provided through a system of federal, tribal, and urban operatedprograms and facilities that serves as the major source of health care for AmericanIndians and Alaska natives. IHS funding is separated into two accounts: IndianHealth Services and Indian Health Facilities. Included in Indian Health Services aresuch services as hospital and health clinic programs, dental health, and mental health,alcohol, and substance abuse programs, preventive health services, urban healthprojects, and funding for Indian health professions. The Indian Health Facilitiesaccount includes funds for maintenance and improvement, construction of facilities,sanitation facilities, and environmental health support. The IHS program is fundedthrough a combination of federal appropriations and through collections ofreimbursements from Medicare, Medicaid, and private insurance for services toeligible patients who have such insurance coverage. The Omnibus Consolidated Appropriations bill provides for $2.239 billion budget for the Indian Health Service ($1.950 billion for the Indian Health Servicesand $289 million for Indian Health Facilities). The Administration requested $2.118 billion for FY1999 budget appropriations to the IHS ($1.844 billion for Services and $274 million for Health Facilities). TheSenate Committee on Appropriations recommended FY1999 funding of $2.152billion to the IHS ($1.889 billion for Services and $264 million for Health Facilities).The House proposal recommended $2.246 billion for FY1999 for the IHS ($1.933billion for Services and $313 million for Health Facilities). The conference agreement does not include statutory language mandating a pro-rata distribution of contract support costs across all IHS self-determinationcontracts and self-governance compacts. Contract support costs are the costsawarded a tribe for the administration and management of a program -- operationcosts are awarded separately. This language was included in both the House andSenate bills but was dropped due to objections raised by tribal organizations andindividual tribes. The Committees have added more than $35 million to the Administration's budget request to address the inequity in the distribution of contract support costfunding in FY1999. Additionally, the Committees have instituted a one-yearmoratorium on new contracts and compacts. The population served by the IHS bears a higher incidence of illness and premature mortality than other U.S. populations, although the differences in mortalityrates have diminished in recent years in such areas as infant and maternal mortality,as well as mortality associated with alcoholism, injuries, tuberculosis, gastroenteritis,and other conditions. American Indians and Alaska Natives also have less access tohealth care than does the general U.S. population, with the number of physicians andnurses per Indian beneficiary, already below that of the general population, droppingsince the 1980's. In FY1996, the IHS per capita health expenditure was $1,578,compared to the U.S. civilian per capita expenditure of $3,920. The populationeligible for IHS services is increasing at an approximate rate of 2.1% per year.According to the IHS, the increases in program funding over the past decade havefailed to keep pace with inflation. Many IHS health care providing facilities are reportedly in need of repair or replacement. Funding for the construction of new facilities has decreased in recentyears while funding for the provision of health services has increased; a priority listhas been established for new construction. The Omnibus FY1999 budget for IHSfacilities allocates $289 million for facility construction, repair, maintenance,improvement and equipment of health and related auxiliary facilities, such asdomestic and community sanitation facilities for Indians. For further information on Department of Health and Human Services: Indian Health Service , see its World Wide Web site at http://www.ihs.gov/ Office of Navajo and Hopi Indian Relocation. The Office of Navajo and Hopi Indian Relocation(ONHIR) was reauthorized for FY1995-1997 by P.L. 104-15 . The 1974 relocationlegislation ( P.L. 93-531 , as amended) was the end result of a dispute between theHopi and Navajo tribes involving land originally set aside by the federal governmentfor a reservation in 1882. Pursuant to the 1974 act, lands were partitioned betweenthe two tribes and members of one tribe who ended up on the other tribe's land wereto be relocated. Most relocatees are Navajo. A large majority of the estimated 3,455Navajo families formerly on the land partitioned to the Hopi have already relocatedunder the Act, but the House Appropriations Committee in 1998 estimates that 510families (almost all Navajo) have yet to be relocated, including about 71 Navajofamilies still on Hopi partitioned land (many of whom refuse to relocate). Negotiations had gone forward among the two tribes, the Navajo families on Hopi partitioned land, and the federal government, especially regarding Hopi Tribeclaims against the United States. The United States and the Hopi Tribe reached aproposed settlement agreement on December 14, 1995. Attached to the settlementagreement was a separate accommodation agreement between the Hopi Tribe and theNavajo families, which provided for 75-year leases for Navajo families on Hopipartitioned land. The Navajo-Hopi Land Dispute Settlement Act of 1996 ( P.L.104-301 ) approved the settlement agreement between the United States and the HopiTribe. Not all issues have been resolved by these agreements, however, andopposition to the agreements and the leases is strong among some of the Navajofamilies. Navajo families with homesites on Hopi partitioned land faced a March 31,1997, deadline for signing leases. An initial Hopi report said 60 of the 80 homesitesaffected had signed the leases. The Hopi Tribe has called for enforcement of relocation against Navajo families without leases. Like the FY1997 and FY1998 Interior appropriations acts, theFY1999 Interior appropriations bill proposed by the President, and the bills reportedby the Senate Appropriations Committee or approved by the full House, as well asthe version enacted into law in the FY1999 omnibus appropriations act, all containeda proviso forbidding ONHIR from evicting any Navajo family from Hopi partitionedlands unless a replacement home is provided. This language appears to preventONHIR from forcibly relocating Navajo families, since ONHIR has a large backlogof other families that need homes. The settlement agreement approved by P.L.104-301 , however, allows the Hopi Tribe under certain circumstances to beginquiet-possession actions against the United States in the year 2000 if Navajo familieson Hopi partitioned land have not entered into leases with the Hopi Tribe. Congress has for a long time been concerned by the slow pace of relocation and by relocatees' apparent low level of interest in moving to the "new lands" acquiredfor the Navajo reservation for relocatee use. Appropriations committee reports in1995, 1996, and 1997 called on ONHIR to explore termination of the relocationprogram, and the Senate in the 104th Congress considered a bill phasing out ONHIR. The House FY1998 Appropriations Committee report directed ONHIR to stop furtherdevelopment work on the new lands beyond that required to meet relocatee demand. For FY1998, ONHIR received appropriations of $15 million. For FY1999 the Administration proposed the same amount. The Senate Appropriations Committeeagreed with the Administration figure, while the House of Representatives approved$13 million, a 13% reduction from FY1998. In the Interior appropriations portionof the FY1999 omnibus appropriations act, Congress approved $13 million for theONHIR. Other Related Agencies. One of the pervasive issues for the programs and agencies delineated below is whetherfederal government support for the arts and culture is an appropriate federal role, andif it is, what should be the shape of that support. If the continued federal role is notappropriate, might the federal commitment be scaled back such that greater privatesupport or state support would be encouraged? Each program has its own uniquerelationship to this overarching issue. Smithsonian. The Smithsonian Institution (SI) is a museum, education and research complex of 16 museums andgalleries and the National Zoo. Nine of its museums and galleries are located on theMall between the U.S. Capitol and the Washington monument, and counted over 30million visitors in FY1997. The Smithsonian is estimated to be 70+ percent federallyfunded. A federal commitment was established by initial legislation in 1846. Inaddition to receiving federal appropriations, the Smithsonian has private trust funds,which include endowments, donations, and other revenues from its sales stores andmagazine. The FY1999 Clinton Administration budget would have provided $419.8 million to the Smithsonian, and $357.3 million of that amount would be for salariesand expenses. Of the total for the Smithsonian, $16 million (and a request for anadvance appropriation of $19 million for FY 2000) would be provided to completeconstruction of the National Museum of the American Indian (NMAI) on the Mall.The NMAI was controversial; opponents of the new museum argued that the currentSmithsonian museums need renovation and repair, and maintenance of the collectionwith over 140 million items, more than the public needs another museum on theMall. Proponents felt that there had been too long a delay in providing a museum "inWashington" to house the Indian collection. Private donations to the Smithsonianand a fund-raising campaign totaled $37 million, required to meet thenon-appropriated portion of project funding. Of this amount, $15 million came fromthe Indian community directly. However, the total cost of the American Indian museum was estimated at $110 million; Congress asked that there be an attempt to"scale down" the plans and cost. The final FY1998 Interior appropriations provided$29 million for the construction of the American Indian Museum. The FY1999 budget would have included $40 million for repair and renovationof the Smithsonian. Four of the Smithsonian's buildings account for approximately30% of the SI's public space: the National Museum of Natural History (built in1910), the American Art and Portrait Gallery (built between 1836 and 1860), theCastle building (built 1846), and the Arts and Industries building (1849). The costto renew these four buildings is approximately $200 million. The Smithsoniancontends that funding for repair and renewal of SI's facilities has not kept pace withneed, resulting in accelerated deterioration of the physical plant. The Smithsonian has indicated that it has completed a 5 year strategic plan andan associated performance plan for FY1999 under the Government Performance andResults Act of 1993 and in keeping with the Smithsonian's mission. On anothermatter, the final report of the Latino Oversight committee, Toward a Shared Vision:U.S. Latinos and the Smithsonian Institution , was released in October 1997. Itindicates that although there is a significant change in commitment at the top (SImanagement) toward including Latinos in all aspects of the Smithsonian, some of theimplementation of the plan has lagged. Latinos accounted for only 2% of seniorSmithsonian personnel and 4% as members of Smithsonian boards andcommissions. Those critical of the Smithsonian urge that Latino representation beaddressed in this budget cycle. The Smithsonian marked its 150th anniversary in FY1997 and generated public programs associated with it including "America's Smithsonian," a traveling exhibit.The Smithsonian indicated that the traveling exhibit (free to the public) was toocostly, and to offset the cost, SI might institute admission charges for special exhibitsin the Smithsonian buildings on the Mall. In view of the trend toward diminishedfederal support, the Smithsonian has also begun to use bond issues for someconstruction projects including the renovation of the National Museum of NaturalHistory and the Dulles National Air and Space Museum extension. On June 18, 1998, the House Interior Appropriations Subcommittee marked up the FY1999 Interior appropriations bill, allowing $397.5 million for the Smithsonian.On June 25, the House Appropriations Committee concurred with the earlier estimatethat would provide $397.449 million, (allowing $346.449 million for salaries andexpenses). Also, on June 25, the Senate Appropriations Committee ordered reportedthe Interior bill providing $404.554 million for the Smithsonian (allowing $352.154million for salaries and expenses, and providing $16 million for construction of theNational Museum of the American Indian.) The full House approved itsAppropriations Committee's recommendation. The FY1999 Omnibus AppropriationsAct provides $347.154 million for salaries and expenses of the Smithsonian; with$16 million for construction, primarily for the National Museum of the AmericanIndian; and $40 million for repair and restoration of Smithsonian buildings. For further information on the Smithsonian , see its World Wide Web site at http://www.si.edu/ National Endowment for the Arts, National Endowment for the Humanities, and Institute of Museum Services. One ofthe primary vehicles for federal support for arts, humanities and museums is theNational Foundation on the Arts and the Humanities, composed of the NationalEndowment for the Arts (NEA), the National Endowment for the Humanities (NEH),and the Institute of Museum Services (IMS, now a newly constituted Institute ofMuseum and Library Services (IMLS) with an Office of Museum Services (OMS)). The authorizing act, the National Foundation on the Arts and the Humanities Act, hasexpired but has been operating on temporary authority through appropriations law.The last reauthorization for the National Foundation on the Arts and the Humanitiesoccurred in 1990 and expired in FY1993. Authority has been carried throughappropriations language since that time. The 104th Congress established the Instituteof Museum and Library Services (IMLS) under P.L. 104-208 . Among the questions Congress is considering is whether funding for the arts, humanities, and museums is an appropriate federal role and responsibility. Thecurrent climate of budget constraints raises questions about the need for such support.Some argue that NEA and NEH should be abolished altogether, contending that thefederal government should not be in the business of supporting arts and humanities. They also argue that culture can and does flourish on its own through private support.Proponents of federal support for arts and humanities argue that the federalgovernment has a long tradition of such support, beginning with congressionalappropriation of funds for works of art to adorn the U.S. Capitol in 1817. Spokesmen for the private sector say that they are unable to make up the gap thatwould be left by the loss of federal funds for the arts. Some argue that abolishing orany significant reduction to NEA, NEH and IMLS will curtail or eliminate theprograms that have national purposes (such as touring theater and dance companies,radio and television shows, etc.) The Administration's FY1999 budget would provide $136 million for NEA and NEH and $26 million for OMS within the Institute of Museum and Library Services. For the NEA this would include a $15 million increase in state Partnership funds toallow NEA to work with state arts agencies by investing in arts education activities.For the NEH, $5 million in start-up funds would support regional humanities centersas part of a new special initiative Rediscovering America: the Humanities and theMillennium . For the IMLS, OMS would receive $17 million for General Operatingsupport to help museums improve the quality of their services to the public--they arealready popular, serving over 600 million visitors annually. In the 105th Congress, elimination of the NEA was once again on a list of priorities for some House members. Among the House Republican leadership, asmall group was formed called the "values action team," to coordinate legislativeaction with conservative groups (e.g., Christian Coalition, Focus on the Family andthe Family Research Council). In contrast, the Congressional Member Organizationfor the Arts (CMO) testified in favor of full support for the arts at the FY1999Administration budget request level. The President's Committee on the Arts releaseda publication, Creative America that recommends that federal funding be restored forNEA, NEH and IMLS to levels "adequate to fulfill their national roles." The goalexpressed was for appropriations to equal $2.00 per person by the year 2000 for allthree agencies. The controversy involving charges of obscenity concerning a small number of NEA individual grants remains an issue despite attempts to resolve these problemsthrough statutory provisions. To date, no NEA projects have been judged obscene bythe courts. In addition, a federal appeals court (Nov. 5, 1996) upheld an earlierdecision, ruling that applying the "general standards of decency" clause to NEAgrants was "unconstitutional." Prior to the federal appeals court decision, Congresseliminated funding for most grants to individual artists; and in anticipation of theCongress's action, NEA had already eliminated grants to individuals by artsdiscipline except to maintain Literature fellowships, Jazz masters and NationalHeritage fellowships in the Folk and Traditional Arts. On June 25, 1998, theSupreme Court reversed the federal appeals court decision for NEA v.Finley by avote of 8 to 1, stating that the NEA can consider "general standards of decency"when judging grants for artistic merit, and that the decency provision does not"inherently interfere with First amendment rights nor violate constitutional vaguenessprinciples." On November 14, 1997, the FY1998 Interior Appropriations bill was enacted as P.L. 105-83 . In spite of attempts by the House to eliminate funding for NEA, theCongress approved $98 million for NEA, $110.7 million for NEH, and $23.280million for the OMS, IMLS, with reform language included for NEA. The NEAreform measures included an increase in the percentage of funding to states for basicstate arts grants and for grants to underserved populations from 35% to 40%. Inaddition, language emphasizing arts education was included. There would be a 15%cap on funds allocated to each state, exempting only those grants with a nationalimpact. It was recommended that three members of the House and three membersof the Senate serve on the National Council on the Arts, and that the size of theNational Council be reduced to 20 from 26. Both NEA and NEH were given specificauthority to solicit funding and to invest those funds. On June 18, 1998, the House Interior Appropriations Subcommittee marked up the FY1999 Interior Appropriations bill, allowing $23 million for the IMLS-OMS,$110 million for NEH, and recommending "termination of $98 million for theNational Endowment for the Arts." On June 25, the House AppropriationsCommittee restored $98 million for NEA (an amendment to restore funding wasadopted by a vote of 31-27) under the FY1999 Interior appropriations bill. Also, onJune 25, the Senate Appropriations Committee ordered reported the FY1999 Interiorappropriations, providing $100.060 million for NEA, and $110.7 million for NEH,and $23.280 million for the OMS, IMLS. On July 21, 1998, during consideration of the FY1999 Interior Appropriations bill, the House voted (253-173) to approve an amendment to restore $98 million forthe NEA in FY1999. Prior to this vote the House, on a point of order, had removed$98 million for NEA, stating that there was no program authorization. On July 23, the full House approved H.R. 4193 , which included the above notedHouse figures. The FY1999 Omnibus Appropriations Act provided $98 million forthe NEA, $110.7 million for NEH, and $23.405 million for the OMS. ( Notes on reauthorization: The authorization has expired for the National Foundation on the Arts and the Humanities Act. The 104th Congress considered butdid not enact legislation to reauthorize the National Foundation on the Arts and theHumanities. However, the Institute of Museum and Library Services (IMLS) wasauthorized through the Omnibus Consolidated Appropriations Act of 1997, mergingthe previous Institute of Museum Services with library resources programs. On July23, 1997, the Senate Labor and Human Resources Committee ordered reported S. 1020 , a bill to reauthorize for 5 years the National Foundation on theArts and the Humanities Act of 1965. There was no further action on the artsreauthorization; although some of the reforms placed in the Interior appropriationsbill for FY1998 ( P.L. 105-83 ) were similar to provisions in S. 1020 .) For further information on the National Endowment for the Arts , see its site at http://arts.endow.gov/ For further information on the Institute of Museum Services , see its site at http://www.imls.fed.us/ For Additional Reading CRS Products CRS Report 97-206(pdf) ENR. Appropriations for FY1998: Interior and Related Agencies , by [author name scrubbed], 45 p. CRS Report 97-904 GOV. Fiscal Year 1998 Continuing Resolution , by [author name scrubbed], 6 p. Title I: Department of the Interior. CRS Report 98-479 ENR. Department of the Interior Budget Request for FY1999: An Overview , by [author name scrubbed], 53 p. CRS Report 97-332 ENR. Department of the Interior Budget Request for FY1998 , by [author name scrubbed], 34 p. CRS Report 96-514 ENR. Department of the Interior Budget Request for FY1997 , by [author name scrubbed], 31 p. CRS Issue Brief 95003. Endangered Species: Continuing Controversy , by [author name scrubbed]. (Updated regularly) CRS Report 97-851(pdf) A. Federal Indian Law: Background and Current Issues , by [author name scrubbed], 29 p. CRS Report 98-36 ENR. Federal Land Ownership: Constitutional Authority and the History of Acquisition, Disposal, and Retention , by [author name scrubbed] and PamelaBaldwin, 12 p. CRS Report 90-192(pdf) ENR. Fish and Wildlife Service: Compensation to Local Governments , by [author name scrubbed], 37 p. CRS Report 96-450 ENR. Grazing Fees: An Overview , by [author name scrubbed], 6 p. CRS Issue Brief 96006. Grazing Fees and Rangeland Management , by [author name scrubbed]. (Updated Regularly) CRS Report 96-123 EPW. Historic Preservation: Background and Funding , by [author name scrubbed], 5 p. (Updated regularly) CRS Report 93-793 A. Indian Gaming Regulatory Act: Judicial and Administrative Interpretations , by [author name scrubbed], 28 p. CRS General Distribution Memorandum. Indian Issues in the 105th Congress , by [author name scrubbed], 5 p. CRS Report 97-792 ENR. Land and Water Conservation Fund: Current Status and Issues , by Jeffrey Zinn, 6 p. CRS Report 95-599 ENR. The Major Federal Land Management Agencies: Management of Our Nation's Lands and Resources , Coordinated by Betsy A.Cody, 45 p. CRS Report 94-438 ENR. Mining Law Reform: the Impact of a Royalty , by [author name scrubbed], 14 p. CRS report 95-259 ENR. PILT (Payments in Lieu of Taxes): Somewhat Simplified , by [author name scrubbed], 10 p. CRS Report 95-145 SPR. U.S. Geological Survey: Its Mission and Its Future , by James E. Mielke, 6 p. Title II: Related Agencies. CRS Report 97-539 EPW. Arts and Humanities: Funding and Reauthorization in the 105th Congress , by [author name scrubbed], 15 p. CRS Report 95-15 ENR. Below-Cost Timber Sales: Overview , by [author name scrubbed], 20 p. CRS Issue Brief 96020. The Department of Energy's FY1997 Budget , Coordinated by [author name scrubbed]. (Updated regularly) CRS Report 90-275 SPR. Energy Conservation and Electric Utilities: Developments and Issues in Regulating Program Profitability , by [author name scrubbed], 25 p. CRS Issue Brief 95085. Energy Efficiency: A New National Outlook? , by [author name scrubbed]. (Updated regularly) CRS Report 98-233(pdf) ENR. Federal Timber Harvests: Implications for U.S. Timber Supply , by [author name scrubbed], 6 p. CRS Report 95-548 ENR. Forest Health: Overview , by [author name scrubbed], 5 p. CRS Report 97-706 ENR. Forest Roads: Construction and Financing , by [author name scrubbed], 6 p. CRS Report 97-14 ENR. The Forest Service Budget: Trust Funds and Special Accounts , by [author name scrubbed] and [author name scrubbed], 43 p. CRS Report 94-866 EPW. Health Care Fact Sheet: Indian Health Service , by Jennifer A. Neisner, 2 p. CRS Report 96-191 SPR. The Partnership for a New Generation of Vehicles (PNGV) , by [author name scrubbed], 24 p. CRS Report 95-364 ENR. Salvage Sales and Forest Health , by [author name scrubbed], 5 p. CRS Report 96-569 ENR. The Salvage Timber Sale Rider: Overview and Policy Issues , by [author name scrubbed], 6 p. CRS Issue Brief IB87050. The Strategic Petroleum Reserve , by [author name scrubbed]. (Updated regularly) Other References Report of the Joint Tribal/BIA/DOI Advisory Task Force on Reorganization of the Bureau of Indian Affairs to the Secretary of the Interior and the AppropriationsCommittees of the United States Congress. [Washington: The Task Force]. August 1994. Selected World Wide Web Sites Information regarding the budget, supporting documents, and related departments, agencies and programs is available at the following web or gopher sites. House Committee on Appropriations . http://www.house.gov/appropriations Senate Committee on Appropriations . http://www.senate.gov/~appropriations/ CRS Appropriations Products Guide . http://www.loc.gov/crs/products/apppage.html Congressional Budget Office . http://www.cbo.gov/ General Accounting Office . http://www.gao.gov Office of Management and Budget . http://www.whitehouse.gov/WH/EOP/OMB/html/ombhome.html Title I: Department of the Interior. Department of the Interior (DOI) . http://www.doi.gov/ Department of the Interior's Office of the Budget . http://www.doi.gov/budget/ Bureau of Land Management (BLM) . http://www.blm.gov/ Fish and Wildlife Service (FWS) . http://www.fws.gov/ National Park Service (NPS) . http://www.nps.gov/parks.html U.S. Geological Survey (USGS) . http://www.usgs.gov/ Minerals Management Service (MMS) . http://www.mms.gov/ Office of Surface Mining Reclamation and Enforcement (OSM) . http://www.osmre.gov/osm.htm Bureau of Indian Affairs (BIA) . http://www.doi.gov/bureau-indian-affairs.html Office of Special Trustee for American Indians . http://www.ost.doi.gov/ Insular Affairs . http://www.doi.gov/oia/index.html Title II: Related Agencies and Programs. Department of Agriculture (USDA) . http://www.usda.gov/ Department of Agriculture: U.S. Forest Service . http://www.fs.fed.us/ USDA Strategic Plan . http://www.usda.gov/ocfo/strat/index.htm Department of Energy (DOE) . http://www.doe.gov/ Fossil Energy . http://www.fe.doe.gov/ Strategic Petroleum Reserve/Naval Petroleum Reserve . http://www.fe.doe.gov/programs/reserves Energy Efficiency . http://www.eren.doe.gov/ Department of Health and Human Services . http://www.dhhs.gov Indian Health Service (IHS) . http://www.ihs.gov/ Smithsonian . http://www.si.edu/ National Endowment for the Arts . http://arts.endow.gov/ Institute of Museum Services . http://www.imls.fed.us/ 3. Department of the Interior and Related Agencies Appropriations (in thousands of dollars) Source: House Appropriations Committee. a No longer funded in the Interior Appropriations bill. Beginning in FY1998, Indian Education wasfunded in the Labor, Health and Human Services, and Education Appropriations. b Includes Emergency Supplemental ( P.L. 105-174 ) nettedinto accounts. c As passed by the House on 7/23/98. d As reported by the Senate Appropriations Committee on6/25/98. 4. Congressional Budget Recap (in thousands of dollars) Source: House Appropriations Committee. a Includes Emergency Supplemental ( P.L. 105-174 ) netted into accounts. 5. Historical Appropriations Data from FY1993 to FY1998 (in thousands of dollars) a Incorporates reductions included in the FY1995 Rescissions Bill, H.R. 1944 ( P.L. 104-19 ). b Beginning in FY1998, Indian Education will be funded in the Labor, Health and HumanServices,and Education Appropriations. c The FY1997 enacted amount totals $13,514,435 with funding of $386,592 included in theEmergency Supplemental Appropriations bill, ( P.L. 105-18 ).

The Interior and Related Agencies Appropriations bill includes funding for agencies and programs in five separate federal departments as well as numerous smaller agencies and diverseprograms. On February 2, 1998, the President submitted his FY1999 budget to Congress. The request for Interior and Related Agencies totals $14.26 billion compared to the $13.79 billion enacted forFY1998 ( P.L. 105-83 ), an increase of $470 million. The actual increase for Title I and Title IIagencies in the FY1999 request is $1.17 billion, offset by a nonrecurring appropriation of $699million for priority land acquisitions and exchanges in Title V of the FY1998 Interior AppropriationsAct. However, the Emergency Supplemental ( P.L. 105-174 ) increased the FY1998 enacted level toa total of $14.1 billion. On June 25, 1998, the House and Senate Appropriations Committees reported versions of the FY1999 Interior Appropriations bill. On July 23, the House passed H.R. 4193 by a voteof 245-181, and increased funding by $60 million to $13.49 billion. The House-passed bill is $800million below the President's request and $700 million below FY1998. During the debate on H.R. 4193 , the House voted 253-173 to restore $98 million for the National Endowmentfor the Arts (NEA) following a point of order deleting the funds since NEA had no programauthorization. The House and Senate totals reflect scorekeeping adjustments (see Table 3 ). Before these adjustments, the Senate bill ( S. 2237 ) is $168 million more than the House bill. Changes from the House bill include: $1.2 billion for the Bureau of Land Management (+ $20million), $797.3 million for the Fish and Wildlife Service (+ $52.5 million), $1.66 billion for theNational Park Service (+ $55.5 million), $1.71 billion for the Bureau of Indian Affairs (- $11.5million), $2.62 billion for the Forest Service (+ $99.7 million), $1.25 billion for the Department ofEnergy (+ $18.4 million), and $2.25 billion for the Indian Health Service (- $94 million). On September 8, the Senate began debate on S. 2237 . On September 17, further action on the bill was suspended in favor of other legislative business. The Office of Managementand Budget, in a Statement of Administration Policy, suggested the President might veto the bill inits then-current form. On October 19, following a series of temporary continuing resolutions, a conference report ( H.Rept. 105-825 ) was submitted on H.R. 4328 , the Omnibus Consolidated andEmergency Supplemental Appropriations for FY1999. The total for Interior and Related Agencieswas $14.1 billion, matching FY1998 (including the Emergency Supplemental) and higher thanpassed the House or reported to the Senate. The conference report and the bill passed the House onOctober 20 and the Senate on October 21, and was signed as P.L. 105-277 by the President onOctober 21. Key Policy Staff Division abbreviations: ENR = Environment and Natural Resources; EPW = Education and PublicWelfare; GOV = Government; STM = Science, Technology, and Medicine.

Background Mine-Resistant, Ambush-Protected (MRAP) vehicles are a family of vehicles produced by a variety of domestic and international companies. They generally incorporate a "V"-shaped hull and armor plating designed to provide protection against mines and improvised explosive devices (IEDs). DOD originally intended to procure three types of MRAPs. These included Category I vehicles, capable of carrying up to 7 personnel and intended for urban operations; Category II vehicles, capable of carrying up to 11 personnel and intended for a variety of missions such as supporting security, convoy escort, troop or cargo transport, medical, explosive ordnance disposal, or combat engineer operations; and Category III vehicles, intended to be used primarily to clear mines and IEDs, capable of carrying up to 13 personnel. The Army and Marines first employed MRAPs in limited numbers in Iraq and Afghanistan in 2003, primarily for route clearance and explosive ordnance disposal (EOD) operations. These route clearance MRAPs quickly gained a reputation for providing superior protection for their crews, and some suggested that MRAPs might be a better alternative for transporting troops in combat than up-armored HMMWVs. DOD officials have stated that the casualty rate for MRAPs is 6%, making it "the most survivable vehicle we have in our arsenal." By comparison, the M-1 Abrams main battle tank was said to have a casualty rate of 15%, and the up-armored HMMWV, a 22% casualty rate. DOD's MRAP Requirement3 Ashton Carter, Under Secretary of Defense for Acquisition, Technology, and Logistics, has approved an acquisition objective of 25,700 MRAP vehicles for all services. Of this total, 8,100 will be the new MRAP-All Terrain Vehicle (M-ATV) designed to better handle the rugged terrain of Afghanistan. DOD officials have indicated that this requirement may increase depending upon the operational needs in Afghanistan. Reports in September 2010 suggested that DOD was actively discussing a new follow-on contract for additional M-ATVs over and above the original 8,100 and that new variants might also be developed. MRAPs Deployment and Disposition According to DOD, as of July 21, 2011, 14,749 MRAPs had been delivered to Afghanistan, including 6,980 M-ATVs. Reports suggest that many of the older model MRAPs deployed to Afghanistan are not used, as they are considered too large and bulky for tactical missions. As U.S. forces began drawing down in Iraq, the Army and Marines had planned to put the majority of the earlier versions of the MRAPs into prepositioned stocks at various overseas locations, ship a number back to the United States for training, and place a number into logistics and route clearance units. However, with the increase of U.S. forces deploying to Afghanistan and Secretary of Defense requirements to make better use of MRAPs, these plans have been adjusted. Currently, of the almost 15,000 Army MRAPs, according to a June 2010 Army briefing, about 5,750 will be assigned to infantry brigade combat teams, 1,700 to heavy brigade combat teams, and about 165 to Stryker brigades. Support units will be assigned about 5,350 vehicles, about 1,000 MRAPs will be used for home station and institutional training, and approximately 1,000 MRAPs will be assigned to war reserve stocks and be used to replace damaged or destroyed MRAPs. The Marines are reportedly still developing their ground vehicle strategy and have previously suggested that MRAPs have deployability limitations under the concept of a sea-based, expeditionary Marine force. MRAPS Credited with Reducing IED Deaths in Iraq and Afghanistan11 In an interview with outgoing Secretary of Defense Robert Gates, it was suggested that MRAPs have proven to be 10 times safer than HMMWVs in protecting soldiers during IED attacks. The Pentagon's Joint Program Office for MRAPs also reportedly estimated that as many as 40,000 lives had been saved—10,000 in Iraq and 30,000 in Afghanistan—by MRAPs, based on estimates derived from numbers of attacks and troops inside of the vehicles. Some defense experts suggest that the Joint Program Office's estimates seem too high. Secretary Gates also noted the morale value of the MRAP to service members in terms of both soldier survival as well as knowing that the U.S. government would spare no expense in protecting them from IEDs. A New MRAP Version for Afghanistan: The M-ATV In the summer of 2008, DOD began to examine the possibility of developing and procuring a lighter-weight, all-terrain capable MRAP variant to address the poor roads and extreme terrain of Afghanistan. This new vehicle—designated the MRAP-All-Terrain Vehicle (M-ATV)—weighs 12 tons (as opposed to the 14 to 24 tons of the earlier MRAP variants) and has better off-road mobility, while providing adequate armor protection. M-ATV Requirement for Additional Armor While M-ATVs initially enjoyed success in Afghanistan, reports suggest that insurgents have increased the size of IEDs, thereby negating much of the protective value of M-ATVs, resulting in increased U.S. casualties. In response to the enhanced IED threat, two additional layers of Israeli-made armor plates are being installed to the M-ATV's underside and new padding and crew harnesses inside the vehicle, which reportedly will enable the M-ATVs to withstand explosions twice as large as their current classified capability. DOD reportedly concluded a $245 million dollar contract with Oshkosh—the M-ATV's developer—to acquire 5,100 sets of armor. Under Secretary of Defense for Acquisition, Technology & Logistics Ashton Carter supposedly intends to outfit all of the almost 7,000 M-ATVs in Afghanistan with these armor kits. While additional armor and interior improvements could improve M-ATV survivability up to a point, there are concerns that additional armor might have an adverse impact on vehicle mobility, which was the prime consideration for the development of the M-ATV. MRAP Funding Prior year MRAP funding, including wartime supplemental and reprogramming, in billions: FY2006 and prior: $0.173 FY2007: $5.411 FY2008: $16.838 FY2009: $6.243 FY2010: $6.281 FY2011: $3.4 TOTAL: $38.346 Through FY2011, Congress appropriated $38.346 billion for all versions of the MRAP. The full FY2011 DOD budget request of $3.4 billion for the MRAP Vehicle Fund was authorized by the Ike Skelton National Defense Authorization Act for FY2011 ( P.L. 111-383 ). In the President's FY2012 DOD budget request, there was no request for procurement funds for the MRAP program. FY2012 MRAP Overseas Contingency Operations (OCO) Budget Request17 Citing an operational requirement for 27,344 MRAPS to support CENTCOM operations, DOD requested $3.195 for the MRAP vehicle program for FY2012, broken down as follows: $2.4 billion for operations and sustainment, repair parts, sustainment, battle damage repair and contractor logistics support and foe leased maintenance facilities in Kuwait; $.765 billion for survivability and mobility upgrades; and $.03 billion for automotive and ballistic testing. FY2012 Legislative Activity FY2012 National Defense Authorization Act (H.R. 1540 and S. 1253)18 The House and Senate Armed Services Committees recommended fully funding the FY2012 OCO budget request. Department of Defense Appropriations Bill, 201219 The House Committee on Appropriations recommended fully funding the FY2012 OCO budget request. Potential Issues for Congress Status of Unused MRAPs in Afghanistan As previously noted, many older MRAPs shipped to Afghanistan are reportedly not being used because their size and weight severely limit their effectiveness. If a large number of MRAPS are, in fact, not being used then a fundamental question is, why were they shipped to Afghanistan in the first place? Were these vehicles shipped to Afghanistan, as some say, for symbolic as opposed to operational reasons and, if so, what is the total cost for these unused vehicles to be shipped and maintained in theater? If these vehicles are not being used, is there a better use for them elsewhere or are they to be left in country after the eventual departure of U.S. forces? It was reported that Pentagon agreed to loan 300 MRAPs in Afghanistan for one year to 15 allied nations currently fighting in Afghanistan. Approximately 85 MRAPs are already out on loan to Poland, Romania, Georgia, and the Czech Republic. All countries that are loaned MRAPs can request an extension on the loan and the borrowing countries are responsible for the costs associated with maintaining these vehicles. Loaning unused MRAPs to coalition partners could not only help to reduce allied casualties but can also help to recoup some of the associated procurement costs of these vehicles. Are the M-ATV and JLTV Redundant Programs? In August 2009 briefings to the House Armed Services Committee Air and Land Forces, and Seapower and Expeditionary Forces Subcommittees, the Government Accountability Office (GAO) noted that "the introduction of MRAP, M-ATV and eventually the JLTV creates a potential risk of unplanned overlap in capabilities; a risk that needs to be managed." Defense officials have also been asked if there is a need for the MRAP/M-ATV and JLTV programs, as these programs share as many as 250 requirements. While DOD leadership notes that there are 450 additional requirements that the MRAPs and M-ATVs cannot meet, thereby justifying the JLTV program, some analysts question the need for three distinct tactical wheeled vehicle programs, particularly in light of anticipated defense budget cuts. If the services continue to look for "the next best thing" in terms of tactical wheeled vehicles instead of committing to the M-ATV and JLTV programs, they could run the risk of significant redundancies and not being able to afford recapitalizing and replacing the HMMWV fleet. Additional Armor for M-ATVs in Afghanistan The use of larger and more lethal IEDs by Afghan insurgents has necessitated adding additional armor to M-ATVs. While this course of action is intended to provide additional protection for the vehicle's occupants, it might also result in a less maneuverable vehicle that might be too heavy for many Afghan roads (the main reason why many MRAPs deployed to Afghanistan are not in use) and perhaps more prone to roll over accidents. Congress might wish to explore the performance characteristics of these modified M-ATVs in greater detail with DOD to ensure that a proper balance between protection and operational utility is reached. Another consideration is whether unused MRAPs—even if less maneuverable than M-ATVs—might be used on certain Afghan routes that can accommodate their weight. Substituting MRAPs whenever operationally feasible might be a more timely and cost-effective option as opposed to DOD's plans to arbitrarily uparmor approximately 7,000 M-ATVs.

Congress has played a central role in the MRAP program, suggesting to defense and service officials that MRAPs would provide far superior protection for troops than the up-armored High Mobility, Multi-Wheeled Vehicles (HMMWVs ). Congressional support for MRAPs, as well as fully funding the program, has been credited with getting these vehicles to Iraq and Afghanistan in a relatively short timeframe, thereby helping to reduce casualties. Congress will likely continue to be interested in the MRAP program to ensure that the appropriate types and numbers are fielded, as well as to monitor the post-conflict disposition of these vehicles, as they represent a significant investment. In 2007, the Department of Defense (DOD) launched a major procurement initiative to replace most up-armored HMMWVs in Iraq with Mine-Resistant, Ambush-Protected (MRAP) vehicles. MRAPs have been described as providing significantly more protection against Improvised Explosive Devices (IEDs) than up-armored HMMWVs. Currently, DOD has approved an acquisition objective of 25,700 vehicles, of which 8,100 are the newer Military-All-Terrain Vehicle (M-ATV) version, designed to meet the challenges of Afghanistan's rugged terrain. DOD officials have indicated that this total may be increased depending on operational needs in Afghanistan. DOD reports that as of July 21, 2011, 14,749 MRAPs had been delivered to Afghanistan, including 6,980 M-ATVs. Many MRAPs deployed to Afghanistan are not in use because they have been deemed too heavy for some Afghan roads and do not have sufficient cross-country mobility. Afghan insurgents are employing larger improvised explosive devices (IEDs), resulting in increased casualties to M-ATV occupants. In response, DOD is installing additional armor to M-ATVs. While this armor is intended to provide additional protection to occupants, it might also result in operational restraints associated with a heavier and possibly less stable vehicle. Through FY2011, Congress appropriated $38.35 billion for all versions of the MRAP. In FY2012, there was no procurement funding requested for the MRAP program. The FY2012 MRAP Overseas Contingency Operations (OCO) budget request is for $3.195 billion to repair, sustain, and upgrade existing MRAPs. The House and Senate Armed Services Committees recommended fully funding the MRAP budget request, and the House Appropriations Committee has also recommended full funding. Among potential issues for congressional consideration are the status of older, unused MRAPS in Afghanistan that are reportedly not being used because of their size and weight; possible redundancies with the MRAP, M-ATV, and the Joint Light Tactical Vehicle (JLTV) programs; and the impact of adding additional armor to M-ATVs.

Overview: FDA and Medical Device Review In order to understand the significance of MDUFMA, a basic introduction to FDA and the medical device review process is useful. The United States Food and Drug Administration (FDA) is the agency responsible for ensuring the safety and effectiveness of medical devices in the United States. According to statute, a medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes. (Federal Food, Drug and Cosmetic Act, 21 U.S.C. 301 §201(h)) (FFDCA). According to this definition, a medical device can be anything from a tongue depressor to a home pregnancy test to a wheelchair to a pacemaker. Types of medical devices vary widely, as do their respective manufacturing requirements. In part due to the diversity of medical devices, compared to the drug industry, the device industry is more fragmented, smaller (estimated earnings of $80 billion in 2004 compared to the drug industry's estimated $222 billion), and dominated by smaller companies. FDA is divided into six centers, each charged with regulating a particular type of product. The center within FDA primarily responsible for ensuring the safety and effectiveness of medical devices is the Center for Devices and Radiological Health (CDRH). One other center, the Center for Biologics Evaluation and Research (CBER), regulates some devices—specifically those associated with blood collection and processing procedures, as well as with cellular therapies (e.g., stem cell treatments). Jurisdiction of the centers' medical device review is governed by the FDA Intercenter Agreement between CBER and CDRH (October 31, 1991). CDRH categorizes medical devices according to their risk into one of three classes: Class I, II, and III. (See Table 1 .) The risk a device poses, and the regulatory controls required, increase from Class I to Class III. The device classification regulation defines the regulatory requirements for a general device type. Most Class I devices are exempt from Premarket Notification (510(k)) and require only registration with FDA before marketing; most Class II devices require a 510(k) before marketing; and most Class III devices require Premarket Approval (PMA). Most PMAs and some 510(k)s require clinical trials, which are conducted with FDA permission via an investigational device exemption (IDE) that allows a device to be used in a study to gather information on its safety and effectiveness. Devices are reviewed by CBER under a biological license application (BLA). To supplement a PMA when there are changes in safety and effectiveness data, FDA may require one of four types of submissions: Panel Track Supplements, 180-Day Supplements, Real Time Supplements, and 30-Day Notices. Panel Track Supplements are akin to second entire PMAs. They reflect new indications for use or significant changes in device design or performance, and require substantial clinical data. As artificial heart valve approved for use to replace the aortic valve, and proposed for use in the mitral valve, would require the submission of a Panel Track Supplement. 180-Day Supplements are submitted for significant changes to medical device components, materials, designs, specifications, software, labeling, or color additives. A proposed change in a blood glucose monitoring system from wired to wireless telemetry would require this type of submission. Real Time Supplements are submitted when there are minor changes to the design, software, sterilization or labeling of a device. A change in the storage temperature and expiration dating for an injectable gel would require this type of supplement. 30-Day Notices are submitted for modifications to manufacturing processes or methods, such as a change in the sterilization process. FDA offers one alternative that can be used in place of a PMA: the Product Development Protocol (PDP). A PDP is based upon early consultation between the sponsor and the FDA, leading to a device development and testing plan acceptable to both parties. It aims to minimize the risk that the sponsor will unknowingly pursue—with the associated waste of capital and other resources—the development of a device that FDA will not approve. One additional type of submission is a 513(g) request, so named because of the section of the FFDCA that regulates it. 513(g)s enable requesters to obtain information from FDA regarding the regulatory status of their devices or products. Of all device-related submissions, a PMA (or Panel Track Supplement) is the most rigorous and time consuming application process for manufacturers and review process for the FDA. A 510(k) is significantly less rigorous, and is much more common. The majority of medical devices that come to market do so with 510(k) clearance rather than PMA approval. (See Table 2 .) In the years prior to MDUFMA's enactment, FDA's resources for its device and radiological health programs had increased at a lower rate than its costs. As stated in the House Report to H.R. 3580 (MDUFMA): The medical device industry is growing rapidly. The complexity of medical device technology is increasing at an equally rapid pace. Unfortunately, FDA's device review program lacks the resources to keep up with the rapidly growing industry and changing technology. Because prompt approval and clearance of safe and effective medical devices is critical to improving public health, it is the sense of the Committee that adequate funding for the program is essential. In addition to filing applications for clearance or approval with FDA, device manufacturers must be registered with FDA and file annual reports. In addition, FDA inspects establishments where medical devices that are marketed in the United States are manufactured to assess compliance with FDA's quality system requirements for ensuring good manufacturing practices (GMP) and other applicable requirements. According to the Government Accountability Office (GAO): During quality system inspections, FDA investigators examine manufacturing controls, processes, and records. These inspections are FDA's primary means of assuring that the safety and effectiveness of medical devices are not jeopardized by poor manufacturing practices. In addition to issues raised by medical device review funding and inspection capabilities at FDA, prior to MDUFMA, concerns had also emerged regarding the reprocessing and re-use of medical devices that FDA had cleared or approved as single use devices (SUDs). Reprocessing means cleaning and sterilizing a device and verifying that it functions properly. Concerns about SUDs as well as funding and inspections paved the way for Congressional action in 2002 as described in the next section. MDUFMA and MDUFA 2007 Prior to the enactment of Medical Device User fee and Modernization Act ( P.L. 107-250 , hereinafter referred to as MDUFMA), FDA officials met with industry leaders, to agree upon mutually acceptable fee types, amounts, exceptions, and performance goals. The agreement specified that, in return for the additional resources provided by medical device user fees, FDA was expected to meet performance goals defined in a November 14, 2002 letter from the Secretary of the Department of Health and Human Services (HHS) to the Chairman and Ranking Minority Members of the Committee on Health, Education, Labor and Pensions Committee of the U.S. Senate and the Committee on Energy and Commerce of the U.S. House of Representative. MDUFMA was enacted in order to provide FDA "with the resources necessary to better review medical devices, to enact needed regulatory reforms so that medical device manufacturers can bring their safe and effective devices to the American people at an earlier time, and to ensure that reprocessed medical devices are as safe and effective as original devices." MDUFMA amended the FFDCA to enact three significant provisions for medical devices: (1) it established user fees for premarket reviews of devices; (2) it allowed establishment inspections to be conducted by accredited persons (third parties); and (3) it instituted new regulatory requirements for reprocessed single-use devices. FDA's authority for the first of these (the collection of user fees) will expire on October 1, 2007, unless Congress reauthorizes it. MDUFMA was subsequently amended by two laws: the Medical Device Technical Corrections Act (MDTCA, P.L. 108-214 ), and the Medical Device User Fee Stabilization Act of 2005 (MDUFSA, P.L. 109-43 ). Unless otherwise noted, the discussion of MDUFMA that follows incorporates the amendments made by MDTCA and MDUFSA. In preparation for reauthorization (MDUFA 2007), FDA and industry representatives announced in April 2007 that they had reached a proposed mutual agreement on terms ("FDA Agreement"). Pursuant to MDUFMA (§105), on April 30, 2007, FDA held a public meeting about the FDA Agreement. Attendees expressed general satisfaction with its terms. The terms of the FDA Agreement were, by and large, incorporated into the Food and Drug Administration Revitalization Act ( S. 1082 ), which the Senate passed on May 9, 2007. They have also been generally incorporated into the Food and Drug Administration Amendments Act of 2007 ( H.R. 2900 ), which the House passed on July 11, 2007. The two bills' MDUFA 2007 provisions are similar, but not identical, as explained below. Differences are expected to be addressed in conference. Like MDUFMA, MDUFA 2007 proposals address both user fee authorities and third-party inspection. The proposed MDUFA 2007 user fee provisions would sunset on October 1, 2012. These as well as other MDUFMA provisions and other related topics, such as the impact that MDUFMA has had on postmarket inspection and enforcement, are discussed in the remainder of this report. User Fees Several important aspects of MDUFMA and MDUFA 2007 are related to user fees, including statutory "triggers" that link FDA's authority to collect and spend user fees to levels of Congressional appropriations, as well as reductions and exemptions to fees, performance goals, and allowable uses of fees. Triggers The authority to collect MDUFMA user fees is subject to statutory triggers that prohibit the collection of the fees if direct Congressional appropriations to FDA for salaries and expenses related to devices and radiological health fall below a certain threshold. In 2005, legislation was required to enable the continuation of the MDUFMA user fee program because Congressional appropriations had been lower than required for FY2003 and FY2004. MDUFSA (the 2005 legislation) lowered the MDUFMA triggers retroactively for FY2003 and FY2004 and prospectively for FY2005-FY2007. According to MDUFSA, FDA's salaries and expense appropriation line for Devices and Radiological Health, exclusive of user fees, must be not more than 1% below $205,720,000, plus statutory adjustments for FY2005-FY2007. For FY2007, this translates into a minimum requirement of $229,334,000. (See Table 3 .) No statutory trigger has been set for years beyond FY2007. MDUFA 2007 proposes that the MDUFSA trigger language be maintained through FY2012. User Fees, Device Review Budget and FTEs The amount of FDA's device review budget derived from MDUFMA user fees (private money) has increased almost every year since the act became law. Over the period of FY2003 to FY2008, MDUFMA funding has increased at a much faster rate (220.1%) than direct appropriations from Congress (24.1%). MDUFMA fees comprised less than 7% of FDA's program level device review budget in FY2003, and estimates are that they will comprise over 16% in FY2008. (See Table 4 .) According to the President's FY2008 budget request, MDUFMA fees would translate into 200 FTEs for that year, or 13% of the FTEs in the device review process (See Table 5 ). MDUFA 2007 would increase the amount of fees and resulting FTEs each year until FY2012. Total fee revenues in FY2008 would increase by approximately 31% over estimated FY2007 fee revenues, and by 8.5% per year each subsequent year through FY2012, generating a total of $287 million over five years. (See Table 6 .) Activities Requiring Fees, and Exceptions to the General Rule MDUFMA gives FDA the authority to collect user fees from manufacturers seeking to market medical devices. All of the fees charged under MDUFMA are for types of applications required for FDA approval or clearance of a product. According to FDA, there were fluctuations in the number of applications submitted from year to year, and fee revenues repeatedly fell short of expectations. To remedy the situation, MDUFA 2007 would introduce three new types of fees, which would generate about 50% of the total fee revenue and that would be more stable than application fees. The new fees are an annual establishment registration fee (paid once each year by each manufacturer), an annual fee for filing periodic reports (applicable to Class III devices approved under PMAs, premarket reports, and PDP processes), and a fee for filing a 30-Day Notice. The FDA Agreement states that the implementation of these new fees would allow for significant reduction in MDUFA 2007 of existing application fees. (See Table 7 .) Generally, fees would increase each year by 8.5%, which, according to FDA's recommendation, would ensure that fee revenues contribute their expected share to total program costs, and provide industry with stability and predictability in the fee revenues it would expect to pay. For the newly created establishment fee, the Secretary could increase the fee amount in FY2010 up to an additional 8.5% over the annual 8.5% increase if fewer than 12,250 establishments paid the fee in FY2009. This measure is designed to ensure that the fees collected from this source total 45% of total fee revenues. Both MDUFMA and proposals for MDUFA 2007 set fees as a percentage of the full fee for a PMA, also called the base fee , which is generally the most involved type of application that a device manufacturer could make to FDA (FFDCA § 738(a)(2)(A)). During the course of MDUFMA, the amount of the base fee (and thus the amounts of all of the other fees) rose each year, from $154,000 in FY2003 to $281,600 in FY2007 (FFDCA § 738(c)(1)). (See Table 8 ). The percentages of the base fee assigned to various types of submissions have changed slightly from MDUFMA to MDUFA 2007, but the concept is the same. The following is one example from MDUFA 2007: a 30-day notice fee is equal to 1.6% of the base fee. MDUFA 2007 would strike a provision that enables the Secretary to adjust the premarket notification fee amount annually so that, in aggregate, these fees comprise a target amount. However, H.R. 2900 would maintain a reference to this deleted provision in the Fee Amounts section (21 U.S.C. 379j(a)(2)(A)). Fee-Collection Offset MDUFMA requires FDA to reduce fees in a subsequent year if collections in any year exceed the amount authorized, but does not have a parallel provision to increase fees in a subsequent year if collections fall short of amounts appropriated from fees. MDUFA 2007 would allow FDA to aggregate all fees collected from FY2008 through FY2011 and compare that amount to the aggregate amount authorized for the same period. A reduction would be made in fees in the final year only if the amount collected in the four-year period exceeded the amount authorized for the same period. According to the FDA Agreement, FDA believes this aggregation over four years will provide for greater financial stability for FDA than treating each year in isolation. Fee Exceptions, Reductions, Refunds Certain types of devices, sponsors and activities qualify for exceptions to certain fees, small businesses are charged a reduced rate. These fee reductions, exemptions, and refunds are explained below. These are the same for MDUFMA and proposals for MDUFA 2007, except that the latter would qualify only federal or state Government Entities for an exemption from the new annual establishment registration fee, would expand and enhance the small business fee reduction, and would allow a partial refund for withdrawal of a particular kind of PMA, as explained below. Humanitarian Use Devices (HUDs) . HUD applications are exempt from MDUFMA fees. An HUD is a device that is intended to treat or diagnose a disease or condition that affects fewer than 4,000 individuals in the United States per year. A device manufacturer's research and development costs could exceed its market returns for diseases or conditions affecting small patient populations. FDA, therefore, developed and published this regulation to provide an incentive for the development of devices for use in the treatment or diagnosis of diseases affecting these populations. A qualifying manufacturer may submit a humanitarian device exemption (HDE) application, which is similar in both form and content to a premarket approval (PMA) application, but is exempt from the effectiveness requirements of a PMA. Devices Intended for Pediatric Use . In order to encourage the development of devices for use with children, any application for a device intended solely for pediatric use is exempt from any fee. If an applicant obtains an exemption under this provision, and later submits a supplement for adult use, that supplement is subject to the fee then in effect for an original PMA. Applications from Federal or State Government Entities . Any application from a state or federal government entity is exempt from any fee, unless the device is to be distributed commercially. H.R. 2900 would include Indian tribes in the definition of government entities and thus exempt them from paying establishment fees; S. 1082 would not. Further Manufacturing . In order to avoid the charging of multiple fees for single devices that have multiple manufactured components, any application for a product licenced for further manufacturing use only is exempt from any fee. Premarket Notification by Third Parties . Under authority created by the Food and Drug Administration Modernization Act ( P.L. 105-115 ), FDA has accredited third parties, authorizing them to conduct the primary review of 510(k)s for eligible devices. The purpose of the program is to improve the efficiency and timeliness of FDA's 510(k) process, the process by which most medical devices receive marketing clearance in the United States. No FDA fee is assessed for premarket notification (510(k)) submissions reviewed by accredited third parties, although the third parties may themselves charge a fee for their services. Small Businesses . For FY2007 (MDUFMA, as modified by MDUFSA ), firms with annual gross sales or receipts of $30 million or less, including the gross sales and receipts of all affiliates, partners, and parent firms, qualify for a fee waiver for their first PMA. Firms with annual gross sales or receipts of $100 million or less, including the gross sales and receipts of all affiliates, partners, and parent firms, qualify for lower rates for all applications that are subject to a fee. The small business discounted fee schedule is important to the medical device industry; according to GAO, the vast majority of companies that paid MDUFMA fees in 2006 qualified as small businesses: Of the 697 companies that qualified as small businesses under the MDUFMA user fee program in fiscal year 2006, 656, or about 95%, had revenues at or below $30 million—the threshold for small business qualification originally set by MDUFMA in 2002. Of the 41 companies that had revenues above $30 million but at or below the current threshold of $100 million, 35 had revenues above $30 million but at or below $70 million. Of the 697 companies that qualified as small businesses in fiscal year 2006, two-thirds submitted at least one device application subject to user fees during that year. These companies were responsible for about 20% of the approximately 4,500 device applications subject to user fees that were submitted to FDA in fiscal year 2006. MDUFA 2007 would no longer consider the assets of partners and parent firms in the small business qualification calculation, and would further reduce the application fees paid by small business—the majority of device manufacturers. For example, a small business would pay 50% of the standard fee when it submits a 510(k), compared with 80% at present, and 25% of the standard fee when it submits a PMA, compared with 38% at present. FDA would also continue to provide a fee waiver for the first PMA submitted by a qualified small business applicant. In addition, MDUFA 2007 would allow foreign businesses to qualify for small business fees and fee waivers. Modular PMA Refunds . Manufacturers may choose to submit to FDA the large amount of information required in a PMA in sections, over time, in a modular PMA . In the event that a manufacturer chooses to withdraw a modular application before FDA takes its first action on the application or before all of the parts have been submitted, both bills provide that the Secretary may make a partial refund of the filing fee. S. 1082 specifies that the Secretary would have the sole authority to make refund decisions, and that such decisions would not be reviewable. Use of Fees According to the terms of MDUFMA, FDA may only use fees collected under MDUFMA for specified purposes (FFDCA § 737(5)). Most of these are related to decreasing the time required for FDA to determine whether a medical device should reach the marketplace. (See Table 9 .) The payment of a MDUFMA premarket review fee is not linked in any way to FDA's final decision on whether a product should reach the market. MDUFA 2007 makes no change to MDUFMA's use of fees provision. The FDA Agreement had proposed that, as resources permit, FDA would apply user fee revenues to support reviewer training that is related to the process for the review of devices, including training to enhance scientific expertise. FDA would, in turn, provide summary information on the types of training provided to staff on an annual basis. Performance Goals In addition to enabling the collection of user fees, MDUFMA set performance goals for FDA. These goals were summarized in the FDA Commitment Letter, incorporated by reference in MDUFMA (§101(3)). (See Table 10 .) The performance goals, but not the letter, are also included in the FFDCA (§738(g)(1)(A)-(D)). According to the FDA Agreement, FDA is on track to meet nearly all of the MDUFMA performance goals, which will sunset on October 1, 2007, along with FDA's MDUFMA user fee authority. For purposes of MDUFA 2007, the FDA Agreement proposes to meet fewer and more rigorous goals that build on the progress made in MDUFMA. In making these proposals, FDA considered efficiencies gained and expected by means of additional scientific, regulatory, and leadership training; additional staff, including those with expertise demanded by increasingly complex device reviews; expanded use of outside experts; and information technology improvements that allow FDA to better track and manage the device review process. MDUFMA performance goals set general time tables for certain types of activities (such as PMA reviews), but allow for some flexibility that may be prudent, given different types of PMAs and other applications may vary in complexity. Therefore, performance goals generally state that, a certain percentage of the time FDA will complete a particular type of activity within a given time period (see Table 10 ). Performance Goal-Setting Process In FDA's development of its recommendations to the Congress for FDA performance goals and plans for meeting those goals, MDUFMA required FDA to consult with an array of governmental, professional, and consumer groups; publish its recommendations in the Federal Register ; provide a public comment period; and hold a public meeting. MDUFA 2007 contains parallel provisions. In addition, the Senate version of the bill, S. 1082 , specifies that the recommendations are to be revised upon consideration of public comments. Furthermore, S. 1082 would require transmittal of the recommendations to Congress and would write the relevant consultation requirements into the FFDCA. Quarterly Performance Reports The FDA Agreement specifies that FDA will report quarterly its progress toward meeting the quantitative goals described in this letter. In addition, for all submission types, FDA will track total time (time with FDA plus time with the company) from receipt or filing to final decision (approval, denial, substantial equivalence [SE], or nonsubstantial equivalence [NSE]). FDA will also provide, on an annual basis, de-identified review performance data for the branch (section of reviewers grouped by subject-matter) with the shortest average review times and the branch with the longest average review times for 510(k)s, 180-day supplements, and real-time supplements. Accredited Third-Party Inspections Accredited third-party inspections were introduced in MDUFMA (as amended by MDTCA) with the goal of reducing the burden on FDA inspectors by enabling FDA-accredited persons (third parties) to conduct certain inspections on FDA's behalf. FDA is required, by statute, to inspect certain domestic establishments where medical devices are manufactured at least once every two years. According to the GAO, FDA has not been meeting this requirement. Instead, five or six years sometimes pass between FDA inspections at any one establishment. GAO reports that FDA accredited the first third party on March 11, 2004. As of October 31, 2006, of 23 organizations that had applied to conduct third-party inspections of establishments, 16 had received FDA accreditation, and seven had completed the necessary training and were cleared to conduct independent inspections. As of October 31, 2006, two accredited organizations had conducted independent inspections—one inspection of a domestic establishment and one inspection of a foreign establishment. During that same period, 36 inspections of domestic establishments and one inspection of a foreign establishment were conducted by accredited organizations jointly with FDA officials as part of training that FDA requires of accredited organizations. These 38 inspections represent just over 1% of the 3,470 inspections that FDA reported to GAO it conducted between March 11, 2004, and October 31, 2006. GAO reports that several factors may influence manufacturers' interest in voluntarily requesting an inspection by an accredited organization: According to FDA and representatives of affected entities, there are potential incentives and disincentives to requesting an inspection, as well as reasons for deferring participation in the program. Potential incentives include the opportunity to reduce the number of inspections conducted to meet FDA and other countries' requirements and to control the scheduling of the inspection. Potential disincentives include bearing the cost for the inspection and uncertainty about the potential consequences of making a commitment to having an inspection to assess compliance with FDA requirements in the near future. Some manufacturers might be deferring participation. For example, manufacturers that already contract with a specific accredited organization to conduct inspections to meet the requirements of other countries might defer participation until FDA has cleared that organization to conduct independent inspections. MDUFA 2007 would change the third-party accredited person inspection program in three major areas. According to the FDA Agreement, the proposals are intended to increase the quantity of useful information FDA has about the compliance status of medical devices marketed in the United States and to permit FDA to focus its inspectional resources on those firms and products posing the greatest risk to public health. The first change would be to streamline the administrative burdens associated with qualifying for the program. For example, rather than having to petition FDA for clearance to use a third party, the proposal would require only that firms provide FDA with 30 days prior notice of their intent to use a third party listed on FDA's website. The second change would be to expand participation in the program. For example, the current third-party program restricts qualified manufacturers of Class II and Class III medical devices to two consecutive third-party inspections, after which FDA must conduct the next inspection, unless the manufacturer petitions and receives a waiver. MDUFA 2007 would permit firms to use third parties for an unlimited number of consecutive inspections without seeking a waiver. However, FDA would continue to conduct "for cause" or follow-up inspections whenever it deemed such inspections appropriate. The third change would be to permit device companies to voluntarily submit to FDA reports by third parties assessing conformance with an appropriate international quality systems standard, such as those set by the International Standards Organization. FDA would consider the information in these reports in setting its inspection priorities. Reprocessed Single-Use Devices Some reprocessed SUDs are relatively simple items for external use, such as inflatable sleeves to improve blood circulation, while others are complex and invasive, such as catheters that are inserted into the heart to monitor cardiac functioning. According to a GAO report issued in 2000 (prior to MDUFMA), some devices, both SUDs and those marketed as reusable, had been reprocessed in-house by hospitals and other treatment facilities, while others had been reprocessed by companies formed for that purpose. At that time, the practice of SUD reprocessing raised public health concerns, primarily regarding the potential risks of infection and device malfunction, and led to complaints by the original device manufacturers that FDA had not maintained consistent regulatory standards for different types of medical device companies. Before MDUFMA, the regulatory requirements for manufacturers of reprocessed single-use devices basically depended upon the class of the device. Manufacturers of reprocessed Class I and II single-use devices were required to have a 510(k), unless the device was exempt from 510(k). Reprocessors of Class III devices were required to obtain premarket approval. MDUFMA made reprocessors of some previously exempt devices no longer exempt from the 510(k) submission requirements. It required reprocessors to submit 510(k)s that include validation data. Validation data were also required for many reprocessors of single-use devices that were previously the subject of cleared 510(k)s. Finally, reprocessors of Class III devices needed to submit a premarket report (a new type of PMA) to FDA. MDUSFA added the requirement that an SUD would be deemed as misbranded (and thus not legally marketable in the United States) unless it identified the manufacturer. MDUFSA allowed such information to be provided by a detachable label intended to be affixed to the medical record of a patient. MDUFA 2007 does not focus on SUDs, but does contain a requirement that SUD reprocessors pay the proposed annual establishment fee. Other MDUFA 2007 Provisions In addition to the above provisions, as described below, MDUFA 2007 would require the production of several annual reports, and H.R. 2900 would authorize appropriations for postmarket surveillance and would require a study of nosocomial infections (those acquired in hospitals) related to medical devices. Annual Reports MDUFMA requires the Secretary to submit annual progress reports to relevant congressional committees regarding the progress of FDA in achieving fee-related performance goals specified in a letter from the Secretary, and regarding the implementation of the authority to collect such fees. H.R. 2900 would continue this requirement and specifies that the implementation report should include a description of the use of such fees for postmarket safety activities. S. 1082 would also continue the requirement, but instead of requiring that a description of postmarket safety activities be included in the implementation report, it would require the inclusion of information on all previous cohorts for which the Secretary has not given a complete response on all device premarket applications, supplements, and premarket notifications in the cohort. S. 1082 would also require that performance goal and implementation reports be made available to the public. In addition, unlike MDUFMA and H.R. 2900 , S. 1082 would write the report requirements into the FFDCA. Postmarket Safety Appropriations Authorization MDUFMA contained two provisions related to postmarket reviews (§104). One, a provision that will cease to be effective on October 1, 2007, authorized additional appropriations for postmarket surveillance—$3 million for FY2003, $6 million for FY2004, and "such sums as may be necessary" in subsequent years. These sums were not appropriated. The second provision required the HHS Secretary to conduct a study of the postmarket review impact of the medical device user-fee program. MDUFMA also specified that user fees may fund the evaluation of postmarket studies if they are required as a condition of approval. (FFDCA §737(5)(J)). According to FDA, MDUFMA focused on premarket review activities, largely limiting FDA's use of MDUFMA funds to this area, and focusing all performance goals on it as well. This emphasis on premarket activities raised some questions regarding whether this focus might have a negative impact on the postmarket and enforcement activities. Measuring the impact of MDUFMA on enforcement activities is not a straightforward endeavor, and is beyond the scope of this report. For example, while one set of metrics (the number of CRDH warning letters issued each year since FY2000) shows that a decrease in the number of letters coincides with the start of MDUFMA, coincidence in time does not prove cause and effect. As is shown in Table 11 , the recent decline in warning letters is due to a change in policy related to the Mammography Quality Standards Act (MQSA, P.L. 102-539 ). H.R. 2900 contains a different requirement relating to postmarket safety. It authorizes additional appropriations for FY2008-FY2012 of such sums as may be necessary for the purpose of collecting, developing, reviewing, and evaluating postmarket safety information on medical devices. S. 1082 contains no parallel provision in the medical device user fee title. Nosocomial Infections H.R. 2900 would define nosocomial infection as an infection that is acquired while an individual is a patient at a hospital and was neither present nor incubating in the patient prior to receiving services in the hospital. The bill would require the Comptroller General to conduct and deliver to Congress a study on the number of nosocomial infections attributable to new and reused medical devices and the causes of such infections. S. 1082 contains no parallel provisions. Other MDUFMA Provisions MDUFMA contained several provisions that have not been raised in MDUFA 2007 proposals: The review of combination products (products that combine elements of devices, drugs, or biologics) was to be coordinated by a new office in the Office of the Commissioner. Electronic labeling was authorized for prescription devices intended to be used in health care facilities. The sunset provision applicable to intended use based upon labeling (§513(i)(1)(E)) was revoked. MDUFMA explicitly provided for modular review of PMAs. New provisions were added concerning devices intended for pediatric use. GAO and NIH were directed to prepare reports concerning breast implants. The manufacturer of a device was required to be identified on the device itself, with certain exceptions. FDA Agreement Recommendations not in MDUFA 2007 While MDUFA 2007 generally followed the terms of the proposals made in the FDA Agreement, there were some topics covered in the Agreement that are not covered by MDUFA 2007. Their absence from the legislation does not preclude FDA from following the terms of the recommendations. Interactive Review The FDA Agreement proposes that FDA continue to incorporate an interactive review process to provide for, and encourage, informal communication between FDA and sponsors to facilitate timely completion of the review process based on accurate and complete information. Interactive review entails responsibilities for both FDA and sponsors. Interactive review is intended to: (a) prevent unnecessary delays in the completion of the review; (b) avoid surprises to the sponsor at the end of the review process;(c) minimize the number of review cycles and the extent of review questions conveyed through formal requests for additional information; and (d) ensure timely responses from sponsors. Guidance Document Development The FDA Agreement proposes that FDA continue to develop guidance documents to the extent possible without adversely impacting the review timeliness for MDUFMA-related submissions. In addition, FDA would post a list of guidance documents it is considering for development and provide stakeholders an opportunity to provide comments and/or draft language for those topics as well as suggestions for new or different guidances. Diagnostic Imaging Products Diagnostic imaging devices (e.g., CT scans) that are sometimes used concurrently with diagnostic drug and biological products (e.g., contrast agents and radiopharmaceuticals)—so-called "concomitant use products"—present important questions of efficient regulation and consultation between product Centers that are similar to those raised by combination products. In response to these concerns, the FDA Agreement proposes that FDA develop a guidance document to ensure timely and effective review of, and consistent, appropriate postmarket regulation and product labeling requirements for, diagnostic imaging devices used with approved imaging contrast agents and/or radiopharmaceuticals. FDA proposes to publish draft guidance by the end of FY2008 and allow for a 90-day public comment period. FDA proposes to issue a final guidance within one year of the close of the comment period. In Vitro Diagnostics (IVDs) To facilitate the development of IVD devices (lab tests), the FDA Agreement proposes that FDA continue to explore ways to clarify regulatory requirements and to reduce regulatory burden, as appropriate. FDA proposes to: Draft or revise guidance on the conduct of clinical trials involving deidentified leftover specimens, clinical trial design issues for molecular diagnostic tests, migration studies, herpes simplex virus, enterovirus, and influenza testing; Conduct a pilot program to evaluate integrating the 510(k) review and Clinical Laboratory Improvement Amendments (CLIA, (42 U.S.C. 263a) waiver review processes for possible increased efficiencies. This pilot would include only voluntary participants from industry, and the applications involved in the pilot would not be counted toward the MDUFA 2007 performance goals; Consider industry proposals on acceptable CLIA waiver study protocols, develop acceptable protocol designs, and make them available by adding appendices to the guidance or by posting redacted protocols on the Office of In Vitro Diagnostic Device (OIVD) website; Track and report FDA performance on CLIA waiver applications and share this information with industry annually and then evaluate, at the end of year two, whether user fees and performance goals for CLIA waivers should be considered for MDUFA 2007I; Review an industry-provided list of Class I and II low risk IVD devices to determine if any could be exempted from premarket notification and allow interested parties to petition for exemptions consistent with 510(m)(2) [provisions exempting certain devices from 510(k) premarket notification requirements]; and Conduct a review of the pre-IDE program to address issues raised by industry. Meetings The FDA Agreement proposes that FDA make every effort to schedule informal and formal meetings, both before and during the review process, in a timely way, and industry would make every effort to provide timely and relevant information to make the meetings as productive as possible. Appendix. Acronyms Used in This Report

Unless Congress acts to reauthorize it, the Food and Drug Administration's (FDA's) authority to collect user fees under the Medical Device User Fee and Modernization Act (MDUFMA; P.L. 107-250) and, by reference, FDA's obligation to meet related performance goals, will expire on October 1, 2007. According to the President's budget request, in FY2008, funds from a reauthorized MDUFMA would account for an estimated $47.5 million and 200 full-time equivalent employees (FTEs). This would comprise 16.6% of FDA's medical device review budget authority and 13.0% of its medical device review-related FTEs. While these numbers and percentages are not as high as those projected for collection under a similar FDA user fee authority related to prescription drugs (pursuant to the Prescription Drug User Fee Act), they are significant. For MDUFMA as passed in 2002, the fee amounts and performance goals articulated and incorporated in statute were the result of an agreement between FDA and the medical device industry. In order to facilitate the reauthorization of MDUFMA, in April 2007, the FDA and industry published the results of their negotiations with a notice of an April 30, 2007, public meeting on the topic. According to FDA, during the five years covered by the proposals (through 2012), FDA would receive approximately $287 million from user fees. This represents an increase from the $110 million FDA received during the first four years of the program. The industry agreement also calls for changes in the fee structure, performance goals, small business relief, and third-party inspection program. In addition, the agreement reflects FDA's initiatives related to the regulation of in vitro diagnostic devices (laboratory tests). (MDUFMA enabled third-party inspections and set standards for the use of reprocessed single-use devices.) The details of the proposed reauthorization of MDUFMA have been incorporated, with a few exceptions, into the Medical Device User Fee Amendments of 2007 (MDUFA 2007). On May 9, 2007, MDUFA 2007 passed the Senate as Title III of the Food and Drug Administration Revitalization Act (S. 1082). On July 11, 2007, the House passed it as Title II of the Food and Drug Administration Amendments Act of 2007 (H.R. 2900). The bills' MDUFA 2007 provisions are similar, but not identical. Differences between them are expected to be addressed in conference. The provisions of MDUFMA and the proposals for MDUFA 2007 are discussed in this report, following an introduction to FDA's medical device review process. This report will be updated as event warrant.

Constitutional Background Racial profiling, or consideration of race by police and law enforcement, is a subject that the courts have reviewed on several constitutional grounds, including whether such profiling constitutes a violation of the Fourth Amendment's prohibition against unreasonable search and seizure or the equal protection guarantee of the Fourteenth Amendment. Both of these grounds are discussed in greater detail below. The Fourth Amendment: Unreasonable Search and Seizure The Fourth Amendment provides that "[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated." In its 1968 Fourth Amendment ruling, Terry v. Ohio , the Supreme Court found that reasonable, articulable suspicion was sufficient grounds for a police officer to briefly stop and question a citizen. Such suspicion must not be based on the officer's "inchoate and unparticularized suspicion or 'hunch,' but on the specific reasonable inferences which he is entitled to draw from the facts in light of his experience." Terry employed a "totality of circumstances" test to determine the reasonableness of police investigatory stops. United States v. Brignoni-Ponce addressed the issue of race as a factor giving rise to reasonable suspicion of criminal activity. "In this case the officers relied on a single factor to justify stopping respondent's car: the apparent Mexican ancestry of the occupants." Neither this single factor nor the police officer's belief that the occupants were illegal aliens satisfied the constitutional minimum for an investigatory stop. The Court conceded "[t]he likelihood that any given person of Mexican ancestry is an alien is high enough to make Mexican appearance a relevant factor." By itself, however, that factor did not support reasonable suspicion necessary for a roving stop. The Court proposed a multi-factored analysis: "Officers may consider the characteristics of the area ... ; usual patterns of traffic on the particular road, and previous experience with alien traffic." Additionally, erratic behavior and evasive acts by those under the observation of the police officer, as well as aspects of the motor vehicle, may support the reasonable suspicion necessary for an investigatory stop. Subsequent courts, however, have upheld stops of persons that were partially based on race. Border patrol agents in United States v. Martin-Fuerte referred motorists selectively to a secondary inspection area on the basis of several factors, including Mexican ancestry. Of 820 vehicles referred for secondary inspection over the period in question, roughly 20% included illegal aliens. On this basis, the Court determined that "to the extent that the Border Patrol relies on apparent Mexican ancestry at this checkpoint, ... that reliance clearly is relevant to the law enforcement need to be served." Indeed, according to the majority, "even if it be assumed that such referrals are made largely on the basis of apparent Mexican ancestry, we perceive no constitutional problem." But the Court cautioned against extending the logic of border enforcement cases to situations remote from the border, where the government interest in immigration policing may be less compelling. Thus, a different conclusion might pertain "if, for example, reliance were put on apparent Mexican ancestry at a checkpoint operated near the Canadian border." Another Fourth Amendment case, United States v. Weaver , likewise affirmed the conviction of a black drug courier suspect who was stopped at the Kansas City Airport based, in part, on information that "a number of young roughly dressed black males from street gangs in Los Angeles frequently brought cocaine into the Kansas City area." The court ruled that federal drug enforcement agents can rely on racial characteristics if objective crime trend analysis validates use of these characteristics as "risk factors" in predicting criminal behavior. The U.S. Court of Appeals for the Ninth Circuit, however, has determined that it is impermissible to take Hispanic origin into account in stops in Southern California. In United States v. Montero-Camargo , the appeals court noted both significant "demographic changes" and "changes in the law restricting the use of race as a criterion in government decision-making" as reasons for precluding any consideration of race. The likelihood that in an area in which the majority—or even a substantial part—of the population is Hispanic, any given person of Hispanic ancestry is in fact an alien, let alone an illegal alien, is not high enough to make Hispanic appearance a relevant factor in the reasonable suspicion calculus.... [F]actors that have such a low probative value that no reasonable officer would have relied on them to make an investigative stop must be disregarded as a matter of law. The Supreme Court's contrary dicta in Brignoni-Ponce that ethnic appearance could be relevant was distinguished as relying "on now-outdated demographic information." A frequently criticized form of racial profiling involves the "pretextual" traffic stop—that is, detaining minority group members for routine traffic violations in order to conduct a more generalized criminal investigation. The Court directly addressed the constitutionality of the practice in 1996. Defendants in Whren v. United States were two motorists who were charged with drug offenses based on evidence discovered after they were pulled over for pausing at a stop sign for an unusually long time, turning without signaling, and taking off at an unreasonable speed. The Whren Court held that the Fourth Amendment is not violated when a minor traffic infraction is a pretext rather than the actual motivation for a stop by law enforcement officers. In other words, the fact that suspects were stopped for pretextual reasons did not, without more, constitutionally taint the police action or evidence of drug crimes discovered as a consequence. Whren , however, did not hold that the officers' motivation is entirely irrelevant when probable cause for a stop is based on a traffic violation. As explained by the Court, "[t]he Constitution prohibits selective enforcement of the law based on considerations such as race. But the constitutional basis for objecting to intentionally discriminatory application of laws is the Equal Protection Clause, not the Fourth Amendment. Subjective intentions play no role in ordinary, probable-cause Fourth Amendment analysis." In Atwater v. City of Lago Vista , the Court appeared to reinforce Whren by ruling that the Fourth Amendment did not prohibit the warrantless arrest and custodial detention of a motorist for misdemeanor traffic offenses, including failure to wear a seatbelt, punishable only by a fine. Citing the "recent debate over racial profiling," Justice O'Connor dissented, arguing for a Fourth Amendment principle that would require "officers' poststop action" in such cases to be reasonable and "proportional" to the offense committed. The Fourteenth Amendment: Equal Protection Under the Fourteenth Amendment, "[n]o state shall ... deny to any person within its jurisdiction the equal protection of the laws." In the wake of the Whren decision, racial profiling may be susceptible to two different kinds of equal protection challenges. First, claimants may argue that the conduct of an individual officer was racially motivated—that the officer stopped the suspect because of race. "If law enforcement adopts a policy, employs a practice, or in a given situation takes steps to initiate an investigation of a citizen based solely upon that citizen's race, without more, then a violation of the Equal Protection Clause has occurred." Alternatively, the defendant may argue that he was the victim of selective enforcement. Selective enforcement equal protection claims frequently focus on the policies of departments, beyond the impact of particular enforcement actions on individual defendants. Racial Motivation Proof of discriminatory intent is an essential element of any equal protection claim. "Determining whether invidious discriminatory purpose was a motivating factor" behind a law enforcement officer's actions "demands a sensitive inquiry into such circumstantial and direct evidence of intent as may be available." The task is complicated after Whren because there may be an objective, nonracially motivated basis for the stop or detention . In the case of a pretextual stop, the court must take the inquiry into illicit intent to the next level by addressing the officer's reason for taking enforcement action. But if racially motivated decision-making is shown, or an agency policy employs explicit racial criteria, the claimant need not demonstrate statistically that members of his racial or ethnic group were disproportionately targeted for enforcement. "[I]t is not necessary to plead the existence of a similarly situated non-minority group when challenging a law or policy that contains an express racial classification." Rather, because the policy itself establishes a direct connection between the racial classification and the defendant's enforcement action, the policy is subject to strict scrutiny under the Equal Protection Clause. A challenge to the specific acts of a particular police officer is not unlike a claim of racial discrimination in the use of peremptory jury challenges, which also involves the acts of a single state actor—the prosecutor—in the course of a single transaction—the selection of a jury. The Supreme Court has instructed that "all relevant circumstances" be considered in the constitutional analysis of such cases, including the prosecutor's "'pattern' of strikes against black jurors," and the prosecutor's questions and statements, which may "support or refute an inference of discriminatory purpose." Similarly, a police officer's pattern of traffic stops and arrests, his questions and statements to the person involved, and other relevant circumstances may support an inference of discriminatory purpose in this context. But, usually, statistical evidence of disparate racial impact will not alone suffice to establish an illegal racial profiling operation. Direct evidence of discriminatory intent was sufficient to avoid summary judgment on a Section 1983 claim of selective enforcement in the Tenth Circuit decision, Marshall v. Columbia Lea Regional Hospital . There the claimant was able to present evidence of the officer's behavior during the events in question as well as his alleged record of racially selective stops and arrests in drug cases under similar circumstances. Further evidence was offered that the claimant did not commit the alleged traffic violation and that the officer made eye contact with him prior to activating his emergency lights. As soon as the officer approached the claimant, he accused him of being on crack, an accusation the officer repeated several times during the encounter. When the officer filled out the citation form, he noted the claimant's race, although the form called for no such designation. Most compellingly, it was shown that the officer had an extensive recorded history—or "modus operandi"—of similar misconduct during his prior employment as a police officer in another jurisdiction. However, if race or ethnicity is "but one factor" and not the "sole basis" for a stop detention, there may be no Fourteenth Amendment violation. In United States v. Valenzuela , a Hispanic motorist traveling from Tucson to Denver was stopped for weaving in traffic by a Colorado trooper. The officer then became "suspicious" that plaintiff may be a drug courier because of his "stiff and uncomfortable" behavior, a "fabricated" story about visiting a sister in a Denver hospital, a vehicle registration showing salvage title, and because Tucson was a known source of illegal drugs, among other things. The driver ultimately consented to a search of his vehicle which uncovered large amounts of cocaine under the carpet and rocker panels. At trial, the trooper testified that beyond noted factors, he sometimes considered race or ethnicity in making probable cause determinations, in part because of information from the Drug Enforcement Administration (DEA) that the majority of area drug smugglers are Hispanic. Affidavit evidence in the case revealed a "large number of Hispanic arrestees," but failed to reveal "any stops made by [the trooper] in which no search was conducted or no drugs were found" or that any stops were made for pretextual reasons. As a consequence, the district court denied motions to suppress, there being "no persuasive evidence that the Trooper targeted any of these suspects solely because of their race." Similarly, the Second Circuit, in Brown v. City of Oneonta , concluded that there was no violation of the Equal Protection Clause where plaintiffs charged that they were questioned solely on the basis of their race, where the physical description of the suspect provided by the victim of the crime included race among other factors. The policy of the department, which included obtaining a description of the assailant and seeking out persons matching that description, was found to be race-neutral on its face. Thus, only when race-based law enforcement decisions are a product of racial stereotyping by police officials, as opposed to government's response to evidence developed from other sources, may constitutional issues arise. Selective Enforcement Absent an overtly discriminatory policy, or direct evidence of police motivation, racial profiling claimants face additional evidentiary burdens. A claimant alleging selective enforcement of facially neutral criminal laws must demonstrate that the challenged law enforcement practice "had a discriminatory effect and that it was motivated by a discriminatory purpose." In United States v. Armstrong , criminal defendants sought to attack their federal firearms and drugs charges for crack cocaine as selective prosecution based on race. The Supreme Court rejected the contention because there was no showing that similarly situated defendants of another race were treated differently by criminal prosecutors. "To establish discriminatory effect in a race case, the claimant must show that similarly situated individuals of a different race were not prosecuted." A claimant can satisfy this requirement by naming an individual who was not investigated in similar circumstances or through the use of statistical or other evidence "address[ing] the crucial question of whether one class is being treated differently from another class that is otherwise similarly situated." This latter recourse calls for a reliable measure of the demographics of the relevant population, a standard for determining whether the data represents similarly situated individuals, and relevant comparisons to the actual incidence of crime among different racial and ethnic segments of the population. This framework has been applied in a number of proceedings involving allegations of discriminatory police enforcement practices. Armstrong was relied upon by the Fourth Circuit in affirming the dismissal of a racial profiling action against Virginia Beach police. The district judge in Harris v. City of Virginia Beach , rejected statistical evidence of a "pattern, practice, or custom of racial profiling" offered by a black driver who alleged that he was stopped for driving under the influence without probable cause. Without evidence that the officer was aware of plaintiff's identity and race before stopping his vehicle, there was no proof of illicit motivation. Moreover, even if plaintiffs could show that a disproportionate number of minorities were stopped for traffic violations, they could not prove their claim of discriminatory treatment absent a showing that similarly situated non-minority drivers were treated differently. Since no record was kept concerning stops where no citations were issued or searches conducted, the court found that plaintiffs could not meet their burden. "Statistical evidence is generally not sufficient to show that similarly situated persons of different races were treated unequally." Other courts have disagreed, however, and refused to apply the "similarly situated requirement" in Armstrong to racial profiling by law enforcement officers because the police "never have been afforded the same presumption of regularity extended to prosecutors" and because "in the civil context, ... such a requirement might well be impossible to meet." In United States v. Duque-Nava , the court concurred that application of the Armstrong standard to racial profiling cases would require a Section 1983 claimant to make an "impossible" showing "that a similarly situated individual was not stopped by the law enforcement." For this reason, in the Marshall decision, the Tenth Circuit found that discriminatory effect could be demonstrated either by showing a similarly situated individual, or by relying on statistical evidence. And in Chavez v. Illinois State Police , the Seventh Circuit similarly held that statistical evidence of discriminatory effect should be accepted as proof of a selective enforcement claim based on a traffic stop. While dispensing with Armstrong 's "similarly situated" requirement, however, Chavez illustrates the difficulty of proving racial profiling claims based on statistical evidence. The Seventh Circuit affirmed dismissal of a class action lawsuit challenging Operation Valkyrie , a state police program to fight illegal drug trade by focusing on traffic enforcement. After stopping a vehicle for a legitimate traffic offense, Valkyrie officers were trained to request permission to search if any of 28 indicators of illegal drug trade unrelated to race were noted. Chavez was stopped for failing to signal a lane change—after which he was questioned, his car searched, and he was released with a warning—while a white female companion (from the public defender's office) driving in identical fashion immediately behind him was not stopped. A second class member, Lee, claimed that he violated no traffic laws but was nonetheless stopped, patted down, and subjected to a search of his car three times in 1993. In their bid for class certification, the plaintiffs proffered statistics, which they argued showed a disproportionate number of Blacks and Hispanics being stopped and searched. The district court granted the state's motion for summary judgment on the equal protection claims, and the Seventh Circuit affirmed. The appeals court found that Chavez did identify a similarly situated white motorist who was treated differently, but that the Armstrong requirement was neither necessary nor sufficient to satisfy the plaintiff's burden of proving discriminatory purpose and effect in an equal protection case. The Armstrong rule governing selective prosecutions did not apply in racial profiling cases, first, because it would be impossible to prove. "[P]laintiffs who allege that they were stopped due to racial profiling would not, barring some type of test operation, be able to provide the names of other similarly situated motorists who were not stopped." Second, racial profiling involves police conduct, not prosecutorial discretion, and is in a civil, not criminal, context. Despite its decision to permit statistical proof that minority class members were treated differently than other motorists, the court concluded that the numbers presented failed to support an inference of racial profiling. First, plaintiffs relied on a "random sample" of Valkyrie field reports, without indication of the total number of stops made during the relevant period. Secondly, the "benchmarks" for the presence of various racial groups on Illinois roads was the 1990 census, which is "widely acknowledged" to undercount certain groups, particularly Blacks and Hispanics. Thus, without reliable data on whom Valkyrie officers stop, detain, and search, or of a proper demographic benchmark for the motoring public on the Illinois roads in question, the court "[could] not find that the statistics prove that the Valkyrie officer's action had a discriminatory effect on the plaintiffs." Nor did "isolated instances" of "racially insensitive remarks" made by troopers during stops provide sufficient evidence of racial motivation in a racial profiling case. In contrast, in Ortega-Melendres v. Arpaio , a federal district court recently certified a class action on behalf of Latino individuals in Maricopa County, AZ, finding that the plaintiffs had presented sufficient evidence that the Maricopa County Sheriff's Office had engaged in intentional racial profiling when conducting traffic stops. Among the evidence cited by the court were statements by the sheriff indicating that his officers are both authorized and encouraged to detain people based on their appearance, with specific references to racial characteristics that he asserts are hallmarks of individuals who have the "'look of the Mexican illegal.'" As a result, the court allowed the plaintiffs' Fourth and Fourteenth Amendment claims to proceed and granted a preliminary injunction enjoining the department "from detaining any person based only on knowledge or reasonable belief, without more, that the person is unlawfully present within the United States." Apart from problems of proof, established equal protection doctrine instructs that where race or ethnicity is the sole or "predominant" factor behind the decision to stop or arrest, "strict scrutiny" requires that government demonstrate a "compelling" justification served by "narrowly tailored" means. "Strict scrutiny" is not, however, a per se rule of invalidity—"strict in theory is [not] fatal in fact" —but instead describes an analytical framework requiring the government to demonstrate a "close fit" between any distinction in treatment of its citizens on the basis of race and a "compelling" law enforcement or national security interest. The government's burden of justification for focusing upon race as a predominate factor in the law enforcement process is undoubtedly a weighty one, unlikely to be met in most circumstances. Nonetheless, much might depend on the "totality" of circumstances, not the least of which may be the magnitude of any public safety or national security interests at stake. "In the end, ... even when formally strict, judicial scrutiny under the Equal Protection Clause must be ever sensitive to the circumstances in which government seeks to act and to the methods by which it seeks to achieve even its legitimate ends." The Equitable Standing Doctrine Besides substantive proof requirements, major procedural obstacles may limit the efficacy of private actions to end racial profiling practices. First, there is the "equitable standing doctrine" that has been applied by courts to deny an individual plaintiff the legal standing to seek injunctive relief against unconstitutional police practices unless he can show a "substantial certainty" that he will suffer similar injury in the future. In City of Los Angeles v. Lyons , the Supreme Court reversed the grant of injunctive relief to a black motorist permanently injured by a police chokehold applied during a routine traffic stop. Notwithstanding his allegation that numerous other individuals had been injured or killed as a result of the same practice, the plaintiff had not shown that he himself was "realistically threatened by a repetition of his experience" with the LAPD. Although he had standing to assert a damages claim, said the Court, the plaintiff could not obtain an injunction because it was unlikely that he again would be subject to a chokehold. Moreover, in order to show actual threat of future injury, Lyons "would have had not only to allege that he would have another encounter with the police but also to make the credible assertion ... that all police officers in Los Angeles always choke any citizen with whom they happen to have an encounter." The Lyons principle has been applied to racial profiling cases by the lower courts, which have, with some exceptions, generally denied standing for plaintiffs who seek injunctions against future police abuse while permitting claims for damages to go forward. "[I]t is important to keep in mind that these are two distinct inquiries, and that it is possible to have standing to assert a claim for damages to redress past injury, while, at the same time, not having standing to enjoin the practice that gave rise to those damages." It could be argued, however, that a damages remedy is a less effective deterrent to constitutional misconduct because individual officers are cloaked by qualified "good faith" immunity in most cases, or may be indemnified against personal liability by their public employer. Federal Statutes In addition to the U.S. Constitution, several federal statutes provide a basis for racial profiling lawsuits. 42 U.S.C. Section 1983 Judicial decisions reflect the crucial role that racial recordkeeping and statistics may play in mounting a successful legal challenge to racial profiling. This is because the plaintiff must prove both racial motivation and "discriminatory effect" of law enforcement practices in federal lawsuits under 42 U.S.C. Section 1983. Section 1983 provides a monetary damages remedy for harm caused by deprivation of federal constitutional rights—including equal protection of the laws—by state or local governmental officials or those acting in concert with them, that is, under "color of law." Claims against federal defendants—usually in the context of border, customs, or airport searches—may be maintained directly under the Constitution as a Bivens action, or under the Federal Tort Claims Act. Not every violation of a Fourth or Fourteenth Amendment right is entitled to a damage remedy, however. The qualified immunity doctrine broadly protects against individual liability for damages where the right asserted was not "clearly established," or where a reasonably well-trained officer would not have known that his conduct violates the Constitution. Similarly, with some exceptions, the Eleventh Amendment generally prohibits suit against a state or state law enforcement agency for damages, and controlling Section 1983 precedent makes municipal employers liable only for constitutional violations caused by municipal "law, policy, practice, or custom." The Violent Crime Control and Law Enforcement Act of 1994 This act includes a provision, 42 U.S.C. Section 14141, authorizing the Department of Justice (DOJ)—but not private victims—to bring civil actions for equitable and declaratory relief against any police agency engaged in unconstitutional "patterns or practices." DOJ's Civil Rights Division has moved against state and local law enforcement agencies engaged in a "pattern or practice" of police abuse under 42 U.S.C. Section 14141, again relying on statistical evidence of discriminatory enforcement patterns. For example, DOJ filed a federal lawsuit against the State of New Jersey claiming that officers patrolling the New Jersey Turnpike intended to discriminate on the basis of race and that state police "criteria and methods of administration" had a racially discriminatory effect. By failing to implement policies to properly discipline officers for racially discriminatory conduct, the government's complaint alleged, the New Jersey State Police were responsible for the pattern of racial profiling. The suit was brought under Section 14141, authorizing civil action by the Attorney General to "obtain appropriate equitable and declaratory relief to eliminate the pattern or practices" of racial discrimination by law enforcement agencies, and a settlement was reached in 2000. Ultimately, the statute has been employed by DOJ to combat racial profiling by major law enforcement organizations around the country, and the agency has reached multiple settlements requiring law enforcement agencies to implement comprehensive plans and programs to address patterns and practices of police abuse, including racial profiling. While the law provides the federal government with an important tool for dealing with police abuse, its efficacy may be limited because it lacks a private right of action, which would allow individuals to sue in federal court. Omnibus Crime Control and Safe Streets Act of 1968 The Crime Control Act was enacted to "aid State and local governments in strengthening and improving their systems of criminal justice by providing financial and technical assistance." State and local governments receiving assistance are prohibited from discriminating in programs or activities funded in whole or in part by the federal largess. The Civil Rights Division of DOJ is responsible for enforcing the statute, which authorizes civil actions by the federal government, allows individuals to pursue a private right of action, and authorizes DOJ to terminate assistance to fund recipients found guilty of discrimination. Title VI of the 1964 Civil Rights Act Title VI prohibits discrimination because of race or ethnicity in all federally assisted programs or activities. Thus, law enforcement agencies that receive federal funds must comply with Title VI. Racial profiling cases have only infrequently included Title VI claims. While this avenue remains largely untested, courts have held that Title VI permits a private right of action for individuals to seek injunctions against recipients of federal funding, including police, for a policy or practice that discriminates on account of race. Moreover, local police departments that receive DOJ assistance are subject to agency regulations providing that recipients may not "utilize criteria or methods of administration which have the effect of subjecting individuals to discrimination ... or have the effect of defeating or substantially impairing" program objectives because of race. After the Supreme Court decision in Alexander v. Sandoval , however, private parties no longer have a right to sue for damages to enforce Title VI "disparate impact" regulations, and may have to rely on administrative enforcement by federal agencies. Guidance Regarding the Use of Race by Federal Law Enforcement Agencies In February 2001—notably, before the events of September 11—President Bush directed the Attorney General to review the use of race by federal enforcement agencies and "to develop specific recommendations to end racial profiling." Subsequently, DOJ undertook a study of policies and practices of federal law enforcement agencies to determine the nature and extent of racial profiling. Two years later, the Bush Administration issued a ban on the practice by federal law enforcement agencies—including the Federal Bureau of Investigation, the Secret Service, the DEA, and the Department of Homeland Security—but permitted exceptions for the use of race and ethnicity to combat potential terrorist threats. The policy prohibits the use of "generalized stereotypes" based on race or ethnicity, and allows officers to consider racial factors in "traditional law enforcement" activities only as part of a specific description or tip from an informant. However, the guidance "do[es] not affect current Federal policy with respect to law enforcement activities and other efforts to defend and safeguard against threats to national security or the integrity of the Nation's borders." When federal law enforcement officers are "investigating or preventing threats to national security or other catastrophic events (including the performance of duties related to air transportation security), or enforcing laws protecting the integrity of the Nation's borders," they may consider both race and ethnicity "to the extent permitted by the Constitution and laws of the United States." The impact of the guidance may be limited by several factors. First, it applies only to federal agents, whereas the bulk of national law enforcement remains a state and local matter. In addition, the guidance is largely advisory, since it imposes no penalties and otherwise appears to lack legal force. Second, its numerous exceptions, particularly for national security investigations, invite broad circumvention, such as where individuals of Middle Eastern appearance are concerned. Similarly, profiling of Latinos to preserve "border integrity" with Mexico would arguably be permitted by the current policy.

Racial profiling is the practice of targeting individuals for police or security detention based on their race or ethnicity in the belief that certain minority groups are more likely to engage in unlawful behavior. Examples of racial profiling by federal, state, and local law enforcement agencies are illustrated in legal settlements and data collected by governmental agencies and private groups, suggesting that minorities are disproportionately the subject of routine traffic stops and other security-related practices. The issue has periodically attracted congressional interest, particularly with regard to existing and proposed legislative safeguards, which include the proposed End Racial Profiling Act of 2011 (H.R. 3618/S. 1670) in the 112th Congress. Several courts have considered the constitutional ramifications of the practice as an "unreasonable search and seizure" under the Fourth Amendment and, more recently, as a denial of the Fourteenth Amendment's equal protection guarantee. A variety of federal and state statutes provide potential relief to individuals who claim that their rights are violated by race-based law enforcement practices and policies.

Overview In January 2009, the United States escalated a long-running dispute with the European Union (EU) over its refusal to accept imports of U.S. poultry treated with certain pathogen reduction treatments (PRTs). PRTs are antimicrobial rinses that have been approved for use by the U.S. Department of Agriculture (USDA) in poultry production to reduce the amount of microbes on meat. Meat and poultry products processed with PRTs are judged safe by the United States and also by European food safety authorities. Nevertheless, the EU prohibits the use of PRTs and the importation of poultry treated with these substances. The EU generally opposes such chemical interventions and asserts that its own poultry producers follow much stricter production and processing rules that are more effective in reducing microbiological contamination than simply washing products at the end of the process. This dispute dates to 1997, when the EU first banned the use of PRTs on poultry, effectively shutting out virtually all imports from the United States since then. Such treatments are routinely used in U.S. chicken and turkey plants. The United States views the EU ban as a trade barrier that is not based on scientific evidence showing that such treatments are harmful. EU interests believe that stronger sanitary practices during production and processing are more appropriate for pathogen control than what they view as U.S. overreliance on PRTs. The United States has requested World Trade Organization (WTO) consultations with the EU on the matter, a prerequisite first step toward the establishment of a formal WTO dispute settlement panel. Although the WTO case has not moved forward, the U.S. poultry industry and the U.S. Trade Representative (USTR) continue to actively pursue the case. This issue has also been raised in ongoing trade negotiations between the United States and EU to establish a free trade area as part of the Transatlantic Trade and Investment Partnership (T-TIP). The United States is the second largest exporter of poultry meat (broiler and turkey) in the world, trailing only Brazil. Together these two countries account for nearly 70% of total broiler meat exports, by volume. The EU is the world's second-largest importer of poultry meat and accounts for about 8% (by volume) of all world broiler meat imports. In 2015, the EU imported an estimated 155,000 metric tonnes of fresh, chilled, or frozen poultry meat from outside the EU in 2015, which was valued at $370 million. According to USDA, virtually no U.S. poultry meat is being purchased for consumption in the EU. However, prior to 1997, when the EU began to prohibit U.S. poultry because of the PRT rule, the United States was a supplier of broiler and turkey meat to the 15 countries that then constituted the EU. As additional countries have joined the EU, the United States has likely lost markets in Europe. Some estimate that the combined effects of the ban and the growth of the EU market may have led to $200 million to $300 million in lost U.S. sales annually. EU Prohibitions on Use of PRTs The EU began to prohibit the use of PRTs for both domestic and imported poultry in 1997. Key language in the regulations reads, in part, "[f]ood business operators shall not use any substance other than potable water"—or, when otherwise permitted, "clean water—to remove surface contamination from products of animal origin," unless use of another substance has specifically been approved by the EU. In 2002, the United States asked the EU to approve the use of four PRTs on poultry destined for export there. These included chlorine dioxide, acidified sodium chlorate, trisodium phosphate, and peroxyacids. Each is approved for use in poultry processing by both USDA and the U.S. Food and Drug Administration (FDA). More specifically, after birds are slaughtered and the carcasses eviscerated, a USDA inspector examines them for fecal contamination or other problems. They then enter a final washing procedure, where the PRTs may be applied, either as a spray or wash on the processing line, or as an addition to the water used to lower the carcass temperature (the chiller tank). Federal regulations further specify PRT concentration levels and other usage requirements. Following the U.S. request for use of these four PRTs, several key European opinions on PRT use were issued. These opinions helped form the basis for the U.S. request to allow them. For example, the European Food Safety Authority (EFSA), in December 2005, adopted an opinion that use of the four PRTs under described conditions "does not present any risk to public health" but that "the use of antimicrobial solutions does not replace the need for good hygienic practices during processing of poultry carcasses, particularly during handling." A second EFSA opinion that month also pointed out that information on one of the substances, peroxyacids, indicated limited effectiveness, requiring that specific conditions of use should be defined. In April 2008, EFSA published another scientific opinion which found that "there are currently no published data to conclude in whatever way" that these substances, when applied on poultry carcasses, cause "acquired reduced susceptibility" (a buildup in resistance to the PRTs), or cause resistance to therapeutic antimicrobials. Around the same time, two other scientific committees under the auspices of the Health and Consumer Protection Directorate-General of the European Commission (EC) issued a joint opinion suggesting that there appeared to be low environmental risk associated with residues on carcasses, but that there was not enough data for it to make a comprehensive assessment, particularly with regard to post-processing environmental risk. In December 2008, the EU rejected the U.S. request of approval for use of four PRTs on poultry destined for export to the EU. This followed a U.S.-EU economic summit in May 2008, where the EC committed to proposed EU regulatory changes that would permit PRT-treated poultry meat to be imported or produced in EU member states. Changes to the EU's Food Hygiene Regulation were offered, in June 2008, to the Standing Committee on the Food Chain and Animal Health but were overwhelmingly rejected (316-0, with 29 abstentions). The same proposal was considered in December 2008, by the EU Agricultural and Fisheries Council, representing the agricultural ministers of the EU member states. They too rejected it by the same vote margin. U.S. Filing with WTO In response to the EC's explicit prohibition of these four PRTs and the importation of poultry treated with such substances, the United States requested WTO consultations in January 2009. The outgoing Bush Administration expressed its frustration with the EU's decision not to allow U.S. poultry processed using these PRTs, given what it characterized as several favorable European scientific opinions that PRTs pose no risk to human health. The Bush Administration expressed concern that even the rejected changes represented a "heavily conditioned" proposal, including requirements for labeling, a limitation on PRT use to carcasses, not parts, and a limitation to use of a single PRT (not a combination of them) to be followed by potable water rinses. USTR concluded that this issue could not be resolved through further negotiation and initiated its request to establish a WTO panel to determine whether the EU is acting consistently with its WTO obligations. The U.S. poultry industry supported the WTO filing by the USTR and encouraged the Obama Administration to continue to pursue the case. The United States and the EU continued to hold consultations starting again in February 2009. The U.S. request for WTO consultations on the poultry matter was filed on January 16, 2009. It states that the EU ban on PRTs in poultry processing violates the EU's WTO obligations under both the Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures and the Agreement on Technical Barriers to Trade (TBTs). (For more information on these two agreements, see text box on next page.) Specifically, the U.S. filing states that the ban by the EU on PRTs for poultry appears to violate the following WTO obligations: Article 2.2 of the SPS agreement, which permits only those measures necessary to protect human, animal, and plant life or health and that are based on scientific principles; SPS Article 5, which governs risk assessment and determination of the appropriate level of SPS protection, with the objective of minimizing trade impacts; SPS Article 8, on control, inspection, and approval procedures, which are aimed at treating imports no less favorably than domestic products; and Article 2 of the TBT Agreement, which is intended to assure that TBT measures do not discriminate against imports or create unjustified barriers to trade. In October 2009, despite initial consultations between the United States and the EU, the USTR asked the WTO to establish a dispute settlement panel regarding the EU's restrictions on imports of U.S. poultry. The United States has asked the panel to review whether the EU's ban on the import and marketing of poultry meat and poultry meat products processed with PRTs violates the EU's WTO obligations. USTR and the U.S. poultry industry remain actively engaged in this case. A panel was established in November 2009, but this case has not moved forward. Formal WTO cases can take many years to be resolved to the satisfaction of either party. A case in point is the long-running U.S.-EU dispute over the use of hormones in beef, which the EU prohibits and which has kept beef from the United States, where they are used, out of the EU market for many years. Several WTO dispute panel rulings concluded that the EU hormone ban is scientifically unjustified and inconsistent with WTO rules, and the United States imposed WTO-approved retaliatory tariffs on some EU imports. However, the EU continued to enforce its hormone ban. Decades later, although the United States and the EU signed a memorandum of understanding (MOU) in 2009 in an attempt to eventually resolve this long-standing dispute, this issue is far from fully resolved. Meanwhile, as EU officials have pointed out, the United States is permitted to, and does, export hormone-free beef to the EU; likewise, U.S. poultry meat not treated with PRTs likely would be accepted. Current Status and Issues The United States and the EU maintain widely divergent views not only on the poultry issue but on some aspects of their basic approach to food safety regulation, which further complicates this issue. The EU generally employs a more "precautionary approach" and also enforces restrictions on the use of both antibiotics and hormones in animal production, among other types of processes and chemicals for use in food production. A widely held European view appears to be that the U.S. use of these treatments compensates for poor sanitary standards earlier in the production process. European poultry producers assert that they follow much stricter production and processing rules that are more successful in reducing microbiological contamination than simply washing products at the end of the process. In its June 2008 resolution, the European Parliament claimed that the European industry had made "considerable investments in accordance with Community legislation, with a view to reducing pathogen contamination by implementing a total food chain approach." The resolution also argued, among other things, that to allow the use of PRTs given the lack of evidence supporting their safety "is out of step with both the European public's food safety and hygiene expectations and the demand for production models—both within and outside Europe—which ensure that high hygiene standards are maintained throughout the production and distribution process," and would likely "undermine European consumer confidence in foodstuffs sold within the European Union, which remains fragile following the food safety problems that have arisen within the Union over recent years." Nevertheless, a 2012 scientific opinion by European Food Safety Authority (EFSA) recommends changes to the EU's own meat inspection procedures, criticizing its efforts for detecting and controlling Campylobacter and Salmonella in chicken meat. Regarding chemical intervention, the opinion further states that "chemical substances in poultry are unlikely to pose an immediate or acute health risk for consumers." This followed the release of 2011 guidelines issued by the international food safety organization Codex Alimentarius Commission (Codex) for the control of Campylobacter and Salmonella in chicken meat. These Codex guidelines cover, among other types of production controls, the use of certain hazard-based control measures, including acidified sodium chlorite and trisodium phosphate, among other antimicrobial rinses and oxidants. Some believe the Codex guidelines might effectively resolve concerns about the use of these substances in poultry processing. Furthermore, starting in 2013, the EU lifted its ban on the use of lactic acid on beef PRTs on beef carcasses, half-carcasses, and beef quarters in the slaughterhouse. Many in the United States considered this action to be a "major victory for science-based food processing." To date, the U.S. and EU have not been able to reach agreement on a number of issues related to veterinary equivalency, and the EU continues to maintain measures that prohibit the use of any substance other than water to remove contamination from animal products unless the substance has been approved by the European Commission, which has rejected USDA's applications to the EU's health agencies requesting approval to use certain poultry treatments. The U.S. is seeking approval of four PRTs: peroxyacetic acid, chlorine dioxide, acidified sodium chlorite, and trisodium. This issue also continues to be raised in trade negotiations between the United States and EU to establish a free trade area as part of the Transatlantic Trade and Investment Partnership (T-TIP). The U.S. poultry industry has indicated that it is unlikely to support a T-TIP agreement that does not provide for better access to the EU of U.S poultry products.

In January 2009, the United States escalated a long-running dispute with the European Union (EU) over its refusal to accept imports of U.S. poultry treated with certain pathogen reduction treatments (PRTs) by requesting World Trade Organization (WTO) consultations with the EU on the matter, a prerequisite first step toward the establishment of a formal WTO dispute settlement panel. This dispute dates back to 1997, when the EU first banned the use of PRTs on poultry, effectively shutting out virtually all imports from the United States since then. This WTO case has not moved forward. PRTs are antimicrobial rinses—including chlorine dioxide, acidified sodium chlorite, trisodium phosphate, and peroxyacids, among others—that have been approved by the U.S. Department of Agriculture (USDA) for use in poultry processing to reduce the amount of microbes on meat. Meat and poultry products processed with PRTs are judged safe by the United States and also by European food safety authorities. Nevertheless, the EU prohibits the use of PRTs and the importation of poultry treated with these substances. The EU generally opposes such chemical interventions and believes that stronger sanitary practices during production and processing are more appropriate for pathogen control than what it views as U.S. overreliance on PRTs. As PRTs are widely used in U.S. poultry processing, the EU's ban on their use effectively prohibits U.S. poultry meat from entering EU countries. Although the United States is the second largest global exporter of poultry (broiler and turkey) meat, virtually no U.S. poultry meat is being purchased for consumption in the EU, according to USDA. As the EU is a major importer of poultry products, some estimate that the combined effects of the ban and the growth of the EU market may have led to $200 million to $300 million in lost U.S. sales annually. To date, the United States and EU have not been able to reach agreement on a number of issues related to veterinary equivalency, and the EU continues to maintain measures that prohibit the use of any substance other than water to remove contamination from animal products unless the substance has been approved by the European Commission, which has rejected USDA's applications to the EU's health agencies requesting approval to use certain poultry treatments. The United States is seeking approval of four PRTs: peroxyacetic acid, chlorine dioxide, acidified sodium chlorite, and trisodium. The U.S. poultry industry and the U.S. Trade Representative (USTR) remain actively engaged in this case. This issue also continues to be raised in ongoing trade negotiations between the United States and EU to establish a free trade area as part of the Transatlantic Trade and Investment Partnership (T-TIP). The U.S. poultry industry has indicated that it is unlikely to support a T-TIP agreement that does not provide for better access to the EU of U.S. poultry products.

Introduction If most economists can agree on anything, it is that technological innovation is a primary engine of long-term rises in living standards and economic output. In theory, new technologies make workers more productive, and gains in productivity lift their incomes over time, enabling them to buy more goods and services. The scope and pace of innovation depend on numerous forces, one of which is public and private investments in research and development (R&D), which is widely regarded as the lifeblood of innovation. To create, bolster, and sustain a favorable domestic climate for technological innovation, most developed countries employ a variety of policies to raise R&D investment. Most of the same countries provide tax incentives for business R&D investment, such as tax credits or enhanced deductions for R&D expenditures. These incentives are intended to encourage companies to invest more in R&D than they otherwise would. Many economists and lawmakers believe that left to their own devices, companies as a whole would be likely to invest less in R&D than its overall economic (or social) benefits would warrant. This is because the average company has little chance of capturing all the returns from such an investment, even in the presence of legal protection of intellectual property rights. The U.S. government offers two tax incentives for R&D investment: a tax credit under Section 41 of the federal tax code and the option to expense qualified research expenditures under Section 174. Available evidence suggests that the credit has stimulated more private R&D investment than companies as a whole would have done on their own. It is unclear, however, what effect the expensing option has had on investment. What is clear is that companies that are able to benefit from both incentives face a negative effective tax rate on the returns from investing in qualified R&D above some base amount. The Section 41 tax credit has its critics, however. Some argue that whatever gains in R&D investment can be attributed to the credit have come at a considerable cost: subsidizing R&D that tends to yield little or no social returns, or R&D that generates few or no patented innovations. Critics also maintain that the credit provides too weak and unreliable an incentive, on average, to have its intended effect. Making matters worse, say critics, much of the profit earned from the use of patented innovations developed with the aid of the credit has been shifted to lower-tax countries in recent years, depriving the U.S. government of tax revenue from the commercial exploitation of these innovations. Major American-based multinational corporations (such as Apple, Microsoft, and Google) are thought to have saved billions of dollars in income taxes by transferring ownership of patents they developed in the United States to subsidiaries in low-tax countries such as Ireland, Luxemburg, the Netherlands, and the United Kingdom. In light of these concerns with the Section 41 tax credit and uncertainty about the effectiveness of the Section 174 expensing option, some argue that a better way to spur increased domestic investment in innovation is to adopt a different kind of tax subsidy altogether; one that would target the profits from business R&D investments instead of the cost of inputs: a patent box (which is also known as an innovation or intellectual property (IP) box). By the end of 2015, 15 countries had implemented such a tax incentive. In general, a patent box imposes a lower tax rate on the profits companies earn from the commercial use of patented innovations than the top corporate tax rate in the host country. Countries have adopted patent boxes in the hope that they will stem the transfer of qualified IP to low-tax countries, increase the domestic tax base in the host country through the transfer of qualified IP held in other countries, boost domestic investment in innovative activities, and create sizable numbers of well-paying jobs. The United States currently has no patent box. Tax reform is a high priority in 115 th Congress. Such a complex and difficult issue raises many questions that lawmakers may have to answer in order to agree on a bill. One question concerns how to reform the taxation of business income. In recent Congresses, some lawmakers publicly backed the enactment of a patent box (or something similar) to foster greater domestic R&D investment and greater domestic production and use of the technologies derived from that investment. For example, in July 2015, Representatives Richard Neal and Charles Boustany released a draft proposal that would allow corporations to deduct 71% of their profits from "patents, inventions, formulas, processes, knowhow, computer software, and other similar intellectual property, as well as property produced using such IP." This meant that companies whose profits normally are taxed at a top rate of 35% would have their profits from this IP taxed at a rate of 10.15%. Interest in such a proposal could re-emerge in the 115 th Congress as part of broader efforts to craft politically viable legislation to reform the federal income tax, especially the parts dealing with the taxation of international business income. Some lawmakers contend that Congress should act quickly to offset the tax advantages that some European nations have gained by adopting a patent box. This report looks at several aspects of patent boxes, including their general purpose. In addition, the report looks at the key considerations in designing a patent box, identifies the countries that currently have a patent box, describes the main elements of those boxes, and sheds light on the U.S. industries that would be likely to benefit the most from such a tax subsidy if the United States were to adopt one. The final two sections discuss what is known about the effectiveness of patent boxes and several other policy issues raised by patent boxes. The report is intended to complement a 2016 CRS report on the "expected effectiveness" of patent boxes. What Is a Patent Box? In general, a patent box is a tax break for business income arising from the commercial exploitation of qualified IP. The break consists of taxing a company's qualified IP at a relatively low rate. This reduction in taxation can be achieved directly by imposing a low tax rate on a company's income from royalties or licensing fees related to eligible IP or from the sale of such property, and indirectly by imposing the same low rate on the income a company receives from the sale of goods and services with embedded IP owned by the company. Existing patent boxes seek to promote one or more of the following aims: (1) increase tax revenues by luring IP income to a host country from abroad or keeping such income inside the host country, (2) prevent or stem a shrinkage in the host country's tax base from the transfer of intangible assets to other countries, (3) expand investment in innovation in a host country, and (4) stimulate growth in the number of well-paying jobs in a host country. A patent box gets its name from the box on an income tax form that companies check if they have qualified IP income. And as its name implies, the tax incentive applies exclusively to the income from patented innovations. Some countries with a patent box apply it to income from IP that has nothing to do with the development of new products and processes, such as trademarks and copyrights. Because they are broader in scope than a patent box, some refer to these tax incentives as innovation or IP boxes. Since all but one of the actual patent boxes examined in this report apply to income from patented innovations, it will refer to them as a patent box, even though some of them do cover IP other than patents. For reasons both theoretical and practical, most developed countries have adopted a variety of policies to encourage greater domestic investment in technological innovation, including tax incentives. R&D tax incentives basically come in two forms: (1) those that operate at the back-end of the innovation process by lowering the after-tax cost of key inputs into R&D such as direct labor and materials and (2) those that operate at the front-end of the process by lowering the tax burden on the returns to successful R&D investments. Tax credits or enhanced deductions for R&D expenditures exemplify the former incentive, while a patent box is a good example of the latter incentive. At the end of 2015, 16 countries provided some kind of patent box. All but two of those countries (Israel and South Korea) were European. In addition, five of the countries (Belgium, Hungary, Malta, Turkey, and the United Kingdom (UK)) provided both a tax credit and super-deduction for qualified R&D expenditures; three countries (Lichtenstein, Luxembourg, and Switzerland) provided no other R&D tax incentive, and the remaining eight countries (France, Ireland, Israel, Italy, Netherlands, Portugal, South Korea, and Spain) provided either a tax credit or a super-deduction. What Are the Key Elements of a Patent Box? Many considerations enter into the design of a patent box. They can be reduced to three key elements: (1) the nature of the tax incentive, (2) the IP that qualifies for this preferential tax treatment, and (3) the income to which the tax incentive applies. Each is examined below. Nature of the Tax Incentive At the core of every patent box lies a tax incentive. There are two basic options among the patent boxes now in use. One involves taxing a company's qualified income from qualified IP at a lower rate than other sources of income. For example, a company's qualified IP income is taxed at 10%, while all other sources of income are taxed at 20%. Under the second option, a company would be allowed to deduct a specified percentage of its qualified IP income from its total income. In this case, the effective tax rate on the IP income is the product of the company's marginal tax rate and the percentage of that income subject to taxation. For instance, if a company's income is taxed at a marginal rate of 35% and 80% of its income from qualified IP may be deducted from taxable income, the company's effective tax rate on that income is 7%: (0.35 X .20) = .07. Qualifying Intellectual Property IP that qualifies for a patent box has several dimensions, which are illustrated in current patent boxes. First and foremost, IP qualifies for a patent box only if it is registered and held in the host country. Second, a variety of IP can be eligible for a patent box. Current patent boxes apply to patented inventions in 15 of the 16 countries that have one; Israel is the lone exception. In Belgium, France, and the UK, the patent boxes apply to patents, supplementary protection certificates (which come into force after the patents on which the certificates are based expire), and closely related rights. Patents and software copyrights are eligible for the patent boxes in Turkey, Portugal, the Netherlands, Malta, South Korea, and Ireland. But the patent boxes in Hungary, Italy, Lichtenstein, Luxembourg, Spain, and Switzerland apply to patents and most other forms of IP, especially trademarks, copyrights, formulas, and industrial designs. Third, where IP was developed can make a difference. Qualified IP may be developed outside the host country (subject to varying conditions) in 15 of the 16 countries with patent boxes ; only Turkey requires that qualified IP has to be developed through R&D activities conducted there. Fourth, not all qualified IP must be developed after the enactment of a patent box. Acquired IP qualifies for the patent boxes (subject to varying conditions) in each of the 16 countries except Israel, Portugal, and Turkey. In addition, the patent boxes of France, Hungary, Ireland, Italy, South Korea, Malta, Spain, Switzerland, Turkey, and the UK apply to IP that existed before the boxes were enacted. Qualifying Income A third key element of a patent box is the income to which it applies. This too varies among current patent boxes. A patent box may or may not apply to income from the following sources: (1) royalties (including embedded and notional), (2) licensing fees, (3) gains on the sale or other disposal of qualifying IP, (4) the sales of goods and services incorporating qualifying IP, and (5) patent infringement awards. A patent box may also apply to gross or net income from the use of qualified IP. This consideration matters because the effective rate of a patent box depends in part on how the expenses incurred or paid in earning qualified income are treated for tax purposes. Of particular importance is whether those expenses are deductible against IP income only or may be used instead to reduce a company's gross income, which in every country that has a patent box is taxed at a higher rate than IP income. Those expenses can be current or previous charges. Current expenses include marketing and other administrative costs related to improving and financing qualified IP, while previous charges concern past R&D expenses attributable to the same IP. Consequently, patent boxes that apply to gross IP income tend to lower the income tax burden for companies with IP and substantial non-IP income more than do patent boxes that target net IP income. The 16 countries that offered patented boxes at the end of 2015 were evenly divided between targeting gross and net IP income. Belgium, Hungry, Israel, South Korea, Luxembourg, Malta, Portugal, and Switzerland used gross income as the tax base for their patent boxes, whereas France, Ireland, Italy, Lichtenstein, the Netherlands, Spain, Turkey, and the UK taxed net income. In four of the 16 countries, the patent-box preferential rate covers royalty payments only: Hungary, South Korea, Luxembourg, and France. The others apply their patent boxes to a broader range of IP income sources. Key Questions in Designing a Patent Box Lawmakers interested in adopting a patent box might consider the following questions, which address a variety of significant issues in the design of such a tax incentive: Should a patent box apply to income from patents only, or should it include income from other kinds of IP as well? Should a patent box cover embedded and notional IP royalties and, if so, how should they be measured? Should qualifying IP income include patent infringement awards? Should a patent box cover new IP income only or should it apply to income from existing IP as well? Should a patent box apply to self-developed IP only, or should it also cover acquired IP, and if so, under what conditions? Should a patent box apply only to IP developed in the host country, or should it also cover IP developed outside the country but held within it? Should the expenses paid or incurred to develop a patented innovation be allocated against gross IP income, or should they be deducted from a company's gross income from all sources, thereby boosting the effective rate of a patent box? Should a patent box take the form of a lower rate for qualified IP income or a deduction or exemption against a company's total income? Should the annual benefit a company derives from a patent box be capped? Should a patent box allow a credit against a company's tax liability for foreign withholding taxes paid on its foreign-source royalties? Which Countries Have Patent Boxes and What Are Their Key Features? Of the 16 countries that offered a patent box at the end of 2015, all but three were members of the Organization of Economic Cooperation and Development (OECD). Not all of those OECD countries, however, are also locations for substantial investments in business R&D. In the ongoing debate over whether the United States should adopt a patent box, some lawmakers may find it useful to know which patent-box countries are among the leading locations for business R&D investment. Arguably, those countries might serve as better role models for the United States in the design of a patent box than patent-box countries where relatively little business R&D investment occurs. Table 1 compares key elements of the patent boxes currently offered by nine OECD countries. Five of the countries (France, Netherlands, South Korea, Turkey, and the UK) provide a preferential tax rate for qualified IP income; the others (Belgium, Italy, Spain, and Switzerland) offer either a deduction or exemption for that income Each country can be considered a significant location for business R&D investment among OECD countries. Business R&D expenditures exceeded $7.8 billion in each country in 2012, the most recent year for which figures are available for all nine countries. Their combined business R&D investments that year totaled $167.0 billion, or 55% of the amount for the United States and 23% of the amount for all OECD countries. What stands out among the patent boxes in the table is the diversity in their tax incentives and scope. This diversity can be summarized as follows: The effective tax rates at the end of 2015 for income from qualified IP among the nine patent boxes ranged from 5.0% to 17.1%; the average rate (excluding South Korea, which was the only country among the nine that taxed corporate income at more than a single rate and for which the actual average effective rate was unknown) was 10.6%. By contrast, the average corporate rate (again excluding South Korea) for the nine nations was 25.8%. One country (Belgium) offered a deduction for qualified income; three countries (Switzerland, Spain, and Italy) had a limited exemption for that income; and five countries (UK, France, Netherlands, South Korea, and Turkey) applied a preferential tax rate to qualifying income. Belgium and Italy were the only countries that capped the amount of income that qualified for the patent box tax incentive. In six countries (UK, Spain, the Netherlands, Italy, France, and Turkey), the patent box targeted net IP income. As a result, affected companies had to value the tax savings from the deduction of IP-related expenses at the lower patent box tax rate. As a result, the average effective tax rates for the six patent boxes were lower than they would have been if the tax savings from the deduction of IP-related expenses were valued at the higher corporate tax rate. Gross income is the basis for the patent box tax incentive in Switzerland and Belgium. Six of the nine countries (Belgium, France, the Netherlands, South Korea, Spain, and Turkey) restricted the patent box tax incentive to income from patents and related forms of IP. By contrast, the Swiss, British, and Italian patent boxes applied to income from patents and certain other kinds of IP. Three countries (South Korea, Switzerland, and Turkey) required that qualified IP must be developed and registered inside the country. Swiss-based companies, however, could apply the Swiss patent box to income they received from acquired IP, regardless of where it was developed. Where qualified IP is developed is an important issue in the economics of patent boxes. It raises the question of whether there should be a physical link between the country offering a patent box and the R&D activities contributing to the development of qualified IP. In a rare display of unanimity, each patent box covered new and existing IP, bestowing a windfall benefit on qualified IP registered before the patent boxes took effect that still was earning qualified income for the rights holder. One country (Switzerland) offered no tax incentive for R&D investment, in addition to a patent box. Five countries (France, Italy, the Netherlands, South Korea, and Spain) provided both an R&D tax credit and a patent box. In the other three countries (Belgium, Turkey, and the UK), companies investing in eligible R&D projects could claim both an R&D tax credit and a super-deduction for qualified research expenditures; they could also benefit from the patent boxes if they had qualified IP income. Belgium, Italy, the Netherlands, Switzerland, and the UK all took steps in 2016 to modify their patent boxes to bring them into conformity with the main recommendations for countering or avoiding "harmful tax practices" in a report issued by the OECD in October 2015. The main recommendation was to establish a guideline (known as the "modified nexus approach") for determining the maximum amount of IP income that could qualify for such an incentive. Spain's patent box included a modified nexus requirement when it was launched in 2013. Such a requirement was also a key element from the start in the patent boxes available in South Korea and Turkey. As of March 2017, France has not indicated whether it will enact a similar change to its patent box. Which Industries Are Likely to Benefit the Most from a Patent Box? By now it should be clear that any company that owns intellectual property is likely to benefit from a patent box. What may not be as clear is that such a company can come from a range of industries. One empirical question for lawmakers with an interest in establishing a patent box is whether some industries are more likely than others to benefit from such a tax incentive. Since investment in R&D is closely associated with the creation of patented innovations, it seems reasonable to assume that research-intensive industries, which are likely to benefit the most from research tax incentives like the Section 41 research tax credit and the Section 174 expensing allowance for research expenditures, would be likely to benefit the most from a patent box. Is there any empirical support for this assumption? A 2012 report by the Economic & Statistics Administration at the U.S. Department of Commerce and the U.S. Patent and Trademark Office (USPTO) identified the U.S. industries that are the most intensive users of patents, trademarks, and copyrights. It also examined the contributions of those industries to certain measures of U.S. economic activity, such as total employment and exports. What the report did not attempt to do is measure the contribution of these forms of IP to the performance of the economy or of IP-intensive industries. As a result, a strong correlation between an industry's IP-intensity and its share of U.S. employment or exports did not constitute conclusive evidence that the former was a major cause of the latter. Still, the report's findings indicate which U.S. industries would be likely to benefit the most from a patent box, if the U.S. government were to adopt one. In the 2012 report, an industry's IP-intensity was measured by its number of IP holdings in a certain period divided by its total employment. An industry was considered IP-intensive if its ratio of IP holdings to employment exceeded the average for all industries. There was nothing special about the use of industry employment as the basis for comparison. Other indicators of industry performance could also have been used, such as value added, R&D investment, and gross output. Since existing patent boxes generally lower the tax burden on the income from patented technologies, this section focuses on patent-intensive industries only. The USPTO grants utility, plant, and design patents, which give the recipient the right to prevent "others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States." A utility patent protects the use of an invention and how it is made; a design patent protects an invention's appearance; and a plant patent protects plants that have been invented or discovered and asexually reproduced into a distinct and new variety of plant, excluding a tuber propagated plant or a plant found in an uncultivated condition. Utility patents of both foreign and domestic origin accounted for 91.5% of all patents granted by the USPTO in 2015, and 52.0% of all patents granted that year were foreign in origin. The USPTO organizes patents into over 450 "technology classes," according to their inventive content. It also has developed a mapping scheme (or concordance) that links each technology class to 30 industry codes under the North American Industry Classification System. Owing to the limitations of the mapping scheme, the linkages cover only utility patents and manufacturing industries. In the 2012 report, an industry's patent-intensity was measured as the ratio of the total number of patents associated with the industry from 2004 to 2008 to the industry's average annual payroll employment in that period. This measure has several noteworthy shortcomings. First, there is no certainty that the most patent-intensive industry in a period is also the industry with the largest number of patents. Second, the measure can assign relatively low patent-intensity ratings to industries for which patents serve as critical mechanisms for appropriating the returns to investment in innovation. Such an incongruity is likely to arise in the case of an industry that has a few firms that employ large numbers of workers and invest substantial amounts in developing or acquiring patents; automobiles is a good example of such an industry. Third, the measure says nothing about the use of patents in non-manufacturing industries, which accounted for 91% of the U.S. workforce and 88% of gross domestic product in 2015. According to a 2016 update of the 2012 report, 12 industries qualified as patent-intensive from 2009 to 2014, or one fewer than the number of industries that qualified from 2004 to 2008. The 12 industries are listed in Table 2 , along with the data used to calculate their patent intensity. Two industries are well-represented: chemicals (including pharmaceuticals) and electronic equipment (including computers). The ranking of the top patent-intensive industries changed somewhat from 2004-2008 to 2009-2013, but the same industries appeared in both. There was a not a strong correlation between the industries' patent intensities and their research intensities. It is unclear from available data why that was the case. One possible explanation is that patent-intensive industries differ in their reliance on their own R&D to generate patented innovations. A majority of companies in some of these industries may have a higher propensity to acquire patents rather than to create patentable innovations through their own R&D activities. According to a 2000 study by Valentina Meliciani, research expenditures were more effective in generating patents in "science based industries" (e.g., pharmaceuticals and semiconductors) than they were in "supplier dominated and production-intensive industries (e.g., fabricated metals and aerospace)." In the latter industries, innovation was driven primarily by the acquisition of capital goods incorporating advanced technologies. Another possible explanation is that some research-intensive industries have a greater propensity to not seek patents for their innovations than others are. Additional research would be necessary to uncover the actual explanation for the weak correlation between the two industry intensity measures. In a 2016 report on innovation boxes, Peter Merrill identified the 10 U.S. industries that would be affected the most by the proposed Boustany-Neal innovation box. In this case, the box's effect was measured by an industry's effective tax rate on overall income under the proposal. Under the terms of the Boustany-Neal proposal, the effective tax rate on qualified IP income held in the United States for a corporation taxed at a rate of 35% can be determined using the following formula: ETR = 0.35[(1 – 0.71) (SRD/STC)], where ETR is the effective tax rate, 0.71 is the share of each dollar of qualified IP profit that can be deducted from a company's total income, SRD refers to the sum of a company's total R&D expenditures in the five previous years, and STC denotes the sum of the company's total costs in the same period. As one might expect, an industry's ranking hinges on the amount it spends on R&D to its total costs in a year. There is some overlap between the industries shown in Table 2 and Merrill's list, which is shown in Table 3 . At least some of the discrepancy between the two sets of industries is due to the fact that the Boustany-Neal proposal would apply to a broader range of IP than just patents and related forms of IP. Have Patent Boxes Been Effective? For at least some lawmakers interested in adopting a patent box, a key consideration would be its likely effectiveness. In this case, effectiveness refers to the extent to which a patent box achieves its primary objectives. Among the countries with a patent box, three broad objectives have been paramount: (1) to promote increased domestic investment in innovation, (2) to create high-paying jobs, and (3) to stem or reverse the erosion of the domestic tax base that can occur when mobile sources of income (e.g., intangible assets) are transferred to tax havens or other low-tax countries through transfer pricing or licensing agreements. Some patent boxes are intended to achieve all three. The degree to which a particular patent box achieves its main goals hinges, in large part, on its design. Two design elements are especially influential in this regard: (1) the nature of its tax incentive and (2) the scope of eligible IP and IP income. For example, if the location of mobile assets like patents is sensitive to differences among countries in effective tax rates for income from those assets, then an enhancement of a country's patent box tax incentive, all other things being equal, could be expected to lead to an increase in the share and number of qualified intangible assets registered there. Similarly, if a patent box seeks to spur increased investment in innovation in the host country, then it would make sense to include in the box a requirement that companies holding qualified IP in that country have to invest in R&D related to that IP in the host country in order to benefit from the box's reduced tax rate on IP income. Most of the patent boxes shown in Table 1 have been implemented since 2007. Consequently, little is yet known about their effects on such indicators of patent-box success as employment, investment in innovation, ownership of IP rights, and tax revenues in patent-box countries. Still, there is a small (but growing) body of empirical research on the actual or likely economic effects of patent boxes. This literature has largely focused on three outcomes: (1) a host country's tax base, (2) its climate for investment in innovation, and (3) the registration of patents and other qualified IP in the host country, regardless of where the R&D that led to the development of the patented technologies was undertaken. The main findings of the most-cited studies are reviewed below. Starting in 1997, Irish taxpayers (individuals and corporations) that received royalty income from patents they developed as a result of R&D activities done in Ireland could exempt that income from the national income tax. In 2010, the Irish Finance Minister announced that the exemption would be terminated starting in 2011. To justify this action, the Minister cited a finding by the Irish Tax Commission that the exemption did not have its intended effect in improving the domestic climate for innovation. In the commission's view, the tax relief was poorly targeted and had not fostered to an increase in domestic R&D investment. Instead, according to the commission, some companies had used the exemption as a "tax avoidance device to remunerate employees." A 2014 study by Rachel Griffith, Helen Miller, and Martin O'Connell examined the impact of patent boxes on the geographic location of qualified IP and on government revenues in host countries. Employing a flexible-choice model to simulate how firms determined where to locate legal patent ownership, they found that corporate tax rates had a significant influence on those decisions. More specifically, Griffith et al. found that a company was more likely to locate patents in countries with relatively low effective tax rates on patent income than in countries with relatively high effective tax rates. On the question of how patent boxes affected tax revenue in host countries, their analysis indicated that although a new patent box was likely to lure qualified IP income from other host countries, the revenue loss from the box's preferential tax rate tended to outweigh the revenue gain from the rise in the number of patents registered in the host country. Another 2014 study (by Sebastien Bradley, Estelle Dauchy, and Leslie Robinson) looked at how patent boxes affected the extent and geographic location of innovative activities and patent registration. Their analysis was based on worldwide new patent applications from 1990 to 2012. According to their findings, the likelihood a patent would be registered in a host country hinged on the generosity of its patent box and whether or not the inventor and the patent owner both were located there. Specifically, Bradley et al. estimated that a 1% decrease in the effective tax rate for patent income led, on average, to a 3% increase in new patent applications in the countries with a patent box in 2012. The study also found that this effect on new patent applications was even larger in host countries that provided tax subsidies for R&D expenses. At the same time, the results produced no evidence that a patent box had a significant effect on the cross-border transfer of patent ownership. As a result, the researchers concluded that the 12 patent boxes available in 2012 had no measureable effect on a multinational company's incentives for booking income from intangible assets in low-tax countries. It should also be pointed out, according to the researchers, that the time frame for the study was too short to permit any conclusions about the impact of the patent boxes on innovative activity in the host countries. In their view, much of the rise in new patent applications found in the study involved the patenting of previously unpatented IP rather than newly developed IP. Lisa Evers, Helen Miller, and Christoph Spengel examined the size of the tax advantage provided by the patent boxes offered by 12 European countries in 2014. To do so, they estimated the effective tax rate for each of those boxes and compared them to the top corporate tax rate in each country. According to their results, the average effective corporate tax rate for the 12 countries was far above the average effective tax rate for income eligible for the patent boxes: 17.25% compared to -0.7%. The patent box rates were calculated on the assumption that a company relied completely on equity to finance its investments in the development of a patented technology. The patent was then licensed to another party, producing royalty income for the patent holder. On the whole, the relatively low patent-box rate reflected both the low statutory rates for qualified IP income in the 12 countries, as well as the preferential tax treatment of expenses incurred or paid in generating that income. Another 2015 paper (by Annette Alstadsater, Salvador Barrios, Gaetan Nicodeme, Agnieszka Maria Skonieczna, and Antonio Vezzani) assessed how patent boxes affected the geographic distribution of patent applications made by the 2,000 largest corporate R&D investors from 2000 to 2011 among 33 countries and within three industries: pharmaceuticals, motor vehicles, and information and communication technology. Twelve of the countries had patent boxes. The study also examined the effect of the patent boxes on local R&D activity. It found that investors reacted to the tax advantages of the patent boxes by increasing the total number of patent applications in host countries; but their findings also showed that the rate of increase varied by industry and quality of patent. Moreover, the location decisions for high-quality patents proved to be more sensitive to the tax advantages of a patent box than were the decisions for low-quality patents, perhaps because the former were more likely than the latter to earn substantial profits. This sensitivity was even larger when a patent box covered a wide range of IP and when it applied to acquired and pre-existing patents and embedded royalties. In addition, they unexpectedly found that patent boxes tended to deter local inventive activity, perhaps because they offered no incentives for domestic companies to invest in the development of new technologies. The results of their simulations, however, did suggest that the imposition of a local development requirement on the income eligible for a patent box could negate some of that tendency. On the basis of these studies, one could come to the following conclusions about the effectiveness of patent boxes: Patent registration has been responsive to the preferential tax rates provided by these boxes. There is no evidence that a patent box necessarily increases tax revenues in the host country; rather, countries that adopt a patent box may find that the added revenue from new patenting activity is eclipsed by the loss of revenue from the reduced tax rates for patent income. As more countries adopt a patent box, the risk grows of an inter-government tax competition triggering a race to the bottom of the ladder of effective tax rates on patent income. Patent boxes have had little impact on innovative activity in host countries in the absence of a local development requirement. Multinational corporations have been willing to shift mobile assets like IP to countries with patent boxes, without any apparent decrease in their propensity to transfer ownership of those assets to countries with low corporate tax rates. This tendency can be seen from the results in Table 3 , which indicate that the effective tax rates for the overall profits of the industries affected the most by the Boustany-Neal proposal, including those from repatriated IP, would not be much lower than the top corporate tax rate. Other Policy Issues Several other policy issues are likely to play a role in any future congressional debate over whether the United States should adopt a patent box. They concern the cost of administering and complying with such a tax preference, the economic justification for it, and the size of the subsidy in light of current tax law. Each is discussed below. Administrative and Compliance Costs As some have pointed out, a key issue in adopting a patent box is to identify the income that qualifies for it in a manner that avoids subsidizing the returns from unqualified IP and prevents companies from re-characterizing other income as qualified IP income. Drawing a clear line between qualified and unqualified income is a particular challenge because the distinction must be at once "politically viable, economically defensible, and reasonably administrable." Depending on how broadly qualified IP is defined, administration of and compliance with the rules of the patent box could be relatively simple and straightforward or it could be complicated, time-consuming, and costly. Some argue that the best way to minimize compliance and administration costs is to limit a box to patents and related forms of IP, or to apply a box to a wider range of IP, such as the IP that would qualify for the Boustany-Neal patent box (see page two). The worst option, in the view of some, would be to enact an intermediate approach, under which the patent box would apply to a narrowly targeted mix of IP like patents, formulas, and inventions that add insignificant value to the economy. Distinguishing between qualified and unqualified IP income when a patent box applies to patents only is unlikely to impose costly burdens on the IRS to issue and enforce regulations, or on most large companies to comply with those regulations. Income from the sale of a patent or licensing fees and royalty payments from the use of a patent is relatively easy to identify and report on tax returns. The accurate identification of income from patents, however, becomes more difficult when a patent box covers embedded royalties, which refer to the share of income from the sale of goods and services that can be attributed to patents embedded in them. In this case, the tax authority in the host country would face the difficult task of issuing rules that would enable companies to determine which flows of income can be attributed to which particular patents. Separating qualified from unqualified IP income may be harder still if a patent box targets IP that has substantial spillover benefits for the economy. In this case, the IRS would have to issue regulations that clarify how a company could prove that its patents or other qualified IP have added significant value to the economy. Given the difficulties many companies have experienced in getting the IRS to endorse their claims for the research tax credit under Section 41 without adjustment, it seems reasonable to say that such an option for a patent box would serve as a prescription for numerous legal disputes between the IRS and companies over the proper identification of value-added and the evidence a company would have to provide to substantiate claims for the preferential tax rate on qualified IP income. Further complicating the task of administering a patent box is finding cost-effective ways to counter efforts by companies seeking to benefit from the tax incentive by re-classifying income to make it eligible for the patent box. Tax planning of this sort could increase the revenue cost of the patent box without bringing commensurate gains for the host country in form of achieved objectives. Economic Rationale for a Patent Box Another policy issue raised by a patent box is whether it can be justified on economic grounds. Opinions among economists and other analysts are divided on this issue. Regardless of one's beliefs, the starting point for a discussion of the matter is current federal tax subsidies for investment in R&D. As noted earlier, current U.S. tax law contains two incentives for R&D investment. One is an unlimited expensing allowance for qualified research expenditures under Section 174; the other is a nonrefundable tax credit for increases in qualified research expenditures above a base amount under Section 41. A primary rationale for both incentives is that they are intended to correct a market failure associated with private R&D investment. The failure arises because the average company investing in R&D is unlikely to capture all the returns to that investment, even if the R&D results in intangible assets with intellectual property protection. Some of the returns will be captured by competing companies through efforts to exploit the new knowledge and knowhow resulting from the R&D investment; other returns will be captured by consumers in the form of improvements in the quality and reductions in the prices of goods and services they consume. Since the social returns to R&D typically exceed the private returns by a substantial margin and technological innovation is a primary engine of long-term growth in living standards, most economists support government policies that boost private R&D investment, including tax subsidies. Of course it is possible in theory for research tax incentives to encourage too much investment in certain kinds of R&D projects, but available evidence suggests that underinvestment is more likely within the private sector than overinvestment. Can the same be said of a patent box? As noted earlier, a patent box increases the after-tax returns from the commercial use of successful innovations. The two federal R&D tax incentives, by contrast, apply to inputs in the R&D process: they lower the after-tax cost of labor and materials used to conduct qualified research in the hope that the reduction in cost will convince companies to spend more on such research. Given that patent boxes apply to the profits resulting from successful R&D investments, and that they can lead to substantial reductions in the cost of capital if R&D costs can be deducted at regular corporate tax rates, it seems likely that a patent box could encourage companies to perform more R&D than they otherwise would. As a result, a case can be made for applying the economic rationale for current federal R&D tax incentives to patent boxes. But they are an indirect (and perhaps costly) way of remedying the market failure associated with R&D investment in general. In effect, a patent box rewards companies through the tax code for profiting from the commercial exploitation of IP. In the case of patents, such a benefit comes on top of the temporary exclusive right a patent confers on the inventor to profit from the commercial use of a patented invention. Is there another economic rationale for a patent box? Some maintain that such a tax incentive is justified on economic grounds because it is needed to ensure that valuable innovative activities will continue to be undertaken. Such a view has two sides. First, a patent box can lower the cost to companies of the spillover effects from their R&D investments by increasing the potential profits from investing in innovation. As such, according to patent box proponents, a patent box should be seen as a complement to R&D tax incentives. Second, the same individuals contend that global competition for investment in the development of new commercial technologies demands that a country adopt tax incentives to discourage domestic companies from moving mobile assets like IP to subsidiaries in low-tax countries, and to encourage foreign-based companies to undertake local R&D activities and to produce locally goods and services derived from those investments. The actual effects of any patent box depend critically on its design. Critics of patent boxes counter the first argument by noting that patent boxes explicitly subsidize profits captured by companies. In their view, instead of targeting investments in underdeveloped technologies with large and hard-to-capture returns, patent boxes encourage companies to invest in new technologies with relatively few external benefits and large potential profits. With regard to the second argument, critics note that there are simpler ways to discourage U.S. companies from transferring intangible assets to foreign subsidiaries, such as lowering the U.S. corporate tax rate. Incentive Effect Most countries with a patent box also provide one or more tax incentives for R&D investment. If the United States were to adopt such a box, it would find itself in the position of offering both a patent box and two tax incentives for R&D investment. In addition, manufacturing companies that benefit from a U.S. patent box would also be able to take advantage of the current deduction for domestic production activities income under Section 199. Since patent boxes can be designed to boost investment in innovation and production in host countries, it makes sense to take into account current tax incentives for R&D investment and domestic production in estimating the incentive effect of any proposed U.S. patent box. How large would the incentive effect of a U.S. patent box be under current law? One measure of the incentive effect of a tax subsidy is its effective tax rate. This shows the extent to which the subsidy reduces the income tax burden on the returns to an investment eligible for the subsidy. All other things being equal, the larger the difference between the statutory tax rate and the effective tax rate for those returns, the greater the subsidy's incentive effect. Another way to measure the incentive effect of a tax subsidy is to calculate how it changes the user cost of capital for an eligible investment. In general, the user cost of capital for an investment is the sum of its pre-tax rate of return and the rate of economic depreciation for the assets used in the investment. In a 2016 report, Jane Gravelle estimated the incentive effect of a patent box based on the Boustany-Neal proposal. In her analysis, qualified income from qualified IP was taxed at a flat rate of 10%. A key consideration was how the expenses incurred in developing qualified IP were treated for tax purposes. There were two options. One was to deduct the expenses from a company's qualified IP income, in which case a dollar of expense lowered the company's tax liability by $0.10. The other option was to deduct the expenses from a company's gross income, in which case each dollar of expense saved $0.35 in taxes, since the company was taxed at the top U.S. corporate tax rate of 35%. Gravelle compared the effective tax rates for the key cost elements of an equity-financed R&D investment, with and without both the research tax credit under Section 41 and full expensing of research expenditures under Section 174. She assumed that the expenses were deducted from qualified IP income and not gross income. As a result, the tax savings from the deduction were equal to 10% of the total deduction. The results are summarized shown in Table 4 . As the table shows, current tax law provides a significant subsidy for the returns to an equity-financed R&D investment. Total returns are taxed at an effective tax rate of 6.1% without the credit and -57.0% with the credit. Adding a patent box with a 10% tax rate for IP net income and IP expenses deducted at that rate does not alter current-law rates because the marginal effective tax rate under full expensing is 0%. And adding a patent box but writing off qualified research expenses over five years increases the effective tax rates for the total returns. As Gravelle noted, the patent box did not boost the incentive to investment in R&D when a company elected to expense its qualified expenditures under Section 174. The box would, however, represent a windfall gain for pre-existing qualified IP. How did the patent box affect the user cost of capital for the investment? When the box was added with full expensing and with a five-year amortization period for qualified research expenses, the cost of capital rose 1.5% relative to current law. Replacing the research tax credit with the patent box raised that cost by 10%. By contrast, the user cost of capital decreased dramatically when the patent box expenses were deducted at the top corporate tax rate. In this case, adding the box with or without the credit lowered the cost of capital under current law by 25%. The reduction shrank to 15% when the patent box was accompanied by a five-year amortization for qualified research expenses. In Gravelle's assessment, how the expenses incurred in developing qualified IP are treated under a patent box can make a substantial difference in the box's incentive effect. There is also some preliminary evidence that the Boustany-Neal patent box may lack the needed incentive effect to prevent further erosion in the domestic tax base for IP income. Peter Merrill found in a 2016 study of innovation boxes that the Boustany-Neal patent box would be unlikely to accomplish two of its objectives: (1) keeping IP in the United States and (2) promoting a migration of foreign-held IP to the United States. This was because the estimated average effective tax rate under the proposal for qualified IP income for the 10 U.S. industries with the lowest effective rates for that income was 30.4% from 2008 to 2012. By contrast, the average top corporate tax rate for all OECD member countries in 2015 was about 25%. This suggested that in the absence of a significant cut in the top U.S. corporate tax rate, a Boustany-Neal patent box would do little to alter current tax incentives for companies to hold intangible assets in the United States.

Economists generally agree that government support for private investment in research and development (R&D) is useful in correcting a market failure that predisposes most companies to invest less for that purpose than the overall economic benefits from R&D investments would warrant. The market failure stems from a company's inability to capture all the returns to its R&D investments as a result of the spillover effects of successful R&D investments. Most governments offer some kind of support for R&D, including tax incentives for business R&D investments. The U.S. government provides a tax credit for qualified research under Section 41 of the federal tax code and a full expensing allowance for qualified research expenditures under Section 174, but no patent box. As part of the debate in Congress over reforming the federal income tax, some have expressed support for the adoption of a patent box. Such a box is a tax subsidy that applies to the returns to successful R&D investments. In effect, a patent box partially compensates companies for the returns that spill over to other actors, such as competing companies. Countries typically adopt patent boxes with three key goals in mind: (1) increasing tax revenue by encouraging the repatriation of intellectual property (IP) held abroad and discouraging domestic companies from transferring IP to foreign subsidiaries in low-tax countries; (2) expanding domestic innovative activities; and (3) stimulating growth in domestic high-paying jobs. Every patent box now in use is built around two key elements: the nature of the tax subsidy it offers and the scope of its application. The tax subsidy typically comes in two forms: a deduction or exemption from a company's gross income or a separate, preferential tax rate for qualified intellectual property (IP) income. A patent box's scope addresses such issues as the kinds of IP and IP-related income that qualify for the tax subsidy. At the end of 2015, 16 countries offered a patent box; all but three of them were members of the Organization of Economic Cooperation and Development. Among the nine largest patent-box countries as a location for business R&D investment, effective patent-box tax rates ranged from 5.0% to 17.1%. Each patent box applied to existing and new patented innovations. Only one of the nine countries did not offer separate tax incentives for domestic R&D investment. It stands to reason that the industries most likely to benefit from patent boxes are those that use patents intensively. According to a 2016 report by the U.S. Patent and Trademark Office and the U. S. Department of Commerce, two industries are the most intensive users of patents, as measured by the number of patents granted to them per 1,000 full-time employees: chemical manufacturing (including pharmaceuticals) and computer and electronic equipment. The prospect of the United States adopting a patent box raises several policy issues. One issue concerns the effectiveness of patent boxes in achieving their goals. The empirical literature on patent boxes is relatively meager, since most existing patent boxes have come into use since 2007. Nonetheless, a handful of academic studies have looked at the actual or probable effects of patent boxes on several indicators of success. They found that patent registration was responsive to cuts in tax rates on the income from patents; there is no evidence that patent boxes increase host-country revenues; and patent boxes have done little to boost investment in innovation in host countries. Patent boxes also raise questions about the cost to companies of complying with the rules and the cost to tax authorities of issuing regulations and enforcing them; whether a patent box is warranted on economic grounds; and their incentive effect, especially when coupled with R&D tax incentives.

Introduction Since 1991, U.S. teen pregnancy, abortion, and birth rates have fallen considerably. However, after 14 years of decline, the teen birth rate increased from 40.5 per 1,000 females ages 15 to 19 in 2005 to 41.9 in 2006 and 42.5 in 2007. However, in 2008, the teen birth rate reversed the two-year increase trend and dropped to 41.5 births per 1,000 females ages 15 to 19. The teen pregnancy rate increased from 69.5 per 1,000 females ages 15 to 19 in 2005 to 71.5 in 2006. The 2005 teen pregnancy rate was the lowest recorded teen pregnancy rate since 1972, when this series was initiated. Although the pregnancy rate for teenagers increased in 2006 (latest available data), it is still down 38% from the 1991 level of 115.3. Even so, it still is higher than the teen pregnancy rates of most industrialized nations. According to a recent report on children and youth, in 2009, 32% of 9 th graders reported having experienced sexual intercourse. The corresponding statistics for older teens were 41% for 10 th graders, 53% for 11 th graders, and 62% for 12 th graders. About 20% of female teens who have had sexual intercourse become pregnant each year. For many years, there have been divergent views with regard to sex and young people. Many argue that sexual activity in and of itself is wrong if the persons are not married. Others agree that it is better for teenagers to abstain from sex but are primarily concerned about the negative consequences of sexual activity, namely unintended pregnancy and sexually transmitted diseases (STDs). These two viewpoints are reflected in two pregnancy prevention approaches. The Adolescent Family Life (AFL) program encompasses both views and provides funding for both prevention programs and programs that provide medical and social services to pregnant or parenting teens. The Abstinence Education program centers on the abstinence-only message and only funds programs that adhere solely to bolstering that message. (For information on Title X, which serves a much broader clientele than teens and pre-teens, see CRS Report RL33644, Title X (Public Health Service Act) Family Planning Program , by [author name scrubbed].) The Adolescent Family Life Program The AFL demonstration program was enacted in 1981 as Title XX of the Public Health Service Act ( P.L. 97-35 ). It is administered by the Office of Adolescent Pregnancy Programs, Department of Health and Human Services (HHS). From 1981 until 1996, the AFL program was the only federal program that focused directly on the issues of adolescent sexuality, pregnancy, and parenting. Program Purpose The AFL program was designed to promote—family involvement in the delivery of services, adolescent premarital sexual abstinence, adoption as an alternative to early parenting, parenting and child development education, and comprehensive health, education, and social services geared to help the mother have a healthy baby and improve subsequent life prospects for both mother and child. Allowable Projects The AFL program authorizes grants for three types of demonstrations: (1) projects provide "care" services only (i.e., health, education, and social services to pregnant adolescents, adolescent parents, their infant, families, and male partners); (2) projects which provide "prevention" services only (i.e., services to promote abstinence from premarital sexual relations for pre-teens, teens, and their families); and (3) projects which provide a combination of care and prevention services. Any public or private nonprofit organization or agency is eligible to apply for a demonstration grant. AFL projects can be funded for up to five years. Currently (2009-2010), the AFL program is supporting 52 demonstration projects across the country. (See http://www.hhs.gov/ opa/ familylife/ grantees/ grantees.html .) AFL care demonstration projects are required to provide comprehensive health, education, and social services (including life and career planning, job training, safe housing, decision-making and social skills), either directly or through partnerships with other community agencies, and to evaluate new approaches for implementing these services. AFL care projects are based within a variety of settings such as universities, hospitals, schools, public health departments, or community agencies. Many provide home visiting services and all have partnerships with diverse community agencies. Currently, 31 care projects are being funded. AFL prevention demonstration projects are required to develop, test, and use curricula that provide education and activities designed to encourage adolescents to postpone sexual activity until marriage. Since 1997, all AFL prevention projects that have been funded have been abstinence-only projects that were required to conform to the definition of abstinence education as defined in P.L. 104-193 . Most of these projects try to reach students between the ages of 9 to 14 in public schools, community settings or family households; all involve significant interaction with parents to strengthen the abstinence message. Currently, 21 abstinence-only projects are being funded. Evaluations and Research Each demonstration project is required to include an internal evaluation component designed to test hypotheses specific to that project's service delivery model. The grantee contracts with an independent evaluator, usually one affiliated with a college or university in the grantee's state. The AFL program also authorizes funding of research grants dealing with various aspects of adolescent sexuality, pregnancy, and parenting. Research projects have examined factors that influence teenage sexual, contraceptive and fertility behaviors, the nature and effectiveness of care services for pregnant and parenting teens and why adoption is a little-used alternative among pregnant teenagers. Since 1982, the AFL program has funded about 70 research projects. Abstinence Education 1996 Welfare Reform P.L. 104-193 , the 1996 welfare reform law, provided $250 million in federal funds specifically for the abstinence education program ($50 million per year for five years, FY1998-FY2002). Funds must be requested by states when they solicit Title V Maternal and Child Health (MCH) block grant funds and must be used exclusively for teaching abstinence. To receive federal funds, a state must match every $4 in federal funds with $3 in state funds. This means that full funding for abstinence education would total at least $87.5 million annually. Although the Title V abstinence-only education block grant has not yet been reauthorized, the latest extension, contained in P.L. 110-275 ( H.R. 6331 ), continued funding for the abstinence-only block grant through June 30, 2009. P.L. 105-33 , enacted in 1997, included funding for a scientific evaluation of abstinence education programs; Mathematica Policy Research won the contract. (See Impacts of Four Title V, Section 510 Abstinence Education Programs, April 2007, at http://www.mathematica.org/ publications/ PDFs/ impactabstinence.pdf .) To ensure that the abstinence-only message is not diluted, the law ( P.L. 104-193 , Section 510 of the Social Security Act) stipulated that the term "abstinence education" means an educational or motivational program that (1) has as its exclusive purpose, teaching the social, psychological, and health gains of abstaining from sexual activity; (2) teaches abstinence from sexual activity outside of marriage as the expected standard for all school-age children; (3) teaches that abstinence is the only certain way to avoid out-of-wedlock pregnancy, STDs, and associated health problems; (4) teaches that a mutually faithful monogamous relationship within marriage is the expected standard of human sexual activity; (5) teaches that sexual activity outside of marriage is likely to have harmful psychological and physical effects; (6) teaches that bearing children out-of-wedlock is likely to have harmful consequences for the child, the child's parents, and society; (7) teaches young people how to reject sexual advances and how alcohol and drug use increases vulnerability to sexual advances; and (8) teaches the importance of attaining self-sufficiency before engaging in sex. In FY2008, only 28 states and 2 territories sponsored an abstinence education program. As a result, in FY2008, only $28 million of the possible $50 million in Title V Abstinence Education block grant funds was expended. Abstinence education programs launch media campaigns to influence attitudes and behavior, develop abstinence education curricula, revamp sexual education classes, and implement other activities focused on abstinence education. State funding is based on the proportion of low-income children in the state as compared to the national total. In FY2008, federal mandatory abstinence education funding (among the states) ranged from $88,991 in North Dakota to $4,777,916 in Texas. In FY2009, $23 million (of $37.5 million) was expended on the Title V Abstinence Education block grant program. P.L. 111-148 (the Patient Protection and Affordable Care Act (PPACA); enacted March 23, 2010) restored funding to the Title V Abstinence Education block grant to states at the previous annual level of $50 million for each of FY2010-FY2014 ($250 million over five years). (For information on the Obama Administration's and Congress' new approach to teen pregnancy prevention, see CRS Report R40618, Teen Pregnancy Prevention: Background and Proposals in the 111 th Congress .) Appropriations History P.L. 106-246 appropriated $20 million for FY2001 to HHS under the Special Projects of Regional and National Significance (SPRANS) program for abstinence-only education for adolescents aged 12 through 18. P.L. 106-554 provided $30 million for FY2002 for the SPRANS abstinence education program; P.L. 107-116 increased SPRANS program funding from $30 million to $40 million for FY2002. The SPRANS program funding was increased by P.L. 108-7 to $55 million for FY2003, and by P.L. 108-199 to $70 million for FY2004. P.L. 108-447 increased funding for the SPRANS program, now the Community-Based Abstinence Education (CBAE) program, to $100 million for FY2005. P.L. 109-149 increased funding for CBAE to $109 million for FY2006. P.L. 110-5 maintained funding for CBAE at $109 million for FY2007. P.L. 110-161 maintained funding for CBAE at $109 million for FY2008. P.L. 111-8 reduced funding for CBAE to $95 million for FY2009. The CBAE program did not receive funding for FY2010. Issues Comparable Funding for Abstinence Education President Bush was a proponent of abstinence-only education. As governor of Texas, he stated: "For children to realize their dreams, they must learn the value of abstinence. We must send them the message that of the many decisions they will make in their lives, choosing to avoid early sex is one of the most important. We must stress that abstinence isn't just about saying no to sex; it's about saying yes to a happier, healthier future." The proposal he supported during his presidential campaign would have provided at least as much funding for abstinence education as was provided for teen contraception services under the Medicaid, family planning (Title X), and AFL programs, namely about $135 million annually. As many as 27 other federal programs have a teen contraception component, but expenditures solely for this component could not be isolated. For FY2009, abstinence education funding totaled $149.8 million: $37.5 million for the abstinence block grant to states (based on the $50 million per year rate); $13.1 million for the AFL abstinence education projects; $94.7 million for the CBAE program (up to $10 million of which may be used for a national abstinence education campaign); and $4.5 million for an evaluation of the program. Pursuant to P.L. 111-148 , abstinence-only funding totals $50 million for FY2010. As mentioned above, the CBAE program did not receive funding for FY2010, nor were abstinence-only education projects funded under the AFL prevention program (for FY2010). (For information on the Obama Administration's and Congress' new approach to teen pregnancy prevention, see CRS Report R40618, Teen Pregnancy Prevention: Background and Proposals in the 111 th Congress .) Abstinence-Only Versus Comprehensive Sexuality Education According to a 1997 survey, among the 69% of public school districts that had a district-wide policy to teach sex education, 14% had a comprehensive policy that treated abstinence as one option for adolescents in a broader sexuality education program; 51% taught abstinence as the preferred option for teenagers, but also permitted discussion about contraception as an effective means of protecting against unintended pregnancy and disease (an abstinence-plus policy); and 35% taught abstinence as the only option outside of marriage, with discussion of contraception prohibited entirely or permitted only to emphasize its shortcomings (abstinence-only policy). Advocates of the abstinence education approach argue that teenagers need to hear a single, unambiguous message that sex outside of marriage is wrong and harmful to their physical and emotional health. They contend that youth can and should be empowered to say no to sex. They argue that supporting both abstinence and birth control is hypocritical and undermines the strength of an abstinence-only message. They cite research that indicates that teens who take virginity pledges to refrain from sex until marriage appear to delay having sex longer than those teens who do not make such a commitment. (The study found that teens who publicly promise to postpone sex until marriage refrain from intercourse for about a year and a half longer than teens who did not make such a pledge.) They also refer to a recent scientifically based study of a program that provided an abstinence-only intervention to African-American students in the 6 th and 7 th grades. The study found that only about 34% of the student participants in the abstinence-only intervention said that they had engaged in sexual intercourse (when they were interviewed two years after the intervention), whereas about 49% of the students in the control group reported (during the two-year follow-up interview) that they had engaged in sexual intercourse. Advocates of the abstinence-only approach argue that abstinence is the most effective means of preventing unwanted pregnancy and sexually transmitted diseases (including HIV/AIDS). Advocates of the more comprehensive approach to sex education argue that today's youth need information and decision-making skills to make realistic, practical decisions about whether to engage in sexual activities. They contend that such an approach allows young people to make informed decisions regarding abstinence, gives them the information they need to set relationship limits and to resist peer pressure, and also provides them with information on the use of contraceptives and the prevention of sexually transmitted diseases. They maintain that abstinence-only messages provide no protection against the risks of pregnancy and disease for those who are sexually active. They point out that teens who break their virginity pledges were less likely to use contraception the first time than teens who had never made such a promise. The April 2007 Mathematica evaluation of the Title V Abstinence Education program found that program participants had just as many sexual partners as nonparticipants, had sex at the same median age as nonparticipants, and were just as likely to use contraception as nonparticipants. Supporters of the abstinence-only approach say that the evaluation only examined four programs and is thereby inconclusive. A recent compilation of experimentally designed evaluations of comprehensive sexual education programs found that some comprehensive programs that included contraception information, decision-making skills, and peer pressure strategies were successful in delaying sexual activity, improving contraceptive use, or preventing teen pregnancy. The Obama Administration's FY2010 budget (April 2009) did not provide any funding in FY2010 for the Title V Abstinence Education Block Grant to states (which was a mandatory program) or the Community-Based Abstinence Education (CBAE) program (a discretionary program); nor did it continue to provide funding in FY2010 for abstinence-only demonstration grants through the Adolescent Family Life (AFL) program. P.L. 111-117 , the Consolidated Appropriations for FY2010 (enacted December 16, 2009), includes a new discretionary teenage pregnancy prevention program, identical to the one proposed in the President's FY2010 budget, which would provide grants and contracts, on a competitive basis, to public and private entities to fund "medically accurate and age appropriate" programs that reduce teen pregnancy (much of the money would be used to replicate programs that were proven effective through rigorous evaluation and some of the money would be used to develop, refine, and test additional models and innovative strategies). The new teen pregnancy prevention (TPP) program is funded at $110 million for FY2010. P.L. 111-117 also provides a separate $4.5 million to carry out evaluations of teenage pregnancy prevention approaches. The Obama Administration's FY2011 budget proposal included $200 million for teen pregnancy prevention initiatives for FY2011: $129 million for the new TPP program for FY2011 (including $4 million for evaluation); $50 million in mandatory funds for a new formula grant program to states, territories, and tribes to support teen pregnancy prevention efforts; $17 million for AFL "care" demonstration grants and research programs; and an additional $4 million to carry out evaluations of teenage pregnancy prevention approaches. Two additional funding streams for teen pregnancy prevention were enacted as part of the health care reform law. P.L. 111-148 established a new state formula grant program and appropriated $75 million annually for each of FY2010-FY2014 to enable states to operate a new Personal Responsibility Education program ($375 million over five years). The new Personal Responsibility Education program is a comprehensive approach to teen pregnancy prevention that educates adolescents on both abstinence and contraception to prevent pregnancy and sexually transmitted diseases, and also provides youth with information about several adulthood preparation subjects (i.e., healthy relationships, adolescent development, financial literacy, parent-child communication, educational and career success, and healthy life skills). P.L. 111-148 also restored funding to the Title V Abstinence Education formula block grant to states at the previous annual level of $50 million for each of FY2010-FY2014 ($250 million over five years).

In 2009, 46% of students in grades 9-12 reported that they had experienced sexual intercourse; about 20% of female teens who have had sexual intercourse become pregnant each year. In recognition of the often negative, long-term consequences associated with teenage pregnancy, Congress has provided funding for the prevention of teenage and out-of-wedlock pregnancies. This report discusses three programs that exclusively attempt to reduce teenage pregnancy. The Adolescent Family Life (AFL) demonstration program was enacted in 1981 as Title XX of the Public Health Service Act, and the Abstinence Education program was enacted in 1996 as part of the welfare reform legislation. Also, since FY2001, additional funding for community-based abstinence education programs has been included in annual Department of Health and Human Services (HHS) appropriations. P.L. 111-117, the Consolidated Appropriations for FY2010 (enacted December 16, 2009), includes a new discretionary Teen Pregnancy Prevention (TPP) program, identical to the one proposed in the President's FY2010 budget, which would provide grants and contracts on a competitive basis to public and private entities to fund "medically accurate and age appropriate" programs that reduce teen pregnancy (much of the money would be used to replicate programs that were proven effective through rigorous evaluation, and some of the money would be used to develop, refine, and test additional models and innovative strategies). The new TPP program is funded at $110 million for FY2010. Although no abstinence-only education funding was appropriated in P.L. 111-117 (the Consolidated Appropriations for FY2010; enacted December 16, 2009), P.L. 111-148 (the Patient Protection and Affordable Care Act (PPACA); enacted March 23, 2010) restored funding to the Title V Abstinence Education formula block grant to states at the previous annual level of $50 million for each of FY2010-FY2014 ($250 million over five years). In addition, P.L. 111-148 established a new state formula grant program and appropriated $75 million annually for each of FY2010–FY2014 to enable states to operate a new Personal Responsibility Education program ($375 million over five years). The new Personal Responsibility Education program is a comprehensive approach to teen pregnancy prevention that educates adolescents on both abstinence and contraception to prevent pregnancy and sexually transmitted diseases, and it also provides youth with information about several adulthood preparation subjects (i.e., healthy relationships, adolescent development, financial literacy, parent-child communication, educational and career success, and healthy life skills). (For information on the Obama Administration's and Congress' new approach to teen pregnancy prevention, see CRS Report R40618, Teen Pregnancy Prevention: Background and Proposals in the 111th Congress.)

A Brief Description of the Current Programs The Medicare, Medicaid, and SCHIP programs are briefly described below. More complete and detailed descriptions of the programs are available from CRS. Medicare Medicare is the nation's health insurance program for persons aged 65 and over and certain disabled persons. In FY2008, the program will cover an estimated 44.6 million persons (37.3 million aged and 7.3 million disabled) at a total cost of $456.3 billion. Federal costs (after deduction of beneficiary premiums and other offsetting receipts) will total $389.7 billion. In FY2007, federal Medicare spending will represent approximately 13% of the total federal budget and 3% of GDP. Medicare is an entitlement program, which means that it is required to pay for all covered services provided to eligible persons, so long as specific criteria are met. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI); Part B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and Part D (the new prescription drug benefit added by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, P.L. 108-173 ). The program is administered by the Centers for Medicare and Medicaid Services (CMS) in the Department of HHS. Medicaid Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services, as well as long-term care, to more than 63 million people at an estimated cost to the federal and state governments of roughly $317 billion. Each state designs and administers its own version of Medicaid under broad federal rules. State variability in eligibility and covered services, and how those services are reimbursed and delivered, is the rule rather than the exception. In the federal budget, Medicaid is an entitlement program that constitutes a large share of mandatory spending. Federal Medicaid spending is open-ended, with total outlays dependent on the spending levels of state Medicaid programs. SCHIP SCHIP is authorized under Title XXI of the Social Security Act. In general, this program allows states to cover targeted low-income children with no health insurance in families with income that is above Medicaid eligibility levels. As of July 2006, the highest upper-income eligibility limit under SCHIP had reached 350% of the federal poverty level (FPL) in one state. States may enroll targeted low-income children in an SCHIP-financed expansion of Medicaid, create a new separate state SCHIP program, or devise a combination of both approaches. States choosing the Medicaid option must provide all mandatory benefits and all optional services covered under the state plan, and must follow the nominal Medicaid cost-sharing rules (with some exceptions). In general, separate state programs must follow certain coverage and benefit options outlined in SCHIP law. While some cost-sharing provisions vary by family income, the total annual aggregate cost-sharing (including premiums, copayments, and other similar charges) for a family may not exceed 5% of total income in a year. Preventive services are exempt from cost-sharing. In the Balanced Budget Act of 1997, nearly $40 billion was appropriated for SCHIP for FY1998 to FY2007. Appropriations for FY2007 equaled about $5.7 billion. Annual allotments among the states are determined by a formula that is based on a combination of the number of low-income children and low-income uninsured children in the state, and includes a cost factor that represents the average health service industry wages in the state compared with the national average. Like Medicaid, SCHIP is a federal-state matching program. While the Medicaid federal medical assistance percentage (FMAP) ranged from 50% to 75.89% in FY2007, the enhanced SCHIP FMAP ranged from 65% to 83.12% across states. All states, the District of Columbia, and five territories have SCHIP programs. As of November 2006, 17 use Medicaid expansions, 18 use separate state programs, and 21 use a combination approach. Approximately 6.7 million children were enrolled in SCHIP during FY2006. In addition, 12 states reported enrolling about 700,000 adults in SCHIP through program waivers. Summary of Provisions in S. 2499 Title I—Medicare Section 101. Increase in physician payment update; extension of the physician quality reporting system This provision increases the physician payment update factor, modifies the amounts available in the Physician Assistance and Quality Initiative (PAQI) Fund, and extends the Physician Quality Reporting System. The current update formula for Medicare physician payment would have required a reduction in the fee schedule for physician reimbursement of 10.1% in 2008 and by roughly 5% annually for at least several years thereafter. This provision averts this reduction and mandates a 0.5% increase in the physician fee schedule for the six-month period from January 1, 2008, through June 30, 2008. The conversion factor for the remaining six months of 2008 and afterwards will be computed as if the modification to the conversion factor for the first six months of 2008 had never applied. The Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-432 ) authorized $1.35 billion for FY2008 for the PAQI Fund, which is to be available to the Secretary of HHS for physician payment and quality improvement initiatives. This provision modifies the amounts that will be available in the PAQI Fund and the years in which the monies can be spent. However, there are provisions in the Department of Labor, Health and Human Services, and Education and Related Agencies Appropriations Act of 2008 (division G of the Consolidated Appropriations Act of 2008) that also affect the PAQI Fund. The net effect of these two laws is that no funds remain available in the PAQI Fund for the years 2008 through 2012, and $4.96 billion are available in 2013. This provision requires that the amount available for expenditures during 2013 be available only for an adjustment to the update of the conversion factor for that year. The amount of money that would have been available in the PAQI Fund for payment with respect to physicians' services furnished prior to January 1, 2013, is to be deposited into the Federal Supplementary Medical Insurance Trust Fund, and these funds are to be made available for expenditures. The provision also extends and modifies the existing Physician Quality Reporting System for physicians and other health care professionals under Medicare for FY2008 and FY2009. The CMS Program Management Account is authorized to be appropriated $25 million for FY2008 and FY2009 to carry out the Physician Quality Reporting System. Section 102. Extension of Medicare incentive payment program for physician scarcity areas Current law provides a 5% bonus payment for certain physicians providing services in scarcity areas for the period January 1, 2005, through December 31, 2007. The provision extends the add-on payments through June 30, 2008. During the extension period, the Secretary is required to use the primary care scarcity counties and specialty care scarcity counties that the Secretary was using on December 31, 2007. Section 103. Extension of floor on work geographic adjustment under the Medicare physician fee schedule Medicare makes payment for physician services under the fee schedule. Three factors enter into the calculation of the fee schedule payment amount: the relative value for the service, a geographic adjustment, and a national dollar conversion factor. The geographic adjustments are indexes that reflect cost differences among areas compared with the national average in a "market basket" of goods. These geographic adjustments are made in 89 distinct payment localities; 34 are statewide and include urban and rural areas. A value of 1.00 represents expenses equal to the average across all areas. A value less than 1.00 represents expenses below the national average. Current law includes a temporary provision under which the value of any work geographic index under the physician fee schedule that is below 1.00 is increased to 1.00 for services furnished on or after January 1, 2004, and before January 1, 2008. The provision extends the floor through June 30, 2008. Section 104. Extension of treatment of certain physician pathology services under Medicare The provision extends through June 30, 2008, the temporary provision that allows independent laboratories providing services to hospitals to continue to bill directly for such services. The provision is limited to laboratories that had agreements with hospitals on July 22, 1999, to bill directly for the technical component of pathology services. Section 105. Extension of exceptions process for Medicare therapy caps The Balanced Budget Act of 1997 established annual per beneficiary payment limits for all outpatient therapy services provided by non-hospital providers. The limits applied to services provided by independent therapists, as well as to those provided by comprehensive outpatient rehabilitation facilities (CORFs) and other rehabilitation agencies. The limits did not apply to outpatient therapy services provided by hospitals. The Deficit Reduction Act of 2005 required the Secretary to implement an exceptions process for 2006 for cases in which the provision of additional therapy services was determined to be medically necessary. The exceptions process was slated to end December 31, 2007. The provision extends the exceptions process through the first six months of 2008. Section 106. Extension of payment rule for brachytherapy; extension to therapeutic radiopharmaceuticals MMA required Medicare's outpatient prospective payment system to make separate payments for specified brachytherapy sources. As mandated by the TRHCA, until January 1, 2008, this separate payment will be made using hospitals' charges adjusted to their costs. The provision extends cost reimbursement for brachytherapy services until July 1, 2008. Therapeutic radiopharmaceuticals will be paid using this methodology for services provided on or after January 1, 2008, and before July 1, 2008. Section 107. Extension of Medicare reasonable costs payments for certain clinical diagnostic laboratory tests furnished to hospital patients in certain rural areas Generally, hospitals that provide clinical diagnostic laboratory services under Part B are reimbursed using a fee schedule. Hospitals with under 50 beds in qualified rural areas (certain rural areas with low population densities) receive 100% of reasonable cost reimbursement for the clinical diagnostic laboratories covered under Part B that are provided as outpatient hospital services. This provision extends reasonable cost reimbursement for clinical laboratory services provided by qualified rural hospitals through June 30, 2008. Section 108. Extension of authority of specialized Medicare Advantage plans for special needs individuals to restrict enrollment Special Needs Plans (SNPs) are Medicare Advantage (MA) plans that exclusively serve special needs beneficiaries. Special needs beneficiaries are defined as eligible enrollees who are institutionalized, are entitled to Medicaid, or would benefit from enrollment in a SNP (as determined by the Secretary of HHS). This provision allows SNPs to restrict enrollment to one or more class of special needs beneficiaries until January 1, 2010. The provision also restricts the Secretary from designating other MA plans as SNPs and imposes a moratorium on new SNP plans until January 1, 2010. Section 109. Extension of deadline for application of limitation on extension or renewal of Medicare reasonable cost contract plans Cost-based Medicare plans are those managed care plans that are reimbursed by Medicare for the actual cost of furnishing covered services to Medicare beneficiaries. After January 1, 2008, any cost-based plan operating within the service area of either two local or two regional MA plans would not have its contract with Medicare renewed. This provision extends for one year—from January 1, 2008, to January 1, 2009—the length of time a cost-based plan can continue operating in an area with two local or two regional MA plans. Section 110. Adjustment to the Medicare Advantage stabilization fund The Secretary is required to establish an MA Regional Plan stabilization fund to provide incentives for plan entry and plan retention in MA regions. Funding for the stabilization fund was to be $1.6 billion in 2012 and $1.79 billion in 2013, with additional funds available in an amount equal to 12.5% of the average per capita monthly savings from regional plans. This provision eliminates the $1.6 billion in funds available for the stabilization fund in 2012. Section 111. Medicare secondary payor Generally, Medicare is the "primary payer"—that is, it pays health claims first, and if a beneficiary has other insurance, that insurance may fill in all or some of Medicare's gaps. However, in some situations, the Medicare Secondary Payer (MSP) rules prohibit Medicare from making payments for any item or service when payment has been made or can reasonably be expected to be made by a third-party payer. The law authorizes several methods to identify cases when an insurer other than Medicare is the primary payer and to facilitate recoveries when incorrect Medicare payments have been made. This provision requires an insurer or third-party administrator for a group health plan (and in the case of a group health plan that is self-insured and self-administered, a plan administrator or fiduciary) to (1) secure from the plan sponsor and participants information required by the Secretary for the purpose of identifying situations where the group health plan is or has been a primary plan to Medicare, and (2) submit information specified by the Secretary. If an insurer or third-party administrator for a group health plan fails to comply, then a $1,000 per day civil monetary penalty will be imposed for each individual for which information should have been submitted. The provision requires the Secretary to share information on Medicare Part A entitlement and Part B enrollment with entities, plan administrators, and fiduciaries. The Secretary may share this information with other entities and may share information as necessary for the proper coordination of benefits. An applicable plan (defined as laws, plans, or other arrangements, including the fiduciary or administrator for liability insurance, no fault insurance, and worker's compensation law or plans) is required to determine whether a claimant is entitled to benefits under Medicare on any basis, and if so, to submit required information to the Secretary, including (1) the claimant's identity and (2) other information specified by the Secretary to enable an appropriate determination concerning coordination of benefits and any applicable recovery claims. Failure to comply will result in a $1,000 per day civil monetary penalty for each claimant. The Secretary can share this information as necessary for proper coordination of benefits. For purposes of using this new information to ensure appropriate Medicare payments, the Secretary will transfer, in appropriate parts, from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund $35 million to the CMS Program Management Account for fiscal years 2008, 2009, and 2010. Section 112. Payment for part B drugs MMA revised the way Part B pays for covered drugs. Payments for most Part B drugs are based on an average sales price (ASP) payment methodology; the Secretary has the authority to reduce the ASP payment amount if the widely available market price is significantly below the ASP. Alternatively, beginning in 2006, drugs can be provided through the competitive acquisition program (CAP). Each year, each physician is given the opportunity either to receive payment using the ASP methodology or to obtain drugs and biologicals through the CAP. Under the ASP methodology, Medicare's payment for Part B equals 106% of the applicable price for a multiple source drug or single source drug, subject to the beneficiary deductible and coinsurance. Applicable prices are derived from data reported by manufacturers under the Medicaid program. The applicable price for multiple source drugs is the volume-weighted average of the ASPs calculated by National Drug Code (NDC) for each calendar quarter. The applicable price for single source drugs is the lesser of the volume-weighted ASP or the wholesale acquisition cost. MMA included language specifying how to calculate a volume-weighted ASP based on information reported by manufacturers. The reporting unit was the lowest identifiable quantity of the drug (e.g., one milliliter, one tablet). However, the MMA allowed the Secretary, beginning in 2004, to use a different reporting unit. The Secretary used his discretion and changed to the amount of the drug represented by the NDC. The amount of the drug represented by one NDC may differ from the amount represented by another NDC. In February 2006, the Office of the Inspector General (OIG) of the Department of HHS issued a report (OEI-03-05-00310) which stated that the method used by CMS was incorrect because it did not use billing units consistently throughout the equation. It stated that although CMS used billing units to standardize ASPs across NDCs for each Healthcare Common Procedure Coding System (HCPCS) code, it did not similarly standardize sales volume across NDCs. The HCPCS, established by the American Medical Association, is the set of health care procedure codes used by Medicare, Medicaid, and other insurers to process insurance claims. The provision requires the Secretary to use constant volume weighting in the computation of the ASP, using the formula recommended by the February 2006 Inspector General's report; this requirement applies with respect to payment for multiple source and single source drugs and biologicals furnished on or after April 1, 2008. For all drug products included within the same multiple source billing and payment code, the provision defines the numerator of the volume-weighted average of the average sales price as the sum of the products (for each NDC assigned to such drug products) of (1) the manufacturer's average sales price, as determined by the Secretary without dividing such price by the total number of billing units for the NDC for the billing and payment code, and (2) the total number of units sold. The numerator is then divided by the denominator, which is defined as the sum of the products (for each NDC assigned to such drug products) of (1) the total number of units sold and (2) the total number of billing units for the NDC for the billing and payment code. The provision defines the "billing unit" as the identifiable quantity associated with a billing and payment code, as established by the Secretary. Beginning on April 1, 2008, for each multiple source drug or biological and for each single source drug or biological that is treated as a multiple source drug because it is pharmaceutically equivalent or bioequivalent to another drug, the payment amount will be the lowest price option available to the Secretary. Section 113. Payment rate for certain diagnostic laboratory tests Glycosylated hemoglobin (HbA1c) is used to monitor how well blood glucose levels are controlled in diabetes patients. The current Medicare payment rate for HbA1c is tied to two HCPCS codes: 83036 and 83037. HCPCS code 83037 was developed in 2006 to cover the testing for HbA1c by a device approved by the Food and Drug Administration (FDA) for home use; 83036 is the default code, used for the majority of glycosylated hemoglobin tests, and not limited to specific methodology. This provision changes the Medicare payment rate for HCPCS code 83037 to the rate established for 83036, for HbA1c tests that are furnished on or after April 1, 2008. Section 114. Long-term care hospitals A long-term care hospital (LTCH) is an acute care general hospital that has a Medicare inpatient average length of stay greater than 25 days. Since 2002, LTCHs have been paid under their own prospective payment system (LTCH-PPS). Provisions establishing this PPS are contained in Section 123 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA; P.L. 106-113 ) and Section 307 of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA; P.L. 106-554 ). These LTCH-PPS provisions have not been incorporated into the Social Security Act (SSA). Each year, the LTCH base rate (per discharge payment amount) is updated. Presently, LTCHs are not explicitly permitted in statute to be units of other facilities. CMS established a new LTCH policy for cost reporting periods beginning on or after July 1, 2007, for determining whether a freestanding LTCH was acting as a unit of independent host hospitals. The regulation had originally been applied only to those LTCHs established as hospitals-within-hospitals (HwHs) or satellite hospitals. The policy (referred to as the "25% rule") limits the proportion of patients who can be admitted from a co-located or host hospital during a cost reporting period and be paid under the LTCH-PPS. After the threshold is reached, the LTCH is paid the lesser of the LTCH PPS rate or the acute hospital PPS rate. The HwH threshold for most admissions from its host hospital for rate year (RY) 2008 is 25%. The expansion of the policy to freestanding LTCHs will occur on a phased-in basis over a three-year transition period. There are some exceptions to the 25% rule. Generally, for rural HwHs, the applicable percentage is 50%. Urban single HwHs or those located in metropolitan statistical areas (MSAs) with dominant hospitals—those with one-fourth or more of acute care cases for the MSA—also have a threshold of 50%. A short-stay outlier under the LTCH-PPS is a discharge for stays that are considerably shorter than the average length of stay for a long-term care DRG (five-sixths of the geometric average length of stay for each DRG). These short-stay outliers have an adjustment made to their payment that allows Medicare to pay less than cases that receive a full episode of care. Recent policy changes added a new class of short-stay outliers. Under CMS policy, the Secretary reviews the payment system and may make a one-time prospective adjustment to the long-term care hospital prospective payment system rates on or before July 1, 2008, so that the effect of any significant difference between actual payments and estimated payments for the first year of the long-term care hospital prospective payment system is not perpetuated in the prospective payment rates for future years. This provision establishes section 1861(ccc) in the SSA that would define an LTCH as an institution that (1) is primarily engaged in providing inpatient services by or under the supervision of a physician to Medicare beneficiaries whose medically complex conditions require a long hospital stay and programs of care provided by a LTCH; (2) has a Medicare inpatient average length of stay greater than 25 days; (3) satisfies Medicare's hospital definition; and (4) meets certain facility criteria, including a patient review process with patient validation within 48 hours of admission. Also, the institution will have active physician involvement with patients, an organized medical staff, on-site physician availability on a daily basis, and consulting physicians on call and accessible. The institution is required to have interdisciplinary teams, including physicians, to prepare and treat patients using individualized patient treatment plans. The Secretary is required to conduct a study on the establishment of national long-term care hospital facility and patient criteria. Not later than 18 months from enactment, the Secretary will submit a report to Congress including recommendations for legislation and administrative actions. During a three-year moratorium period beginning with the enactment of this provision, the Secretary will not apply the 25% rule or a similar policy to freestanding LTCHs or certain LTCH HwHs (referred to as "grandfathered LTCHs") that have been considered to be freestanding. The admission threshold for HwHs or satellite facilities in rural areas or LTCHs that are co-located with an urban single or MSA dominant hospital will increase from 50% to 75%. For other HwHs or satellite facilities, the admission threshold from a co-located hospital will be set at 50%. The Secretary is not able to apply the new short-stay outlier policy during a three-year moratorium period that begins on the date of enactment. The Secretary is not able to make the one-time prospective adjustment to LTCH prospective payments during a three-year moratorium period that begins on the date of enactment. The Secretary will impose a temporary moratorium on the certification of new LTCHs, satellite facilities, long-term care hospital, and satellite facility beds for a three-year period beginning at the enactment date. The moratorium does not apply to an LTCH hospital, satellite facility, or additional beds that are under development as of the enactment date. The moratorium does not apply to an existing LTCH bed increase request where there is closure of an LTCH or a significant decrease in the number of LTCHS beds in a state where there is only one other LTCH. There is no administrative or judicial review of a Secretary's decision on these exceptions. This provision establishes 1886(m) of the SSA entitled "Prospective Payment for Long Term Care Hospitals," which would provide specific references to the sections of BBRA and BIPA that contain the LTCH-PPS provisions. The base rate for LTCH's rate year (RY) 2008 (from July 1, 2007, through June 30, 2008) is the same as that used for discharges in RY2007 (from July 1, 2006, through June 30, 2007). The provision does not apply to discharges starting July 1, 2007, and before April 1, 2008. Starting for discharges on October 1, 2007, the Secretary will contract with fiscal intermediaries or Medicare administrative contractors to review the medical necessity of LTCH admissions and continued stays. These reviews will be conducted annually and will provide a statistically valid sample (at a 95% confidence interval) and guarantee that at least 75% of the overpayments are identified and recovered. The Secretary will establish an error rate that would require further review. These medical necessity reviews will stop for discharges after October 1, 2010, unless otherwise determined by the Secretary. To carry out these activities, $35 million will be appropriated from the Treasury into the Program Management Account of CMS in FY2008 and FY2009. The costs of the medical necessity reviews will be funded from the aggregate overpayments recouped from the LTCHs; such amounts will not exceed 40% of such recovered overpayments. Section 115. Payment for inpatient rehabilitation facility (IRF) services Starting January 1, 2002, payments to inpatient rehabilitation facilities (IRFs) are made under a discharge-based prospective payment system where one payment covers capital and operating costs. Each year, the per discharge payment amount is increased by an update factor based on the increase in the market basket index. The provision establishes the IRF update factor at 0% in FY2008 and FY2009, starting for discharges on April 1, 2008. Starting for cost reporting periods on or after July 1, 2007, the IRF compliance threshold (which determines whether a facility is an IRF or an acute care hospital) is established as no greater than the 60% compliance rate that became effective for cost reporting periods beginning July 1, 2006; comorbidities are included as qualifying conditions. No later than 18 months from enactment, the Secretary will consult with certain parties and submit a report to the committees with jurisdiction over Medicare. The study will analyze access to medically necessary rehabilitation services and alternatives to the IRF compliance thresholds. Section 116. Extension of accommodation of physicians ordered to active duty in the Armed Services Medicare payment may be made to a physician for services furnished by a second physician to patients of the first physician provided certain conditions are met. In general, the services cannot be provided by the second physician for more than 60 days. P.L. 110-54 (enacted August 3, 2007) permitted, for services provided prior to January 1, 2008, reciprocal billing over a longer period in cases where the first physician was called or ordered to active duty as a member of a reserve component of the Armed Forces. The provision extends this accommodation through June 30, 2008. Section 117. Treatment of certain hospitals Under IPPS, a hospital (or group of hospitals) can increase its Medicare payments though administrative reclassification (by the Medicare Geographic Classification Review Board or MGCRB) to a different area with a higher wage index value. These reclassifications are budget-neutral. Other hospitals have been reclassified by legislation. Section 508 of MMA provided $900 million for a one-time, three-year geographic reclassification of certain hospitals that were otherwise unable to qualify for administrative reclassification to areas with higher wage index values. These reclassifications were extended from March 31, 2006, to September 30, 2007, by TRHCA. This extension was exempt from any budget neutrality requirements. Under this legislation, Section 508 reclassifications are extended until September 30, 2008. Hospitals that were reclassified through the Secretary's authority to make exceptions and adjustments during the FY2005 rulemaking process will have their reclassification extended until September 30, 2008. A hospital that has been reclassified under Section 508 (as extended) will not prevent the group reclassification of otherwise eligible hospitals during FY2008. Those Section 508 reclassifications, which were extended until September 30, 2007, where the applicable wage index was lower during the six-month extension (from April 1 2007 until September 30, 2007) than the wage index applied to the hospital from October 1, 2006, through March 31, 2007, will have the higher wage index used for the entire FY2007 period. Any additional Medicare payments will be paid to the hospitals within 90 days after settlement of the applicable cost report. Section 118. Additional Funding for State Health Insurance Assistance Programs, Area Agencies on Aging, and Aging and Disability Resource Centers State Health Insurance Assistance Programs (SHIPs) provide information, counseling, and assistance to Medicare-eligible individuals on obtaining adequate and appropriate health insurance. State Area Agencies on Aging and State Aging and Disability Resource Centers also conduct health insurance outreach to Medicare-eligible individuals, in addition to administering elder rights programs, providing legal services to the elderly, and coordinating information about long-term care services. This provision requires the Secretary to transfer $15,000,000 from the Medicare Part A and B Trust Funds to the CMS program management account to provide grants to state SHIP programs for FY2008. The provision also requires the Secretary to transfer $5,000,000 from the CMS program management account to provide grants to Area Agencies on Aging and Aging and Disability Resource Centers for FY2008 and FY2009. Title II—Medicaid and SCHIP Section 201. Extending SCHIP funding through March 31, 2009 SCHIP allotments Title XXI of the Social Security Act specifies national appropriation amounts from FY1998 to FY2007 for SCHIP. Continuing Resolutions ( P.L. 110-92 , P.L. 110-116 , P.L. 110-137 ) have provided through December 21, 2007, the same level of SCHIP appropriations for FY2008 as was appropriated initially for FY2007 ($5.0 billion for the states and territories, plus an additional $40 million for the territories). The national appropriation available to states is allotted using a formula based on the estimated number of low-income children and low-income uninsured children in each state, adjusted slightly by a geographic cost factor. Allotments are available for three years, after which any unspent funds are redistributed to other states. Under S. 2499 , $5.04 billion is appropriated in FY2008 and in FY2009 for SCHIP allotments, as in FY2007. The formula for allotting the funds among the states and territories is unchanged. The FY2009 allotments are available only through March 31, 2009 (or the date of enactment of legislation to reauthorize SCHIP, whichever comes first). Redistribution Allotments unspent after three years are redistributed to other states. Under the Continuing Resolutions, FY2005 allotments unspent at the end of FY2007 were to be redistributed to states projected to exhaust all of their SCHIP funds in FY2008. The redistributed FY2005 funds would be provided, until exhausted, to states in the order in which their shortfalls occur. This methodology for redistribution was to be in effect until December 21, 2007, unless legislation was enacted beforehand to reauthorize SCHIP. Under S. 2499 , the methodology specified in the Continuing Resolutions for redistributing unspent FY2005 federal SCHIP funds is made permanent. In addition, under S. 2499 , FY2006 allotments unspent at the end of FY2008 will be redistributed to states projected to exhaust all of their SCHIP funds in FY2009 before March 31, 2009. The redistributed FY2006 funds will be provided, until exhausted, to states in the order in which those shortfalls occur. Additional appropriations for states' shortfalls of federal SCHIP funds In early FY2006, several states were projected to exhaust their federal SCHIP funds during the year, with a shortfall projected at $283 million. Congress appropriated $283 million in the Deficit Reduction Act of 2005 ( P.L. 109-171 ) for the purpose of eliminating states' shortfalls in FY2006, with 1.05% of the appropriation provided to the territories. To eliminate shortfalls of some states' federal SCHIP funds in FY2007, Congress appropriated such sums as necessary, not to exceed $650 million, in the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ). The territories received no portion of this appropriation. Under S. 2499 , such sums as necessary, not to exceed $1.6 billion, are appropriated in FY2008: (1) to eliminate states' shortfalls of federal SCHIP funds and (2) to provide 1.05% of states' projected shortfall amounts to the territories. These funds are available only for FY2008, and unspent funds are not available for redistribution. If the $1.6 billion appropriation is insufficient to cover states' shortfalls and the associated payments to the territories, then the payments to the states and territories would be reduced proportionally. Based on states' latest projections, the total FY2008 shortfalls are projected at less than $1.2 billion. Under S. 2499 , such sums as necessary, not to exceed $275 million, are appropriated in FY2009: (1) to eliminate states' shortfalls of federal SCHIP funds in the first two quarters of FY2009 and (2) to provide 1.05% of states' projected shortfall amounts to the territories. These funds are available only for the first two quarters of FY2009, and unspent funds are not available for redistribution. If the $275 million appropriation is insufficient to cover states' shortfalls and the associated payments to the territories, then the payments to the states and territories would be reduced proportionally. Based on states' latest projections, the total FY2009 shortfalls through March 31, 2009, are projected at approximately $200 million. Qualifying states Eleven states (Connecticut, Hawaii, Maryland, Minnesota, New Hampshire, New Mexico, Rhode Island, Tennessee, Vermont, Washington, and Wisconsin) are considered "qualifying states" for purposes of using SCHIP funds under §2105(g) for some children enrolled in Medicaid. For qualifying states, federal SCHIP funds may be used to pay the difference between SCHIP's enhanced FMAP and the Medicaid FMAP that the state is already receiving for children above 150% of poverty who are enrolled in Medicaid. Qualifying states are limited in the amount they can claim for this purpose to the lesser of (1) 20% of the state's original SCHIP allotment amounts (if available) from FY1998-FY2001 and FY2004-FY2008, with the ability to use the FY2008 allotment linked to the December 21, 2007, termination date in the latest Continuing Resolution, and (2) the state's available balances of those allotments. The statutory definitions for qualifying states capture most states that had expanded their upper-income eligibility levels for children in their Medicaid programs to 185% of poverty prior to the enactment of SCHIP. Under S. 2499 , the ability of qualifying states to use their FY2008 allotments for expenditures under §2105(g) is made permanent; their ability to use FY2009 allotments under §2105(g) is permitted through March 31, 2009. Section 202. Extension of transitional medical assistance (TMA) and abstinence education program States are required to continue Medicaid benefits for certain low-income families that would otherwise lose coverage because of changes in their income. This continuation is called transitional medical assistance (TMA). Federal law permanently requires four months of TMA for families that lose medicaid eligibility because of increased child or spousal support collections, as well as those that lose eligibility because of an increase in earned income or hours of employment. Congress expanded work-related TMA under Section 1925 of the Social Security Act in 1988, requiring states to provide TMA to families that lose medicaid for work-related reasons for at least six and up to 12 months. Since 2001, work-related TMA requirements under Section 1925 have been funded by a series of short-term extensions, most recently through December 31, 2007. P.L. 104-193 , the 1996 welfare reform law, provided $250 million in federal funds specifically for an abstinence education program ($50 million per year for each of five years, FY1998 through FY2002). This program is referred to as the Title V Abstinence Education block grant. Funds must be requested by states when they solicit Title V Maternal and Child Health (MCH) block grant funds and must be used exclusively for teaching abstinence. To receive federal funds, a state must match every $4 in federal funds with $3 in state funds. This means that if maximum federal funding is provided, funding for Title V Abstinence Education must total at least $87.5 million annually. Although the Title V Abstinence Education block grant has not yet been reauthorized, the latest temporary extension continues funding through December 31, 2007. This provision extends both TMA and the Title V Abstinence Education block grant through June 30, 2008. Section 203. Extension of qualifying individual (QI) program Certain low-income individuals are eligible to have their Medicare part B premiums paid for by Medicaid under the Medicare Savings Program (MSP). One eligible group is Qualifying Individuals (QIs). These persons have incomes between 120% and 135% of poverty. Federal spending under the QI program is subject to annual limits. The program was slated to terminate December 31, 2007. The provision extends the program through June 2008 and specifies that the amount available for allocation for the six-month period beginning January 1, 2008, is $200 million. Section 204. Medicaid DSH Extension When establishing hospital payment rates, state Medicaid programs are required to recognize the situation of hospitals that provide a disproportionate share of care to low-income patients with special needs. Total federal reimbursement for each state's DSH payments, however, are capped at a statewide ceiling, referred to as the state's DSH allotment. Those amounts are specified in statute. As part of TRHCA, allotments for only one year, 2007, for the states of Tennessee and Hawaii were raised. Tennessee's DSH allotment for the year was to be based on a formula, and Hawaii's was set at $10 million. After that, allotments for those states would have reverted to former, lower amounts. S. 2499 extends those special allotment provisions, so that for the portion of FY2008 that ends on June 30, 2008, Tennessee's DSH allotment is set at three-quarters of the 2007 level, and the allotment for Hawaii is equal to $7.5 million. Section 205. Improving data collection Because of concerns about inadequate sample sizes in the Current Population Survey (CPS) for making estimates of states' number of low-income children, for purposes of determining states' federal SCHIP allotments, $10 million was appropriated in SCHIP statute annually beginning in FY2000. S. 2499 provides $20 million, instead of $10 million, in SCHIP statute for the CPS in FY2008. Section 206. Moratorium on certain payment restrictions Medicaid can cover school-based, health-related services required under the Individuals with Disabilities Education Act (IDEA), including transportation, as well as related administrative activities (e.g., outreach for Medicaid enrollment purposes, medical care coordination/monitoring). Medicaid also covers rehabilitation services for eligible beneficiaries in a wide variety of settings. The Bush Administrative issued proposed rules affecting rehabilitation and school-based services in August and September 2007, respectively. Relative to policies in place on July 1, 2007, S. 2499 prohibits the Secretary of HHS from taking any action to further restrict Medicaid coverage or payments for rehabilitation services and for school-based transportation and administrative activities. This moratorium would be in effect until June 30, 2008. Title III—Miscellaneous Section 301. Medicare Payment Advisory Commission status The Medicare Payment Advisory Commission (MedPAC) is an independent federal body established by the Balanced Budget Act of 1997 to advise the U.S. Congress on issues affecting the Medicare program. The commission's statutory mandate is (1) to advise Congress on payments to private health plans participating in Medicare and providers in Medicare's traditional fee-for-service program and (2) to analyze access to care, quality of care, and other issues affecting Medicare. This provision would establish MedPAC as an agency of Congress. Section 302. Special Diabetes Programs for Type I Diabetes and Indians As specified in Section 330B of the Public Health Service Act, the Secretary, directly or through grants, must provide for research into the prevention and cure of Type I diabetes. Appropriations are set at $150 million per year during the period FY2004 through FY2008. As specified in Section 330C of the Public Health Service Act, the Secretary must make grants for providing services for the prevention and treatment of diabetes among American Indians and Alaskan Natives. Appropriations are set at $150 million per year during the period FY2004 through FY2008. For each of these two grant programs, S. 2499 provides $150 million for FY2009.

On December 29, 2007, the President signed S. 2499, the Medicare, Medicaid, and SCHIP Extension Act of 2007 (P.L. 110-173). This Act was passed by the House on December 19, 2007, and by a voice vote in the Senate on December 18, 2007. The Act makes changes to the nation's three major health programs, Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP), as well as other federally funded programs. The most prominent provisions in the Act were to (1) suspend the Medicare physician payment cut scheduled to take effect and (2) provide SCHIP funding through March 2009. P.L. 110-173 mandates a 0.5% increase in the Medicare physician fee schedule for the six-month period from January 1, 2008, through June 30, 2008, and provides FY2008 and FY2009 SCHIP funding allotments through March 31, 2009. The Act also extends a number of expiring provisions and programs. These extensions affect Medicare plans and providers and Medicaid payments and programs. The Act also includes funding for some miscellaneous activities. The Act's Medicare extensions include incentive payments for certain physicians, and extensions of current law provisions for Medicare Special Needs Plans and cost-based plans. A variety of extensions also affect how long-term care, rural, and acute care hospitals are paid or classified. Other extensions affect Medicare payments for certain services and providers, outpatient physical therapy services, speech language pathology services, certain pathology laboratories, brachytherapy services, and therapeutic radiopharmaceuticals. The Act also includes Medicaid provisions designed to extend certain payments and programs, such as Medicaid disproportionate hospital share (DSH) allotments for Tennessee and Hawaii, the Transitional Medical Assistance (TMA) program, and the Qualifying Individual (QI) program, among other provisions. Miscellaneous provisions include using Medicare funds to make grants to State Health Insurance Assistance Programs, Area Agencies on Aging, and Aging and Disability Resource Centers. The Act also establishes the Medicare Payment Advisory Commission (MedPAC) as a congressional agency. The Act provides a number of offsets to pay for the spending increases, including a reduction in the Medicare Advantage stabilization fund in 2012. The Act also includes provisions affecting Medicare's responsibility as a secondary payer for covered services, Medicare payments for Inpatient Rehabilitation Facilities (IRFs), payments for most Medicare part B drugs, payments for certain diagnostic laboratory tests, and Medicare Long-Term Care Hospitals. This report provides short descriptions of the provisions contained in P.L. 110-173.

Background and Current Statutory Language Relating to Discipline IDEA provides federal funds to the states to assist them in providing an education for children with disabilities. As a condition for the receipt of these funds,IDEA contains requirements on the provision of services and detailed due process procedures. In 1997 Congressamended IDEA in the most comprehensive andcontroversial reauthorization since IDEA's original enactment in 1975. One of the most contentious issuesaddressed in the 1997 legislation related to thedisciplinary procedures applicable to children with disabilities. IDEA was originally enacted in 1975 because children with disabilities often failed to receive an education or received an inappropriate education. This lack ofeducation led to numerous judicial decisions, including PARC v. State of Pennsylvania (1) and Mills v. Board of Education of theDistrict of Columbia (2) whichfound constitutional infirmities with the lack of education for children with disabilities when the states wereproviding education for children without disabilities. As a result, the states were under considerable pressure to provide such services and they lobbied Congress to assistthem. (3) Congress responded with the grantprogram still contained in IDEA but also delineated specific requirements that the states must follow in order toreceive these federal funds. The statute providedthat if there was a dispute between the school and the parents of the child with a disability, the child must "stay put"in his or her current educational placementuntil the dispute is resolved. A revised stay put provision remains in IDEA. Issues relating to children with disabilities who exhibit violent or inappropriate behavior have been raised for years and in 1988 the question of whether there wasan implied exception to the stay put provision was presented to the Supreme Court in Honig v. Doe. (4) Although the Supreme Court did not find such animpliedexception, it did find that a ten day suspension was allowable and that schools could seek judicial relief when theparents of a truly dangerous child refuse topermit a change in placement. In 1994, Congress amended IDEA's stay put provision to give schools unilateralauthority to remove a child with a disability to aninterim alternative educational setting if the child was determined to have brought a firearm to school. In 1997 Congress made significant changes to IDEA in P.L. 105-17 and attempted to strike "a careful balance between the LEA's (local education agency) duty toensure that school environments are safe and conducive to learning for all children, including children withdisabilities, and the LEA's continuing obligation toensure that children with disabilities receive a free appropriate public education." (5) This current law does not immunize a child with a disability from disciplinaryprocedures but these procedures may not be identical to those for children without disabilities. In brief, if a childwith a disability commits an action that would besubject to discipline, school personnel have the following options: suspending the child for up to ten days with no educational services provided, conducting a manifestation determination review to determine whether there is a link between the child's disability and the misbehavior. Ifthe child's behavior is not a manifestation of a disability, long term disciplinary action such as expulsion may occur,except that educational services may notcease. If the child's behavior is a manifestation of the child's disability, the school may review the child's placementand, if appropriate, initiate a change inplacement. placing the child in an interim alternative education setting for up to forty five days (which can be renewed) for situations involving weaponsor drugs, and asking a hearing officer to order a child be placed in an interim alternative educational setting for up to forty-five days (which can berenewed) if it is demonstrated that the child is substantially likely to injure himself or others in his currentplacement. School officials may also seek a Honig injunction as discussed previously if they are unable to reach agreement with a student's parents and they feel that the newstatutory provisions are not sufficient. (6) IDEA Amendments in the Violent and Repeat Juvenile Accountability and Rehabilitation Act of 1999 Violence in schools surfaced on the congressional agenda in the 106th Congress with S. 254 , the Violent and Repeat Juvenile Accountability andRehabilitation Act of 1999 which passed the Senate on May 20, 1999, and H.R. 1501 , the Child Safety andProtection Act which passed the House onJune 17, 1999. Both of these bills contained amendments offered on the floor relating to discipline under IDEA. Essentially these amendments would havechanged section 615 of IDEA to eliminate IDEA's different disciplinary procedures for children with disabilitiesin certain situations. In the Senate theamendment applied to children with disabilities who carry or possess a gun or firearm while in the House theamendment would have covered a weapon. TheSenate passed Amendment 355, offered by Senators Frist and Ashcroft, by a vote of 74 to 25. (7) The House passed Amendment 35, offered byRepresentativeNorwood, by a vote of 300 to 128. (8) The legislationwas not enacted. These House and Senate amendments were the subject of emotional debate. The general theme sounded by proponents of the amendments was that recentincidents of gun violence in the schools necessitated the changes in IDEA to allow school officials more control overdiscipline. The opponents of theamendments argued that the discipline provisions in IDEA had been carefully crafted in the 1997 reauthorizationand that the result of the amendments would bemore criminal behavior by depriving children with disabilities who had possessed weapons of supervision andeducational services. (9) House Amendments Concerning Children with Disabilities in the ESEA Legislation Two amendments relating to children with disabilities were offered and accepted during House Education and Workforce Committee markup of H.R. 4141 , 106th Cong. One amendment, offered by Representative Norwood, concerned the disciplineof a child with a disability who carries or possesses a weapon. The other amendment, offered by Representatives Talent, McIntosh and Tancredo, concerned the discipline of achild with a disability who knowingly possessesor uses illegal drugs at school or commits an aggravated assault or battery at school. The amendment offered by Rep. Norwood required that each state that receives funds under the Act shall require each local educational agency to have in effect apolicy which would allow school personnel to discipline a child with a disability who carries or possesses a weaponat school in the same manner in which schoolpersonnel may discipline a child without a disability. This would have included expulsion or suspension and a childwho is suspended or expelled would not havebeen entitled to continue educational services, including the provision of a free appropriate public education(FAPE), if the state does not require a child without adisability to receive educational services after being expelled or suspended. However, a local educational agencymay have chosen to provide educational ormental health services for such a child. If such services are provided, there was no requirement to provide the childwith any particular level of service and thelocation of the services is at the discretion of the local educational agency. School personnel were permitted tomodify the disciplinary action on a case by casebasis. A child with a disability who is disciplined under this amendment would have been able to assert a defense that the carrying or possession of the weapon wasunintentional or innocent. This provision could have helped to address the problem of a child with limited mentalcapacities who had someone place a gun in hisor her backpack; however, the exact implications of this provision are somewhat uncertain since it was not specifiedto whom or when this defense would beasserted. The term weapon was defined as having the meaning given to "dangerous weapon" at 18 U.S.C. �930(g)(2). That definition stated: "The term 'dangerousweapon' means a weapon, device, instrument, material, or substance, animate or inanimate, that is used for, or isreadily capable of, causing death or seriousbodily injury, except that such term does not include a pocket knife with a blade of less than 2 � inches in length." The amendment offered by Representatives Talent, McIntosh and Tancredo required that each state that receives funds under the Act shall require each localeducational agency to have in effect a policy under which school personnel may discipline a child with a disabilityin the same manner as a child without adisability if the child with a disability (1) knowingly possesses or uses illegal drugs or sells or solicits the sale ofa controlled substance at a school, on schoolpremises, or to or at a school function or (2) commits an aggravated assault or battery, as defined under State or locallaw, at a school, on school premises, or to orat a school function. Like the amendment offered by Representative Norwood, this amendment would have includedexpulsion or suspension and a child who issuspended or expelled would not have been entitled to continue educational services, including FAPE, if the statedoes not require a child without a disability toreceive educational services after being expelled or suspended. However, a local educational agency may havechosen to provide educational or mental healthservices for such a child. If such services are provided, there was no requirement to provide the child with anyparticular level of service and the location of theservices was at the discretion of the local educational agency. School personnel were permitted to modify thedisciplinary action on a case by case basis. As with the Norwood amendment, a child with a disability who is disciplined under this amendment would have been able to assert a defense that the possessionor use of the illegal drugs, or the sale or solicitations of the controlled substance, was unintentional or innocent. This provision could have helped to address theproblem of someone placing drugs in the backpack of a child with limited mental capacities; however, the exactimplications of this provision were somewhatuncertain since it was not specified to whom or when this defense would be asserted. The amendment did notprovide for any similar defense for an allegation ofaggravated assault or battery. The definition of controlled substance was the same as the definition in section 4141 of H.R. 4141 . This section states that the term controlledsubstance "means a drug or other substance identified under Schedule I, II, III, or IV, or V in section 202(c) of theControlled Substances Act (21 U.S.C.�812(c))." Illegal drug "means a controlled substance, but does not include such a substance that is being legallypossessed or used under the supervision of alicensed health-care professional or that is legally possessed or used under any other authority under the ControlledSubstances Act or under any other provision ofFederal law." These amendments were not enacted.

Although Congress described its 1997 changes to discipline provisions in theIndividuals with Disabilities EducationAct (IDEA) as a "careful balance," it was not long before amendments to change the provisions surfaced. In 1999the Senate passed S. 254, 106thCong., the Violent and Repeat Juvenile Accountability and Rehabilitation Act of 1999, and the House passedH.R. 1501, 106th Cong., the ChildSafety and Protection Act, both of which contained amendments to IDEA. These amendments would have changedsection 615 of IDEA to eliminate IDEA'sdifferent disciplinary procedures for children with disabilities in certain situations. In the Senate the amendmentapplied to children with disabilities who carry agun or firearm while in the House the amendment would cover a weapon. These amendments were not enacted. Two amendments relating to children with disabilities were offered and accepted during House Education andWorkforce Committee markup of H.R. 4141, 106th Cong., the Elementary and Secondary Education Act Amendments. One amendment, offered byRepresentative Norwood, concerned the discipline ofa child with a disability who carries or possesses a weapon. The other amendment, offered by RepresentativesTalent, McIntosh and Tancredo, concerned thediscipline of a child with a disability who knowingly possesses or uses illegal drugs at school or commits anaggravated assault or battery at school. Theseamendments were not enacted. This report will be updated as appropriate. For a more detailed discussion of the due process provisions inIDEA see CRS Report 98-42, Individuals withDisabilities Education Act: Discipline Provisions in P.L. 105-17, by [author name scrubbed].

Introduction The Financial Action Task Force on Money Laundering is composed of 35 member countries and territories and two regional organizations and was organized to develop and promote policies to combat money laundering and terrorist financing, referred to as anti-money laundering/combatting the financing of terrorism (AML/CFT) measures. The FATF relies on a combination of annual self-assessments and periodic mutual evaluations that are completed by a team of FATF experts to provide information and to assess the compliance of its members to the FATF guidelines. FATF has no enforcement capability, but can suspend member countries that fail to comply on a timely basis with its guidelines. For instance, the FATF warned Turkey in early 2013 that its membership would be suspended unless it became more aggressive in criminalizing money laundering. The FATF is housed at the headquarters of the Organization for Economic Cooperation and Development (OECD) in Paris and occasionally uses some OECD staff, but the FATF is not part of the OECD. The presidency of the FATF is a one-year appointed position, currently held by Mr. Juan Manuel Vega-Serrano from Spain, who will serve through June 30, 2017, when Mr. Santiago Otamendi of Argentina will assume the presidency. At the ministerial meeting in April 2012, the member countries renewed the FATF's mandate through December 31, 2020. The FATF focuses on six key areas that are intended to reduce the potential for the abuse of financial systems and financial crimes. FATF Recommendations . The FATF issued its Forty Recommendations to serve as global standards to protect the integrity of the international financial system and enhance international cooperation on AML/CFT by increasing transparency and assisting countries in successfully taking action against the illicit use of their financial system. High-risk and N on cooperative J urisdictions. FATF attempts to identify those countries that are not complying with the FATF recommendations. On the basis of reviews by the International Co-operation Review Group (ICRG), jurisdictions may be publicly identified in one of the two FATF public documents that are issued three times a year: (1) FATF's Public Statement identifies jurisdictions that have strategic AML/CFT deficiencies and to which countermeasures apply and jurisdictions which have deficiencies but have not made progress in addressing the deficiencies or have not committed to an action plan to address the deficiencies; and (2) Improving Global AML/CFT Compliance: On-Going Process in which the FATF identifies those jurisdictions that have AFL/CFT deficiencies but have provided a high-level political commitment to address the deficiencies through a plan developed with the FATF. Financing of Proliferation. The FATF updated its standards to include measures on the implementation of targeted financial sanctions related to proliferation of weapons of mass destruction. Mutual Evaluations. The FATF conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country's system for preventing criminal abuse of the financial system. Methods and Trends. FATF monitors and updates the constant evolution of the methods used to launder proceeds of criminal activities and finance illicit activities. Recently, FATF surveyed the vulnerability of Hawalas and other similar service providers to money laundering and terrorist financing as a result of their use of nonbank settlement methods. The FATF also surveyed the vulnerabilities and risks of the diamond trade to money laundering, including production, rough diamond sale, cutting and polishing, jewelry manufacturing, and jewelry retailers. Corruption. FATF focuses on the linkage between corruption and money laundering, both of which are generally committed to obtain or hide financial gain. The Mandate When it was established in 1989, the FATF was charged with examining money laundering techniques and trends, reviewing the actions which had already been taken, and setting out the measures that still needed to be taken to combat money laundering. In 1990, the FATF issued a report containing a set of 40 recommendations, which provided a comprehensive plan of action to fight against money laundering. Following the terrorist attacks of September 11, 2001, the FATF redirected its efforts to focus on money laundering and terrorist financing. On October 31, 2001, the FATF issued a new set of guidelines and a set of eight special recommendations on terrorist financing. At that time, the FATF indicated that it had broadened its mission beyond money laundering to focus on combating terrorist financing and that it was encouraging all countries to abide by the new set of guidelines. A ninth special recommendation was added in 2005. In 2005, the United Nations Security Council adopted Resolution 1617 urging all U.N. Member States to implement the FATF 40 recommendations on money laundering and the nine special recommendations on terrorist financing. The FATF completed a review of its mandate and proposed changes that were adopted at the May 2004 ministerial meeting. In 2006, FATF adopted a new surveillance process, known as the International Cooperation Review Group, to identify, examine, and engage with vulnerable jurisdictions that are failing to implement effective AML-CFT systems. In addition, the FATF revised its mandate in 2008 to indicate that FATF "will intensify its surveillance of systemic criminal and terrorist financing risks to enhance its ability to identify, prioritize, and act on these threats." The FATF also expressed its support for the development of national threat assessments through best practice guidance and the establishment of stronger and more regular mechanisms for sharing information on risks and vulnerabilities. In addition, the FATF indicated its determination to remain at the center of international efforts to protect the integrity of the global financial system against new risks from criminals and terrorists. At the G-20 (Group of 20) Summit in Pittsburgh in 2009, the national leaders affirmed their commitment to deal with tax havens, money laundering, corruption, terrorist financing, and prudential standards. They called on the FATF to improve transparency and exchange of information so countries can fully enforce their laws. The G-20 members also called on the FATF to issue a public list of high-risk jurisdictions. In 2010, the FATF published guidelines for insurance companies and the cross-border transportation of cash and bearer bonds. The FATF also adopted a set of guidelines regarding tax amnesty laws and asset repatriation. In 2010, the FATF also published a report on the vulnerabilities of free trade zones for misuse in money laundering and terrorist financing. At the conclusion of the November 2010 G-20 Summit in Seoul, the members urged the FATF to "update and implement" the FATF standards calling for transparency of cross-border wire transfers, beneficial ownership, customer due diligence, and due diligence for "politically exposed persons." At the Cannes 2011 Summit, the G-20 leaders declared that "corruption is a major impediment to economic growth and development," and encouraged all jurisdictions to adhere to the international standards in the tax, prudential, and AML/CFT areas. The leaders also stated that, "We stand ready, if needed, to use our existing countermeasures to deal with jurisdictions which fail to meet these standards" (par. 36). The G-20 leaders also stated: We support the work of the Financial Action Task Force (FATF) to continue to identify and engage those jurisdictions with strategic Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) deficiencies and update and implement the FATF standards calling for transparency of cross-border wires, beneficial ownership, customer due diligence, and enhanced due diligence. At the November 4-5, 2012, meeting of G-20 finance ministers and central bank governors in Mexico City, the officials reaffirmed their support for FATF by concluding that "we remain committed and encourage the FATF to continue to pursue all its objectives and notably to continue to identify and monitor high-risk jurisdictions with strategic Anti-Money Laundering/Counter-Terrorist Financing (AML/CFT) deficiencies." In addition, the final communique from the July 2013 meeting of G-20 finance ministers and central bank governors in Moscow concluded: We reiterate our commitment to FATF's work in fighting money laundering and terrorism financing and its key contribution to tackling other crimes such as tax crimes, corruption, terrorism, and drug trafficking. In particular, we support the identification and monitoring of high risk jurisdictions with strategic AML/CFT deficiencies while recognizing the countries' positive progress in fulfilling the FATF's standards. We encourage all countries to tackle the risks raised by opacity of legal persons and legal arrangements.... Subsequent G-20 summits have issued similar statements of support for the FATF. At the G-20 summit in 2016 in Hangzhou, China, the leaders stated their continued support for the FATF and emphasized the importance of financial transparency to "protecting the integrity of the international financial system" and to preventing the misuse of the financial system for corruption, tax evasion, terrorist financing, and money laundering. To this end, the G-20 directed the FATF to develop additional proposals for the G-20 on ways to "improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information of legal persons and legal arrangements, and its international exchange." On February 15, 2012, the FATF members adopted a revised and updated set of the FATF Forty Recommendations, which added the proliferation of financing of weapons of mass destruction to FATF's areas of surveillance. The new mandate is intended to (1) deepen global surveillance of evolving criminal and terrorist threats; (2) build a stronger, practical, and ongoing partnership with the private sector; and (3) support global efforts to raise standards, especially in low-capacity countries. In addition, the revised recommendations address new and emerging threats, while clarifying and strengthening many of the existing obligations. The new standards strengthen the requirements for higher-risk situations and allow countries to take a more focused approach to areas where high risks remain or where implementation could be enhanced. The standards also significantly strengthen requirements in the area of transparency regarding the adequate, accurate, and timely information on the beneficial ownership and control of legal persons and arrangements to address issues of tax transparency, corporate governance, and various types of criminal activity. The risk-based approach adopted by FATF encourages countries to identify, assess, and understand the risks posed by money laundering and terrorist financing and to adopt the appropriate measures to address those risks, providing for a more flexible set of measures for countries to target resources in the most effective way. In addition, the new standards address the challenge of terrorist financing by integrating standards for combating terrorist financing throughout the Recommendations, thereby eliminating the need for the nine Special Recommendations that had supplemented the Forty Recommendations. In particular, the new standards recommend that terrorist financing should be criminalized (Recommendation 5); that countries should implement targeted financial sanctions related to terrorism and terrorist financing (Recommendation 6); that countries should implement targeted financial sanctions related to the prevention, suppression, and disruption of proliferation of weapons of mass destruction and its financing (Recommendation 7); and that countries review their laws and regulations to ensure that nonprofit organizations are not used to finance terrorism (Recommendation 8). The FATF also has identified trade-based money laundering (TBML) as an issue for its members. According to the FATF, TBML involves the exploitation of the international trade system for the purpose of transferring value and obscuring the true origins of illicit wealth. This process is defined as disguising the proceeds of crime and moving value through trade transactions to legitimize their illicit origin and varies in complexity, but typically involves the misrepresentation of the price, quantity, or quality of imports or exports. In addition to TBML, criminal organizations and terrorist financiers use the international financial system itself and the physical movement of cash through couriers to disguise their activities. In particular, criminal organizations and terrorist financiers take advantage of the size and complexity of the international trade and finance system to obscure individual transactions through (1) the complexities involved with multiple foreign exchange transactions and diverse trade financing arrangements; (2) the comingling of legitimate and illicit funds; and (3) the limited resources that most customs agencies have available to detect suspicious trade transactions. Also, money launderers have exploited vulnerabilities in the use of letters of credit and other financial arrangements that are necessary for facilitating cross-border trade to launder funds. According to FATF, TBML techniques "vary in complexity and are frequently used in combination with other money laundering techniques to further obscure the money trail." Despite the recognition that the rapid growth and complexity of the international trade and financing system has multiplied the opportunities for abuse of this system by money, recommendations specifically to counter TBML are not included in the current set of FATF 40 Recommendations. FATF, however, has occasionally issued stand-alone reports that address TBML and best practices. Surveys conducted by the FATF indicate, however, that there is no comprehensive data set on the extent and magnitude of the TBML issue. In part, the FATF determined that this lack of data reflected the fact that most jurisdictions do not identify TBML as a separately identifiable activity under the general topic of money laundering and, therefore, did not collect data on this specific type of activity. The FATF also concluded that most jurisdictions do not offer training specifically related to TBML activities that assist trade and finance specialists in identifying TBML activities. As part of its efforts to promote best practices regarding training for detecting TBML, the FATF recommended that jurisdictions develop training programs that are specific to TBML and could focus on financial and trade data analysis for identifying trade anomalies and identifying criminal activities, among other reforms. In addition to the revised and updated Recommendations, the FATF members adopted on April 20, 2012, a new mandate for the FATF and renewed FATF's mandate through December 31, 2020. The new mandate specifies a number of functions and tasks for the FATF, including the following: 1. Identifying and analyzing money laundering, terrorist financing, and other threats to the integrity of the financial system, including the methods and trends involved; examining the impact of measures designed to combat misuse of the international financial system; supporting national, regional, and global threat and risk assessments. 2. Developing and refining the international standards for combating money laundering and the financing of terrorism and weapons proliferation. 3. Assessing and monitoring its members through "peer reviews" (mutual evaluations) and follow-up processes to determine the degree of technical compliance, implementation, and effectiveness of systems to combat money laundering and the financing of terrorism and proliferation; refining the standard assessment methodology and common procedures for conducting mutual evaluations and evaluation follow-up. 4. Identifying and engaging with high-risk, noncooperative jurisdictions and those with strategic deficiencies in their national regimes, and coordinating action to protect the integrity of the financial system against the threat posed by them. 5. Promoting full and effective implementation of the FATF Recommendation by all countries through the global network of FATF-style regional bodies and international organizations; ensuring a clear understanding of the FATF standards and consistent application of mutual evaluation and follow-up processes throughout the FATF global network and strengthening the capacity of the FATF regional bodies to assess and monitor their member countries. 6. Responding as necessary to significant new threats to the integrity of the financial system consistent with the needs identified by the international community, including the United Nations Security Council, the G-20, and the FATF itself; preparing guidance as needed to facilitate implementation of relevant international obligations in a manner compatible with the FATF standards. 7. Assisting jurisdictions in implementing financial provisions of the United Nations Security Council resolutions on nonproliferation, assessing the degree of implementation and the effectiveness of these measures in accordance with the FATF mutual evaluation and follow-up process, and preparing guidance as needed to facilitate implementation of relevant international obligations in a manner compatible with the FATF standards. 8. Engaging and consulting with the private sector and civil society on matters related to the overall work of the FATF, including regular consultation with the private sector and through the consultative forum. 9. Undertaking any new tasks agreed by its Members in the course of its activities and within the framework of this Mandate and taking on these new tasks only where it has a particular additional contribution to make while avoiding duplication of existing efforts elsewhere. In February 2016, the FATF released an updated strategy to increase efforts by the FATF members to address what it determined as an intensification of global terrorist threats. The new strategy consists of (1) the framework, mechanisms, and actions that are in place; (2) the current threats that are faced; and (3) the key policy objectives and the priority actions the FATF and the global network will take in its fight against terrorism and terrorist financing. Progress to Date An essential part of the FATF activities is assessing the progress of its members in complying with the FATF recommendations. As previously indicated, the FATF attempts to accomplish this activity through assessments performed annually by the individual members and through mutual evaluations. As part of an ongoing process, the FATF completes mutual evaluations of all the FATF members. According to the FATF assessment of February 2016, only a few countries are considered to be noncooperative countries. The countries in this group include Iran and the Democratic Peoples' Republic of Korea (North Korea), which FATF considers to have significant deficiencies in its anti-money laundering and terrorist financing regime; FATF urged other jurisdictions to protect themselves by applying countermeasures. In June 2016, the FATF suspended countermeasures against Iran for 12 months to monitor its progress in implementing an Action Plan. If, at that time, the FATF determines that Iran has not demonstrated "sufficient" progress, calls for countermeasures will be reimposed. If, however, Iran has met its commitments, the FATF would consider additional steps. Nevertheless, the FATF indicated that it remained concerned with terrorist financing issues relevant to Iran and the threats it poses to the international financial system. Iran urged the FATF members to "continue to advise their financial institutions to apply enhanced due diligence to business relationships and transactions" with Iranian individuals or institutions. The FATF identified nine countries—Afghanistan, Bosnia and Herzegovina, Ethiopia, Iraq, Lao PDR, Syria, Uganda, Vanuatu, and Yemen—that have remaining deficiencies in addressing AML/CFT issues, but have made a high-level political commitment to address their deficiencies. Other countries that are improving their AML/CFT regimes, but are considered to have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF, are Albania, Angola, Argentina, Cuba, Iraq, Kenya, Kuwait, Kyrgyzstan, Mongolia, Namibia, Nepal, Nicaragua, Papua New Guinea, Tajikistan, Tanzania, and Zimbabwe. In addition to monitoring the progress of countries in meeting the FATF recommendations regarding AML/CFT, the FATF has taken a number of steps since the 2008-2009 financial crisis to protect the international financial system from abuse. These actions include identifying jurisdictions that may pose a risk to the international financial system and updating reports on such topics as Best Practices on Confiscation (asset recovery); best practices on Managing the Anti-Money Laundering and Counter-Terrorist Financing Policy Implications of Voluntary Tax Compliance Programs; and Trade Based Money Laundering. In addition, FATF issued a statement on February 22, 2013, indicating that it intended to suspend Turkey's membership in the organization as a result of its "continued failure to take action to fully criminalize terrorist financing and establish an adequate legal framework for identifying and freezing terrorist assets consistent with the FATF Recommendations." The FATF encouraged Turkey to (1) adopt legislation to remedy deficiencies in its terrorist financing laws and (2) establish a legal framework for identifying and freezing terrorist assets consistent with the FATF Recommendations. In February 2014, FATF indicated that Turkey had taken steps toward improving its CFT regime by complying with the FATF standard on criminalizing terrorist financing through court decisions and, therefore, did not suspend Turkey's membership. The FATF indicated, though, that it remained concerned over Turkey's framework for identifying and freezing terrorist assets. The FATF faces a number of difficulties in determining how fully member countries are complying with the special recommendations. A large part of this difficulty arises from the challenges in reaching a mutual understanding of what the recommendations mean and how a country should judge its performance relative to the recommendations, since the recommendations are periodically revised and new methodologies for analyzing money laundering and terrorist financing evolve over time. In addition, a number of the recommendations require changes to laws and other procedures that take time for member countries to implement. To assist member countries in complying with the recommendations, the FATF has issued various interpretative notes to clarify aspects of the recommendations and to further refine the obligations of member countries. In February 2004, the FATF adopted a revised version of the 40 recommendations that significantly broadened the scope and detail of the recommendations over previous versions. Also, the FATF adopted a new methodology to track and identify money laundering and terrorist financing that applied to the 40 recommendations and the eight (nine) special recommendations. As a result of the significant length and additional detail of these new requirements, the FATF decided that it would no longer conduct self-assessment exercises based on the previous method, but will initiate follow-up reports to mutual evaluations. In 2005, the FATF issued revised standards related to wire transfers of funds. The new standards require financial institutions to include the name, address, and account number of the originator on all fund transfers. The standards also lower the reporting threshold from $3,000 to $1,000. Two FATF-style regional bodies were also created—the Eurasian Group and the Middle East and North Africa Financial Action Task Force. The first round of mutual evaluations for these two bodies was scheduled for 2006. In 2007, the FATF adopted new measures to protect the international financial system from abuse, including calling on Iran to strengthen its money-laundering and counter-terrorist financing controls and a new commitment to produce a regular global threat assessment detailing key issues of concern related to criminal and terrorist financing. Since the start of the global financial crisis, the FATF has taken a number of steps to help governments guard against abuse of their financial systems by groups or individuals engaging in terrorist financing or money laundering. As part of these efforts, the FATF has done the following: Issued a statement warning all FATF members and all jurisdictions to protect their financial systems from risks associated with Iran's failure to address ongoing deficiencies in its anti-money laundering regime and in combating financial terrorism Completed an analysis of the impact of the global financial and economic crises on international cooperation in the area of money laundering and terrorist financing and reported to the G-20 in September 2009 on responses to the financial crisis. Completed a report on the potential for money laundering and other vulnerabilities in the football (soccer) sector. Issued a list of best practices that can assist member countries in implementing measures to freeze the assets or funds of terrorists or of terrorist-related activities. The FATF argues that freezing these assets or funds is important because it (1) denies funds to terrorists, which forces them to use more costly and higher-risk ways to finance their operations; (2) deters those who might be willing to finance terrorism; and (3) is one element of a broader effort to follow the money trail of terrorists, terrorist groups, and terrorist activity. Issued a report on money laundering and the risk posed under New Payment Methods (prepaid cards, mobile payments, and Internet payment services). Completed research on the use of Trusts and Company Service Providers for money laundering, indicating that Trusts and Company Service Providers have often been misused, wittingly or not, in money-laundering activities. Published a report on the rise in organized piracy on the high seas and related kidnapping for ransom. Published a report analyzing money-laundering methods used for corruption, identifying key vulnerabilities of the current AML/CFT system, and discussed the barriers for the recovery of corrupt proceeds once they are discovered. Published a report on the extent and nature of trade-based money laundering, which FATF identifies as one of the three main methods by which criminal organizations and terrorist financiers move money for the purpose of disguising its origins and integrating it back into the formal economy. Published a report on the illegal money flows associated with money laundering and trafficking in human beings and smuggling of migrants. Published a report on money laundering and financial inclusion, which focuses on AML/CFT measures that meet national goals of facilitating access to formal services for financially excluded and underserved groups, including low-income, rural, and undocumented groups. Published a report on the vulnerabilities of legal professionals in witting/unwitting criminal ML/TF activities, sometimes because a legal professional is required to complete certain transactions, and sometimes to access specialized legal and notarial skills and services which could assist the laundering of the proceeds of crime and the funding of terrorism. Published a report on the vulnerability of politically exposed persons, which is defined as an individual who is or has been entrusted with a prominent public function that potentially can be abused for the purpose of committing money laundering offenses and related activities, including corruption and bribery, as well as conducting activity related to terrorist financing. Approved a report on money laundering counterfeiting currency and the risk that counterfeit currency can seriously destabilize a country's currency and as such represents a serious threat to national economies. The report examines the methods that are used for putting the proceeds of the illicit trade in counterfeit currency into the regular financial system and how counterfeit currency is used for the purpose of terrorist financing and other crimes. In October 2013, the FATF published a report on the use of Hawala organizations to launder money and finance terrorist activities. In October 2014, FATF published a report on the use of legal and beneficial ownership information regarding corporate entities to prevent the circumvention of anti-money laundering and terrorist financing measures in ways that can disguise and convert the proceeds of criminal activity before introducing them into the financial system. The FATF published a report in July 2015 on the growing use of gold in place of cash and traditional financial markets as a method for laundering funds as regulators and law enforcement measures have become more successful in the traditional financial markets. In October 2015, FATF published a report detailing the laundering of funds through the physical transportation of cash. In February 2016, the FATF published new guidelines for a risk-based approach for evaluating money or value-transfer services, or financial services that involve the acceptance of cash, checks, or other financial instruments through a clearing network. In June 2016, the FATF published a report on the consolidated standards on information sharing. In September 2016, the FATF published a report at the request of the G-20 on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information, and its international exchange. As the FATF begins its fourth round of country evaluations, it adopted in 2013 a new methodology for countries to use in evaluating their compliance with the FATF Recommendations. The Methodology is composed of two components: 1. The first is a technical compliance assessment that will address the specific requirements of each of the FATF Recommendations, principally as they relate to the relevant legal and institutional framework of the country, and the powers and procedures of competent authorities. 2. The second is an effectiveness assessment that will assess the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CFT system and will analyze the extent to which a country's legal and institutional framework is producing the expected results. In December 2016, the FATF released its third mutual evaluation report on the United States. The report noted the unique role the United States and the dollar play in the international financial markets. The United States is the largest economy and the dollar serves essentially as the global reserve currency. A triennial survey of the world's leading central banks conducted by the Bank for International Settlements in April 2016 indicates that the daily trading of foreign currencies through traditional foreign exchange markets totaled $5.1 trillion. 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 nontraditional foreign exchange derivatives contracts reached $2.7 trillion in April 2016. The BIS data also indicate that 88.0% of the global foreign exchange turnover in April 2016 was in U.S. dollars. The FATF noted that this unique role "creates significant exposure to potential money laundering activity and risks of cross-border illicit flows." The FATF also concluded that, "The U.S. also faces significant risks from [terrorist financing] and is vulnerable to such abuse because of the unique scope, openness and reach of its financial system globally, and the direct threat posed by terrorist groups to U.S. interests." Although the FATF generally gave the United States high marks for its efforts to combat money laundering and terrorist financing, it observed some areas where it recommended the United States could improve. These areas include the following: Significant gaps in the regulatory framework, including minimal coverage of certain institutions and businesses (investment advisers), lawyers, accountants, real estate agents, trust and company service providers, other than trust companies. Minimal measures are imposed on designated nonfinancial businesses and professions, other than casinos and dealers in precious metals and stones. Lack of timely access to adequate, accurate, and current beneficial ownership information. No uniform approach to state-level anti-money laundering efforts and are uncertainties about the priority that states give money laundering. The main money laundering vulnerabilities were in the cash, banking, money service businesses, casino, and securities sectors, and were characterized as use of cash and monetary instruments in amounts under regulatory record-keeping and reporting thresholds; opening bank and brokerage accounts using nominees to disguise the identity of the individuals who control the accounts; creating legal entities without accurate information about the identity of the beneficial owner; misuse of products and services resulting from deficient compliance with anti-money laundering obligations; and merchants and financial institutions wittingly facilitating illegal activity. The main terrorist financing threats and vulnerabilities include raising funds through criminal activity, individuals raising funds under the auspices of charitable giving but outside of any charitable organization, individual contributions and self-funding; moving and placing funds through banks, licensed money service businesses, unlicensed money transmitters and cash smuggling; and potential emerging threats from global terrorist activities, cybercrime and identity theft, and new payment systems. Fundamental improvements are required in order to protect legal persons, and to a lesser extent legal arrangements, from money laundering/terrorist financing abuse, and ensure that the competent authorities have timely access to beneficial owner information. Major improvements are needed to apply appropriate preventive measures to all financial institutions and designated nonfinancial businesses and professions, in particular to high-risk situations, and to undertake effective supervision of all sectors. While the financial intelligence system is broadly robust, its effectiveness is somewhat impaired by technical gaps that limit the information available to competent authorities at any given point in time. Role of the IMF and World Bank Between 2002 and 2003, the International Monetary Fund (IMF) and the World Bank participated in a year-long pilot program to conduct assessments of national approaches to detecting and controlling money laundering and terrorist financing in various countries using the methodology developed by the FATF. In March 2004, the IMF and World Bank agreed to make the program a permanent part of their activities. The IMF has worked with the World Bank and the FATF to conduct over 70 AML/CFT assessment and has contributed to the design of AML/CFT-related program measures, and provided a large number of technical assistance and research projects, at an annual cost of approximately $6 million. The FATF has incorporated an AML/CFT evaluation as part of its annual Article IV country consultations, and country Financial Sector Assessment Programs (FSAP). In 2009, the IMF spearheaded a donor-sponsored trust fund to finance technical assistance in AML/CFT to strengthen AML/CFT regimes. In a public statement, the IMF indicated that ... it is concerned about the possible consequences money laundering, terrorist financing, and related governance issues have on the integrity and stability of the financial sector and the broader economy. These activities can undermine the integrity and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows. They may have negative consequences for a country's financial stability and macroeconomic performance, resulting in welfare losses, draining resources from more productive economic activities, and even have destabilizing spillover effects on the economies of other countries. In an increasingly interconnected world, the negative effects of these activities are global, and their impact on the financial integrity and stability of countries is widely recognized. The IMF's efforts are driven in part by its conclusion that money laundering, terrorist financing, and associated criminal activities are crimes that have real effects on the economy, on financial sector stability, and on external stability more generally. In general, the potential economic effects that arise from such financial crimes are the following: Loss of access to global financial markets. Destabilizing capital inflows and outflows. Money laundering or terrorist financing activities may give rise to significant levels of criminal proceeds or "hot money" flowing into and out of financial institutions in a country in ways that are destabilizing. In such cases, financial flows are not driven by the economic fundamentals, but by differences in controls and regulations that make money laundering a safer activity in some countries than in others. Financial Sector Fraud. Money laundering may also be associated with broader problems of financial sector fraud. Such fraud can undermine confidence in a country's financial system, which can lead to large outflows of capital from the banking system, or the loss of access to international financial markets as a result of deterioration in the country's reputation. Financial Sector Supervision. Money laundering and terrorist financing may reflect deeper problems with the supervision of the financial system in a country. Where important financial institutions within a country are owned or controlled by criminal elements, the authorities may encounter difficulty supervising these institutions or in identifying and addressing problems before domestic financial stability is undermined. Economic Paralysis. Incidents of terrorism and terrorist financing may undermine the stability of a country's financial system, either as a result of a history of terrorist incidents or through the effect of a single, but significant, incident. Tax Fraud. Money laundering associated with tax fraud potentially can undermine financial or macroeconomic activity by (1) affecting the government's revenue stream to a point where its fiscal balance is significantly undermined; and (2) threatening the stability of a country's banking system through volatile financial inflows and outflows by injecting large amounts of "hot money" arising from tax evasion. The IMF estimates that large-scale tax fraud is the most prevalent and significant of all proceeds-generating crimes. Problems with economic policymaking. Where the illegal sector forms a significant part of the economy and criminal proceeds remain in cash outside the banking system, such activities can distort consumption, investment and savings, trade and exchange rates, and the demand for money. As a result, official data on economic fundamentals may not fully reflect the underlying economic realities and economic policymakers may be thwarted in assessing the state of the economy and in making economic policy. Adverse effects on growth. Corruption, especially corruption at the national level, has the potential to negatively affect fiscal balances, foreign direct investment, and growth. In extreme cases, unchecked criminal activity can threaten state functions and the rule of law, with associated adverse economic effects. Money laundering, terrorist financing, and related crimes may undermine the stability of the country in which they originate and have adverse spillover effects on the stability of other countries. In 2011, the IMF published the results of its assessment of the effectiveness of the AML/CFT program. This survey concluded that Of the 161 countries surveyed between 2004 and 2011 by the IMF, compliance with all of the FATF Recommendations was 42.5% and full compliance on any of the FATF Recommendations was rare, occurring in just 12.3% of the cases. The survey also indicated that it appears to be easier for countries to adopt legislation and to establish government institutions than it is to ensure that the system functions well on an ongoing basis. Compliance is expensive because countries must invest in building institutions and promote active interagency coordination and international cooperation in order to achieve relatively high levels of compliance. As a result, countries with higher per capita income levels and more well-developed frameworks for financial regulation and fighting corruption have achieved relatively high levels of compliance. Compliance by many emerging-market and low-income countries, however, is impeded by a relatively poor understanding of AML/CFT best practices, inadequate budgets for training staff, and the absence of important preconditions (e.g., rule of law, transparency, and good governance) for the effective implementation of AML/CFT measures. The costs of performing a country evaluation are high in terms of time and resources for both the country being assessed and for the assessors. An IMF assessment of the criteria set out in the FATF assessment methodology requires that the assessor bodies engage in long missions, extensive interviews with a broad range of representatives of the official and private sectors (both financial and nonfinancial), and protracted follow-up discussions. Some of these costs are shared with other assessor bodies. Country assessments attempt to focus not only on the country's formal compliance with the AML/CFT recommendations, but on how effectively the standards have been implemented. The comprehensive nature of the current methodology for assessing a country's compliance with the AML/CFT standards in some cases does not allow assessors the flexibility of focusing on issues that may be of greatest relevance to a particular country. As a result of the conclusions reached above, the IMF and the World Bank proposed two changes in the AML/CFT policy framework: 1. Future assessments should adopt a more flexible, targeted approach, since most of the IMF's members have undergone an initial assessment. This approach will concentrate on (1) areas where countries have a record of poor compliance; (2) key or core areas of the standard or where the standard has been amended; and/or (3) areas where individual countries face particular risks, either domestic or cross border. 2. Country assessments should be conducted with a more targeted, risk-based approach aimed at assessing a country's compliance with the AML/CFT standards. It is anticipated that such an approach would allow assessors to engage in more targeted and focused assessments based on the circumstances of the country whose framework is being assessed. FATF moved in this direction when it adopted its new methodology in 2012. Issues for Congress Following the 9/11 attacks, Congress passed P.L. 107-56 (the USA PATRIOT Act) to expand the ability of the Treasury Department to detect, track, and prosecute those involved in money laundering and terrorist financing. In 2004, the 108 th Congress adopted P.L. 108-458 , which appropriated funds to combat financial crimes, made technical corrections to P.L. 107-56 , and required the Treasury Department to report on the current state of U.S. efforts to curtail the international financing of terrorism. The experience of the Financial Action Task Force in tracking terrorist financing, however, indicates that there are significant national hurdles that remain to be overcome before there is a seamless flow of information shared among nations. While progress has been made, domestic legal issues and established business practices, especially those that govern the sharing of financial information across national borders, continue to hamper efforts to track certain types of financial flows across national borders. Continued progress likely will depend on the success of member countries in changing their domestic laws to allow for greater sharing of financial information, criminalizing certain types of activities, and improving efforts to identify and track terrorist-related financial accounts. The economic implications of money laundering and terrorist financing pose another set of issues that argue for gaining greater control over this type of activity. According to the IMF, money laundering accounts for between $600 billion and $1.6 trillion in economic activity annually. Money launderers exploit differences among national anti-money laundering systems and move funds into jurisdictions with weak or ineffective laws. In such cases, organized crime can become more entrenched and create a full range of macroeconomic consequences, including unpredictable changes in money demand, risk to the soundness of financial institutions and the financial system, contamination effects on legal financial transactions, and increased volatility of capital flows and exchange rates due to unprecedented cross-border transfers.

The National Commission on Terrorist Attacks Upon the United States, or the 9/11 Commission, recommended that tracking terrorist financing "must remain front and center in U.S. counterterrorism efforts" (see The 9/11 Commission Report: Final Report of the National Commission on Terrorist Attacks Upon the United States, U.S. Government Printing Office, July, 2004. p. 382). As part of these efforts, the United States plays a leading role in the Financial Action Task Force on Money Laundering (FATF). The independent, intergovernmental policymaking body was established by the 1989 G-7 Summit in Paris as a result of growing concerns among the summit participants about the threat posed to the international banking system by money laundering. After September 11, 2001, the body expanded its role to include identifying sources and methods of terrorist financing and adopted nine special recommendations on terrorist financing to track terrorists' funds. The scope of activity of FATF was broadened as a result of the 2008-2009 global financial crisis, since financial systems in distress can be more vulnerable to abuse for illegal activities. More recently, the FATF added the proliferation of financing of weapons of mass destruction as one of its areas of surveillance. In April 2012, the member countries adopted a remodeled set of Forty Recommendations and renewed the FATF's mandate through December 31, 2020. This report provides an overview of the task force and of its progress to date in gaining broad international support for its recommendations.

Introductory Comment Speaking broadly of the construction industry, a helper might be viewed as a general utility employee who assists a more skilled or specialized construction worker. Normally, the helper would be unskilled—though, in fact, he (or she) could have a wide range of skills but, not having gone through a formal training program, would not be recognized as skilled. A helper could also be a craftsman, a journeyman, down on his luck, and forced by economic necessity to accept general utility work below his level of training. Normally, the helper is unlikely to be a trade union member (or, if a member, not employed under a collectively bargained contract). He may usually be paid a wage lower than that of a skilled worker; though, for particular types of work, he may perform equally as well as a skilled craftsman. Because he is cheaper to employ and more flexible in the types of work he may be willing to accept (working outside of craft), he can be a useful addition to a work crew. Where a manager carefully supervises the work to be done, the less expensive helper can be assigned to perform narrow aspects of an otherwise complex task. (This process has been referred to as craft fragmentation.) At the worksite, one might expect to find, in the absence of workrules that would preclude it, a battery of helpers working under the guidance of a more highly paid journeyman. Whether such an arrangement is economical, in terms of productivity and quality of workmanship, is a subject of intense and on-going debate. An apprentice or a trainee (enrolled in a formal program) could be expected to rotate throughout the worksite, receiving on-the-job training and, in the case of the former, outside instruction as well. In contrast, the helper would normally receive the narrowest possible training, no more extensive than is absolutely required for the task at hand. And, in large measure, the helper is regarded as a temporary worker rather than a permanent member of his employer's crew. As the Davis-Bacon Act has been implemented by the Secretary of Labor, the Department has recognized apprentices and trainees in formal programs as a classification of workers for wage rate purposes. It has not, generally, recognized the category of helper, however, on the assumption that to do so would undercut the locally prevailing wage structure and skills system that the Davis-Bacon Act was designed to protect. Helpers Under Davis-Bacon: The Context of the Issue The Davis-Bacon Act (1931, as amended) requires that the "advertised specifications" for construction contracts in excess of $2,000 to which the government of the United States or of the District of Columbia is a party: ... shall contain a provision stating the minimum wages to be paid various classes of laborers and mechanics which shall be based upon the wages that will be determined by the Secretary of Labor to be prevailing for the corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work in the city, town, village, or other civil subdivision of the State in which the work is to be performed.... (Emphasis added.) Congress left to the Secretary the task of working out the precise manner in which the act should be applied. It also left up to the Secretary the responsibility for defining such concepts as "wages" and "prevailing" and "project of a character similar" and the scope of the locality in which the work was to be performed. Each of these concepts has been, intermittently, a focus of contention (and, often, of litigation), of rulemaking and of congressional debate through more than 60 years. A Question of Definition Similarly contentious has been the concept of the term helper . And, further, whether the use of helpers has been a common practice in the area in which federal construction work was to take place. As with other aspects of the act, Congress had legislated in broad strokes. The original Act referred to "classes of laborers and mechanics" employed on public construction projects and to "the corresponding classes of laborers and mechanics" employed on comparable work in the non-federal sector. It made no reference to "helpers" nor, for that matter, to "trainees," "apprentices," or other skill groups. Further definition, if such were required, was left to the Secretary of Labor. Although the act has been amended through the years, it still refers only to "various classes of laborers and mechanics"—the phrase being repeated with slight modification throughout the statute. Through the years, the Secretary developed such definitions as seemed appropriate and necessary. The evolving regulations focused upon apprentices and trainees registered in formal training programs: for example, those under the supervision of the Bureau of Apprenticeship and Training within the DOL. The term "helper" did appear in the regulations but seems to have been used casually, without precise definition, and with no hint as to how it might be applied in wage rate determinations or at the worksite. This situation prevailed up through the late 1970s. An Industry Perspective Business economist Armand Thieblot, writing in 1975, observed that the Davis-Bacon regulations were "filled with words of art which must, in turn, be defined." By way of example, he pointed to the phrase, "classifications of laborers and mechanics," and added: Open-shop firms bidding on covered construction in predominantly union areas might find that some of their own classifications—notably helpers—would not be considered prevailing classifications as such; therefore, no prevailing wages would be determined for them. ... Under such circumstances, the helpers would have to be reclassified as journeymen or laborers (journeymen, if they use the tools of the trade). Thieblot noted that "many firms are using, or would like to use, semi-skilled labor for uncomplicated aspects of some tasks." But unless such workers were enrolled in a formal DOL-approved apprenticeship program, "they must be considered, for pay purposes, journeymen of the trade in which they are apprentices." Helpers, he explained, "will be recognized for Davis-Bacon rate purposes only in those geographic areas where the practice of employing them is prevalent enough that their classification becomes a prevailing one. This recognition," he adds, "will only apply in areas where open shop firms predominate, because unions rarely recognize the helper category." A Trade Union Perspective Recalling the origins of Davis-Bacon, trade unionists view DOL's restrictions upon employment of apprentices, trainees or helpers at sub-craft rates as central to congressional intent and preservation of labor standards in the building trades. "Otherwise," they note, "contractors seeking to undercut the prevailing wage would merely designate the workers by one of these titles and claim that, since they are not fully skilled, they are not entitled to the prevailing rate." Further, they say: "By working his employees out of classification, he [the employer] can undercut the prevailing wage rates that he committed himself to pay when he bid on the [Davis-Bacon covered] project." Apprentices and trainees recognized as such by DOL cause few problems in the view of the Building and Construction Trades Department (BCTD), AFL-CIO. It is the informal and often imprecise titles of "helper" and "trainee," the BCTD notes, that have provoked conflict. There "is no evidence that most of these trainees and helpers are anything but temporary employees who are released when their work on the project is completed." DOL's restriction on the use of helpers "strikes at one of the wage-cutting devices by which non-union contractors can achieve the advantage they need to be able more frequently to underbid union contractors on federally funded work." And, the BCTD adds, the use of helpers at sub-craft wages was one of the "abuses the Davis-Bacon Act was intended to remedy." Administrative Reform of the Helper Provisions By the late 1970s, a campaign was underway for reform or repeal of Davis-Bacon. Ultimately, the effort would take two forms: direct legislation or, conversely, reform through the regulatory process. The former, of course, would require action by Congress which, while it had often reviewed the Davis-Bacon Act, had not altered it substantially. The latter, regulatory reform, could be undertaken unilaterally by the Administration. The Carter Administration Regulations (1979-1981) In late December 1979, the Carter Administration published a proposed rule revising the administration of Davis-Bacon and, among other elements, adding the following language (Section 1.7(d)): (d) Classification and wage and fringe benefit rates will be issued only for identifiable "classes of laborers and mechanics." Distinctions between classifications are based upon differences in the work performed, not upon skill and supervisory functions. A semi-skilled classification of laborers or helpers, for example, is issued when the classification as utilized in the area performs a scope of duties which distinguishes it from other classifications in the area . Prevailing wages for apprentices and trainees are not issued on wage determinations, but their use is permitted.... (Emphasis added) Thus, the proposed rule would establish two tests for designation of a special wage rate for helpers: first , that helpers are utilized in the area of the proposed work; and, second , that the helper is distinguishable from other classifications of laborers and mechanics. Later, the proposed rule specifically defined "laborer," "mechanic," "apprentice," and "trainee" but, for whatever reason, omitted any definition of helper. In mid-January 1981, as the Carter Administration was drawing to a close, a final rule was published. In an introduction, DOL explained its position concerning the use of helpers: "Numerous commenters shared the opinion that the policy of permitting only employment of apprentices and trainees under BAT [Bureau of Apprenticeship and Training] approved programs was denying job opportunities to youths, minorities, and women." The Department noted, however, that recognized programs of apprenticeship and other types of training were available to young persons, minorities and women and affirmed that, through that vehicle, it could be assured "that the training is real and is not a subterfuge" through which to lock such workers "into low paying unskilled jobs." The Department stressed that payment of reduced wages to apprentices and trainees was "an exception to the requirements of the Davis-Bacon Act ... and that strict conditions must be maintained in order to prevent the circumvention of the act's requirements." But, while the terms apprentice and trainee were defined in the final rule, once again helper was not. In its discussion of wage determinations, the DOL explained that differences in rates would be based upon "differences in the work performed, not upon skill and supervisory functions." And, further, DOL explained: "In any given classification individual skill levels will vary from employee to employee and any attempt to measure and issue rates on that basis is administratively impossible and could throw the procurement into complete confusion." From this assertion, one might infer the difficulties that the Department anticipated were it to recognize the use of helpers and to determine an appropriate locally prevailing wage rate for these workers. Three weeks into the Reagan Administration, on February 6, 1981, the Department announced a delay in implementation of the Davis-Bacon regulations. Then, it withdrew them for further review. The Reagan Administration Regulations (1981 ff.) Consideration of the helper issue during the Reagan era falls into three periods: issuance of a proposed rule, August 1981; publication of a final rule, May 1982; and subsequent litigation continuing through the remainder of the Reagan Administration. The Proposed Rule (1981) On August 14, 1981, the Reagan Administration issued a new proposed rule governing the Davis-Bacon Act and called for comment. The Department agreed to allow a helper classification on wage determinations "when the classification is identifiable in the locality." It noted: "Implementation of this proposal would provide recognition of a widespread practice in the construction industry and thus allow wage determinations to reflect actual classification practices and rates." The DOL pointed out that it had long recognized the helper category under certain carefully defined circumstances but, it concluded, the practice had been too restrictive. The new proposed regulation would issue helper wage determinations "when they can be identified in the locality"—not only when they are found to be prevailing as in prior practice. It noted that the concept of helper "would be broadly defined in the regulation, and permitted in a ratio of one helper to five journeymen." However, in order to prevent abuse, DOL explained, "the regulation would prohibit use of journeymen as helpers." There was a shift of emphasis from the regulations issued by the Carter Administration. The new regulations stated that the purpose was "to provide for the increased use of helpers whenever they are utilized in the area." The concept of helper was now specifically defined as a component of the terms "laborer" or "mechanic." A "helper" is a semi-skilled worker [rather than a skilled journeyman mechanic] who works under the direction of and assists a journeyman. Under the journeyman's direction and supervision, the helper performs a variety of duties to assist the journeyman such as preparing, carrying, and furnishing materials, tools, equipment, and supplies and maintaining them in order; cleaning and preparing work areas; lifting, positioning, and holding materials or tools; and other related, semi-skilled tasks as directed by the journeyman. A helper may use tools of the trade at and under the direction and supervision of the journeyman. The particular duties performed by a helper vary according to area practice. Where a worker is on the payroll as a helper but does not meet the regulatory definition of a helper (or a helper on the job site is in excess of the ratio permitted), he or she would be paid the rate for "the classification of work actually performed." Following publication of the proposed rule (August 1981), the Department received approximately 2,200 comments. More than 1,000 dealt specifically with the helper issue. The Final Rule (1982) A final Davis-Bacon rule was issued on May 28, 1995. DOL explained that its prior "restrictive approach" with respect to the use of helpers had been "inappropriate." In setting forth a new standard, DOL rejected the concerns of trade unionists while concurring in the views of industry. Going beyond the rule as proposed in August 1981, DOL affirmed that it had decided "to raise the ceiling from one helper for every five journeymen to two helpers for every three journeymen. The higher ratio will better reflect the wide diversity in practices among different types of construction and localities." The new ratio would allow up to 40% of the total on-site workforce to be composed of helpers and "would increase the cost savings substantially" where they were hired "instead of journeymen." The actual definition of "helper" remained as in the proposed rule. Reaction to the final rule was sharply divided. Former Labor Secretary and Harvard economist John Dunlop termed DOL's judgment on the 2:3 ratio (helpers to journeymen) "categorically wrong." He observed that the Department "cites no credible evidence to support it [the helper ratio], and for good reason. There is none." The Building and Construction Trades Department, AFL-CIO, charged that the rule would "allow almost unlimited use of helpers within a particular craft as well as the use of a 'cross-craft' helper." The use of helpers, the BCTD pointed out, no longer had to be prevailing in an area (i.e., the common practice) but merely "identifiable" under the new rule. And, it objected that the 2:3 ratio was not absolute because an option for variances was built into the rule. Industry was favorably disposed—having urged just such a regulatory change. The Associated General Contractors termed the helper provision the "most far-reaching change" in the new regulation, also noting the projected cost savings. The American Farm Bureau Federation "commended the Reagan administration for its revision" of the regulations. And, the U.S. Chamber of Commerce, noting that the change would "permit contractors to expand their use of 'helpers,' or semi-skilled workers, on federal projects at wage rates lower than those paid to skilled journeymen," reported that "[t]he business community is hailing as a 'major improvement'" the new Davis-Bacon rules. Litigation (1982-1983) In late May 1982, the AFL-CIO Executive Council reviewed the entire new Davis-Bacon regulation and noted that of "particular concern" was the new treatment of the helper classification. It is our view that the redefinition of "helper" is a derogation of the statutory requirement that the Secretary of Labor determine the minimum wages to be paid various "classes of laborers and mechanics" on federally-funded and federally-assisted construction projects. Furthermore, the changes in the "helper" requirement will adversely impact upon minority construction workers and will lead to the practices of wage-cutting and misclassification which the Davis-Bacon Act is designed to prevent. In early June, the AFL-CIO (with interested individual unions) filed suit, seeking to enjoin enforcement and, ultimately, to overturn the rule. U.S. District Court (1982). The final rule was scheduled for implementation on July 27, 1982. On July 22, Judge Harold H. Greene of the U.S. District Court for the District of Columbia issued a preliminary injunction against the Secretary of Labor and, among other things, addressed at length the issues raised with respect to the helper provision. Judge Greene said: At the time of enactment of the Davis-Bacon Act, Congress was acutely conscious of efforts by some employers to classify workers as "helpers" in order to avoid paying the skilled laborers' wage. The Senate Committee report noted that wage standards had [been]: largely broken down by intermediate classifications of labor and failure to retain the strict lines of demarcation intended to be drawn and maintained between skilled and unskilled labor. The whole tendency has been for wages of the skilled group to descend toward the level of the unskilled group, this by reason of intermediate classification devices. The report concluded by recommending that construction contracts contain a provision stating that the minimum wages to be paid "various classes of laborers and mechanics" shall be based on wages prevailing "for the corresponding classes of laborers and mechanics," the language ultimately adopted in 1935.... The new regulations will permit precisely that which Congress intended to halt in 1935. The concept of "classes of laborers or mechanics" was and is central to the statutory scheme. Under existing and long-established industry and administrative practice, a "class" of workers is one that has been historically recognized as such and whose members perform well-defined tasks. Helpers have therefore been recognized as a class only when their use has been prevailing in an area and they have formed a distinguishable group performing discrete tasks. Under the new regulations, helpers not only are not defined in traditional terms, but they may perform any task throughout the entire construction field: they are "general helpers." As a consequence, such individuals would be allowed, at the discretion of the contractors, to perform the tasks of laborers, of journeyman mechanics, and of laborers and mechanics on a cross-craft, multi-trade basis. Obviously, if contractors could thus assign a helper to perform the tasks of any and all classes of laborers and mechanics and they could do so at lesser pay, they will do just that, and the requirement that wages be based on "corresponding classes" will effectively be read out of the law. As the Wage Appeals Board said in Fry Brothers Corp ., 123 WAB No. 76-6 (June 14, 1977), at p. 15-16: If a construction contractor who is not bound by the classifications of work at which the majority of employees in the area are working is free to classify or reclassify, grade or subgrade traditional craft work as he wishes, such a contractor can, with respect to wage rates, take almost any job away from the group of contractors and the employees who work for them who have established the locality wage standard. There will be little left to the Davis-Bacon Act. Moreover, under existing administrative practice, a helper classification is recognized only if it is "prevailing" in a particular area; under the new regulations, the use of helpers need only be "identifiable" to be recognized. Yet the statute itself refers to "wages ... prevailing for ... classes," not to wages identified for classes. The effect of this change will be that when there is a single "helper" or a small group of helpers in a town or a metropolitan area, helpers may be employed in substitution of traditional craft workers throughout that area in all aspects of construction work. In that respect, again, the new regulations will depart both from prior practice and from the central purpose of the Act. For these reasons, it is unlikely that, when the merits are reached, this regulation can be allowed to stand. Judge Greene noted that "eight Presidents and 15 Secretaries of Labor of many political and ideological persuasions" had interpreted the Davis-Bacon regulations without the "fundamental changes that are brought about by the regulations adopted two months ago" and had "continued to interpret and enforce the laws precisely in accordance with the original understanding." Judge Green concluded: "Such consistent, unwavering administrative construction must be accorded very substantial weight by the Court." On December 23, 1982, Judge Greene, having further reviewed the case, issued a permanent injunction against implementation of the helper rule. The decision was promptly appealed. U.S. Court of Appeals (1983). Through the spring of 1983, the U.S. Court of Appeals, District of Columbia Circuit, reviewed Judge Greene's decision. On the helper issue, the Appeals Court partly upheld but partly overturned the District Court verdict. "The provision requiring that a helper classification need only be 'identifiable' in an area," the Appeals Court declared, "must be struck down because it operates to undermine the fundamental purpose of the act: that wages on federal construction projects mirror those locally prevailing." Further, the Appeals Court pointed to the potential for down-grading a classification of work: for example, making "carpenter work" into "carpenter's helper work" and, in the process, reducing the wages to be paid. After reviewing the legislative history of the act, it observed: "What is clear is that Congress regarded underclassification as contrary to the purposes, and most probably to the terms, of the act." Again: "We have concluded that the Secretary's identifiable-classification regulation would virtually ensure underclassification in union-dominated areas." With respect to the definition of helper , the Appeals Court found that the Secretary of Labor was "entitled to try to come closer ... than his predecessors have" to making wage rates on Davis-Bacon projects accurately reflect local practice. It found that a shift from a definition based upon the use of tools to one based upon the element of supervision was reasonable. "The change may mean that some unscrupulous contractors will find it easier to shift ... journeyman work onto helpers," it noted, "but we find it difficult to second-guess the Secretary's view that he can catch them." Therefore, the Appeals Court split on the helper issue: sustaining Judge Greene on the question of "identifiable" versus "prevailing" practice but accepting the Secretary's new definition of "helper." Since the regulation was, in effect, a unit, the result blocked implementation of the helper rule. A Helper Rule Is Cleared by the Courts The unions appealed the decision of the Appeals Court but, in January 1984, the Supreme Court declined to hear the case. Thus, the decision of the Appeals Court stood and the Secretary of Labor was left to restructure the helper regulation in order to win judicial approval. On January 31, 1985, DOL implemented the other portions of the general rule that had been approved, but the helper regulation remained under departmental review. In late August 1987, the Department issued a new proposed rule on the use of helpers. It conceded the issue with respect to "prevailing" as opposed to merely identifiable—thus conforming to Judge Greene's standard. Defining "prevailing," however, remained a problem. A DOL spokesperson suggested that simply "[t]o state that the helper classification is prevailing because most of the contractors in a local area use helpers is an oversimplification." Therefore, in the proposed rule, the Department set forth several options upon which to base a determination and called for public comment. On January 27, 1989, a new revised final rule was published; but, since the Secretary was still subject to Judge Greene's 1982 injunction, the rule had to be cleared through the District Court before it could be implemented. On September 24, 1990, Judge Greene vacated the injunction, thus permitting DOL to implement the helper regulation. Almost immediately (October 2, 1990), the building trades unions filed an appeal. On December 4, 1990, the Department served notice that the helper rule would become effective February 4, 1991; thereafter, it would "begin surveying for helper use." Contractors were asked "to report the number of helpers, apprentices and trainees they employ in each craft, as well as their wage rates." At this point, Congress interceded. The "Dire Emergency Supplemental Appropriations" bill of April 10, 1991 ( P.L. 102-27 ) provided that "no funds shall be expended by the Secretary of Labor to implement or administer" the helper regulations (Title III, Section 303). Thus, DOL was barred from further activity through the end of that fiscal year with respect to the helper regulation. Whether the restriction was temporary or permanent became a subject of dispute. In late September 1991, BCTD President Robert Georgine urged Labor Secretary Lynn Martin to withhold implementation until the judicial appeal had been completed. When DOL sought funding in its FY1992 budget request to implement the helper regulation, the request was turned down both in the House and the Senate. The new DOL budget ( P.L. 102-170 ) was signed by President Bush on November 26, 1991, without the requested funding. On April 21, 1992, the Appeals Court, having once more reviewed the helper regulations, concurred in the Department's definition of "helper" and "prevailing." But, it ruled that the ratio of helpers to journeymen (two helpers to three journeymen) was "arbitrary and capricious" and, therefore, this one provision was declared invalid. In the opinion of the court, the ratio was "a purely arbitrary choice without rational decision making." It noted Such an unsubstantiated imposition of a fixed ratio in a regulatory scheme based on a statute designed to implement prevailing practices represents the very essence of arbitrariness. It is true that a regulation must be sustained as long as the agency has articulated a reasonable basis for its decision. ... Here, however, all the agency has done is to state that a 2:3 ratio better reflects industry use of helpers than did the 1:5 ratio.... To state a conclusion is not to reason. The matter was sent back to the Department. Two months later, on June 24, 1992, DOL issued a new final Davis-Bacon rule, removing the section of the earlier regulation that had set a ratio of helpers to journeymen and, thus, allowing for an open-ended interpretation. The rule was to be effective June 26, 1992. This action by the Department, observed the Daily Labor Report , was "a major blow to building trades unions." Conversely, it could be viewed as a victory for industry critics of the act, though such groups as the Associated Builders and Contractors "had favored a more sweeping use of helpers." Congressional Interest Continues Notwithstanding the decision of the Department to implement the helper regulation during the summer of 1992, such implementation remained in abeyance. Both within the Congress and in the broader policy community, debate continued concerning the wisdom of the helper regulation and its various effects: in terms of manpower utilization, and in terms of labor, administrative and project costs. Legislative Initiatives of the 103rd Congress Major revision or repeal of the Davis-Bacon Act through legislation, though urged by critics of the statute, had not proven a viable option. Reform through the rulemaking process offered what may have seemed, initially, a more likely approach. Rulemaking, however, did not offer a permanent solution; for which one Administration might effect through the rulemaking process, another of a different persuasion might reverse. As early as September 1982, Senator Nickles had introduced legislation which, among its other provisions, would have stricken the reference to laborers and mechanics in the act and replaced it with the phrase: "laborers, mechanics, helpers, or any combination thereof" and by adding the classification of "helper" to the other classifications of workers throughout the act. Although the Nickles proposal was not adopted, other efforts to codify the Davis-Bacon regulations followed (without success)—as did efforts to prevent implementation of that portion of the regulation dealing with helpers. The Nickles/Craig Objection The helper issue was back before the Congress during the fall of 1993. During consideration of H.R. 2518 (the "Department of Labor ... Appropriations Act of 1994"), Senator Nickles, with Senator Craig, proposed deletion of committee language blocking implementation of the DOL-proposed regulations permitting the use of helpers on Davis-Bacon projects. Senator Nickles affirmed that employment of helpers on federal projects "will save the federal government nearly $600 million a year on labor construction costs." Restricting the use of helpers would "waste billions of dollars of taxpayer money and deny the opportunity for hundreds of thousands of Americans" to find work in construction. He estimated the employment loss of not implementing the regulations at "over 250,000 jobs." Senator Harkin opposed the Nickles/Craig proposal, recalling that the helper regulations were already a decade old. To delay their implementation for one year would allow the new Clinton Administration time to evaluate them. He protested that the helper regulations, as drawn, would have "a disproportionately high impact upon employment of minority workers" and an adverse impact for apprentice training programs. "These minority and female laborers will face an immediate reduction in employment or they will be reclassed [sic.] as helpers by the contractors who seek to remain competitive on federal construction, again, with an accompanying reduction in wages and fringe benefits." Finally, the Senator from Iowa (Mr. Harkin) disputed that $600 million in savings would result from implementation of the helper regulation. By a vote of 60 yeas to 39 nays, the Nickles/Craig objection was set aside and the committee's amendment (to suspend implementation of DOL's helper regulations for one year) was passed instead. The DeLay Amendment The following spring when DOL funding was again under consideration, the Davis-Bacon helper issue reappeared. On June 21, 1994, the House Appropriations Committee defeated a proposal by Representative DeLay that would have removed the helper funding restraint from a pending DOL appropriations measure ( H.R. 4606 ). On June 28, during floor debate on H.R. 4606 , Representative DeLay urged that "this onerous provision" (the restrictive language) be deleted so that the helper regulation could go into effect. He suggested that implementation of the Rule would produce less costly public construction, open up more employment opportunities, and help the small, local contractors that "it [was] intended to help." Conversely, Representative William Ford declared that the Davis-Bacon requirement prevents "wages and benefits in local communities" from being undermined, ensures "quality construction" and "saves money in the long run." Representative Ford stated that implementation of the regulation "would allow contractors to shift work from highly productive journeymen to lower stilled and lower paid helpers." This would "undermine apprenticeship training programs," he argued, "because contractors would substitute helpers for apprentices. Both of these practices run contrary to the goal of creating high skilled, high paying jobs in the Nation instead of low skilled dead end work." Finally, Representative Ford noted that the Department had advised him of its intention "to issue revised helpers regulations within the upcoming fiscal year." The appropriations language, he stated, "will allow the conclusion of the administrative process" and he urged that the DeLay amendment be defeated. Following a review of the issues, the DeLay amendment was defeated by a voice vote. The language prohibiting implementation of the helper regulations was retained in the bill. Legislative Initiatives of the 104th Congress Through the years, Congress had sought to modify the Davis-Bacon Act through amendments to program legislation and through the appropriations process, as well as through free standing legislation—or, simply, to repeal the statute. That pattern continued through the 104 th Congress; though, at least during the first session, emphasis seemed to focus upon the latter course: repeal. On January 4, 1995, Senator Kassebaum introduced S. 141 , calling for repeal of Davis-Bacon and of the related Copeland "anti-kickback" Act. The bill was referred to the Committee on Labor and Human Resources of which the Senator was Chair. On March 29, 1995, following a hearing, the Committee, dividing along party lines, voted to report the measure. Meanwhile, roughly parallel action was taking place in the House. On January 13, 1995, Representative Ballenger had introduced H.R. 500 , also providing for repeal of the Davis-Bacon and Copeland Acts. Referred to the Subcommittee on Workforce Protections chaired by Representative Ballenger, it received a mixed reception. On March 2, 1995, the Subcommittee voted, again along party lines, to report the measure to the full Committee on Economic and Educational Opportunities. During the summer and fall of 1995, as the repeal legislation moved toward floor consideration, two additional measures were introduced: S. 1183 (Hatfield) and H.R. 2472 (Weldon). The Hatfield/Weldon bills were regarded by their sponsors as a compromise, based on the premise that "reform, rather than repeal" of Davis-Bacon was more appropriate. Representative Weldon contended that to repeal Davis-Bacon "would be a disaster for thousands of skilled construction workers and their families." The Hatfield and Weldon bills were comprehensive revisions of the Davis-Bacon Act. Each contained the following language dealing with helpers. HELPERS.—A helper who is employed under a contract subject to subsection (a) may be paid less than the rate required by such subsection if— (A) the helper is employed in a classification of helpers the use of which prevails in the area in which the helper is employed; (B) the scope of the duties of the helper is defined and is separate and distinct from the duties of either a laborer or a mechanic; and (C) the helper is not used as an informal apprentice or trainee. The Hatfield/Weldon bills, had they been approved, would not appear to have resolved the technical issues involved in the helper question. For example: A classification of helpers might be a single grouping of workers, compensated at a single rate, or, separate sub-categories for carpenter's helper, electrician's helper, etc., potentially compensated at different rates. The term prevails remained undefined. And, unlike the Reagan regulations, no ratio of helpers to journeymen was established. These issues, with others, might have been addressed through the rulemaking process; but that, in turn, could have led to yet another round of court challenges. When the 104 th Congress adjourned, no action had been taken on the Hatfield/Weldon legislation—and no further action on the earlier Kassebaum and Ballenger bills. The Labor Department Reconsiders In November 1993, the Department, under mandate from Congress, had suspended the helper regulation. The spending prohibition, through a series of legislative actions, continued until the middle of fiscal 1996, but "no such prohibition" was imposed during the latter half of fiscal 1996 nor for fiscal 1997. The Suspension Continues (August 1996) In June 1996, noting that "here is at present no longer any statutory obstacle to enforcement of the revised [helper] regulations," the Associated Builders and Contractors (ABC) brought suit in federal court to require the Department to enforce the regulations. ABC President Gary Hess stated that "the exclusion of helpers has cost the American taxpayer more than $500 million per year." He explained: "All we're trying to do is to bring public construction practices in line with those of the vast majority of the industry." The Department, it appears, responded quickly. A month later (in late July 1996), Assistant Secretary of Labor Bernard Anderson affirmed that the current helper regulation (approved, but still suspended) "simply is non-administrable." Anderson explained that the distinction between helpers and other workers in terms of their role and duties was insufficiently clear, and that the Department had no intention of implementing the regulation in its current form. The policy voiced by Anderson was set forth in more detail a few days later in the Federal Register of August 2, 1996. The DOL observed: "Fourteen years have passed since the Department first promulgated the [helper] regulation, and more than four years have passed since the Department last attempted to put a revised version of that regulation in effect. During the extended period of time in which the regulation was suspended," DOL noted, "additional information has become available which warrants review of the suspended rule." The rule had originally been crafted, in part, the Department explained, in the belief that "it would result in a construction workforce on federal construction projects that more closely mirrored the private construction workforce's widespread use of helpers and, at the same time, effect significant cost savings in federal construction costs." The Federal Register notice continued: ... data developed from the Department's experience implementing the helper regulation (which was not available during the rulemaking proceedings and upon which the public has had no opportunity to comment) reveals that the use of helpers might not be as widespread as previously thought. The Department expressed concern "that the helper regulation may create an unwarranted potential for abuse of the helper classification to justify payment of wages which are less than the prevailing wage in the area." It also expressed concern "about the possible impact of the helper regulations on formal apprenticeship and training programs." For these and other reasons (including "the obvious Congressional controversy over the regulation"), DOL concluded "that the basis and effect of the semi-skilled helper regulation should be reexamined." DOL recalled that there had been no public comment upon the helper regulation as revised to meet court requirements. Further, it suggested, were the court-approved rule (implementation of which had been withheld by action of the Congress) to be given effect on an interim basis during a further review of the issue by the Department, such action "would create unwarranted disruption and uncertainty for both federal agencies and the contracting community." Therefore, DOL determined that the suspension would continue "while the Department engages in substantive rulemaking concerning the helper regulations." The Department requested comment from the public. A Final Suspension (December 1996)? Nearly five months passed during which the Department received and evaluated comments solicited in its August Federal Register notice. Some 47 submissions were received from interested industry and trade union groups, and others. Few of the comments, the Department noted, addressed the issue immediately at hand: namely, a continuing interim suspension of the helper rule. Most dealt with the substantive issues embodied in the rule itself. On the question of the interim suspension, the Building and Construction Trades Department, AFL-CIO, concurred in the view of the Department: that the interim suspension was "the most prudent and responsible action under the circumstances." The Associated General Contractors (AGC) disagreed, arguing that implementation could be effected relatively quickly (perhaps, 60 days) and with little disruption and, further, that the reevaluation process ought not to be prolonged. DOL, at some length, disputed the AGC contention. ... the Department believes that it would take substantially longer than 60 days to fully implement the helper regulations. This view is fully supported by the Department's past experience with the helper regulations. If the Department were to begin implementation of the suspended rule immediately, the rule itself would provide a 60-day effective date to allow affected parties time to come into compliance, and would apply only to contracts for which bids are advertised or negotiations concluded after that date. Bid solicitations to which the regulations will apply must be advertised for at least 30 to 60 days before a contract is awarded. Thus, following the effective date of the regulations there will be another 30 to 60 days before contracts potentially containing helper contract clauses could be signed. The Department noted further: "Conforming changes in government procurement regulations ... and standard contract forms would also be needed, a process which has sometimes taken several months." But, that aside, DOL suggested certain other factors. ... a contractor can use helpers in accordance with the helper regulations only if (1) the contract contains a wage determination with a helper classification and rate or (2) the contractor awarded the contract requests that a helper classification be added to the wage determination and the Department determines that the use of the helper classification is a prevailing practice in the area in which the work will be performed. The time necessary for the Department to perform wage determination and prevailing practice surveys would further lengthen the period before contractors could lawfully pay their workers at helper rates. Furthermore, it continues to be the Department's intention to complete a substantive rulemaking action within approximately one year. Because of the substantial length of time it would take to implement the helper regulations, any saving that might be gained from implementation of the helper regulations during the rulemaking period would be minimal, particularly in light of the disruption and uncertainty which would be caused by implementing the rule while the Department is engaged in rulemaking. Finally, the Department concluded that the comments had "provided no information which would change ... [its] belief" that the suspension of the helper regulation should continue. On the broader issue of the use of helpers, per se , the Department affirmed that it had "not decided to repeal the helper regulations; nor has the Department made a final decision to amend the regulations. The Department has," it stated, "... concluded that the basis and effect of the semi-skilled helper regulations should be reexamined." It noted that, in due course, it would decide if any changes in the existing rule were in order; and, if so, it would then publish a proposed rule for public comment on its substance. Meanwhile, however, the Department appeared to have reached several tentative conclusions. New data, it noted, "suggest that the use of helpers may not be as widespread as initially thought." Further, the Department expressed its concern "that administration of the helper regulation and the policing of potential abuse of the helper classification, may be more difficult than initially anticipated." And, finally, the Department expressed concern "about the potential impact of the [helper] regulation on formal apprenticeship and training programs." While the Department expressed its willingness to explore further the extent of private sector helper utilization and related costs/savings impacts, the potential for abuse appeared to present a larger problem. DOL explained: The Department notes that the helper classification as currently defined is unique in being based on subjective standards such as skill level and supervision, rather than an objective test of work performed. The Department is concerned that such a subjective standard may be more difficult to enforce. The Department observed that the helper classification, alone under Davis-Bacon, is defined "with duties that are specifically intended to overlap with the duties performed by other classifications," thus rendering enforcement and administration, likely, more difficult than the authors of the various versions of the helper regulation anticipated. Critics of the regulation (then suspended) expressed concern about its potential impact for apprenticeship and training. "They claim that the ability to pay apprentices a wage lower than that paid to journeymen is a significant incentive for contractors to participate in formal training programs. They also claim," the Department noted, "that the availability of lower paid helpers would cause contractors to withdraw from such programs and would threaten private funding for apprenticeship and training." DOL, summarizing this perspective, observed that this could pose a threat "both to industry, which would face shortages of skilled, trained labor, and to the individual workers who would find themselves in dead-end, low skilled jobs without adequate opportunity to increase their skills." At the same time, the Department also observed that both the ABC and the AGC "believe such concerns are unfounded." Some in industry, DOL pointed out, regard helpers basically as "entry-level" workers. The use of the helper classification, it was suggested, would allow such workers "... to gain experience; provide the semi-skilled with an opportunity to gain experience; and provide the unskilled with a first step to higher paying jobs." Some, it was noted, viewed the helper option as "a pre-apprentice opportunity for unskilled workers to acquire the skills necessary to enter an apprenticeship program." These divergent opinions seemed to confirm the Department's judgment that the helper/apprentice relationship "is not fully understood, and should be revisited through further rulemaking." Therefore, the helper regulation is suspended "until the Department either (1) issues a final rule amending (and superseding) the suspended helper regulations; or (2) determines that no further rulemaking is appropriate, and issues a final rule reinstating the suspended regulations." Indefinite Suspension Confirmed by the Court During the summer of 1996, the Associated Builders and Contractors (ABC) filed suit to force the DOL to implement the helper regulations. A year later, in July 1997, the U.S. District Court for the District of Columbia ruled that the Department had acted properly in instituting an indefinite suspension of the helper regulations. In summary, Judge Stanley Sporkin observed that the Department, in the fall of 1993, had "good cause" for its suspension of the regulations, given the prohibition by the Congress of any expenditure for their implementation. That, he suggested, was not in dispute. But, recognizing the "good cause" for the Department's action in 1993, he noted, "the next question is whether the suspension of these regulations remained valid once the emergency—the congressional prohibition—expired on April 26, 1996." The plaintiffs (ABC) argued that DOL was "compelled" to implement the regulations once the spending ban had expired. Judge Sporkin disagreed, holding that, rather than being bound by an automatic requirement for implementation of the regulations, the Department was free to review the regulations to ascertain whether any changes or updating would be appropriate. "Two-and-a-half years [roughly, late 1993 to spring of 1996] passed between the suspension of the revised helper regulations and the expiration of the congressional ban. During this time," Judge Sporkin noted, "the defendants [DOL] had collected new data on the prevailing employment of helpers" which, the Department argued, "seriously undermined a key assumption underlying the development of the revised helper regulations, thereby creating substantial doubt about whether these regulations would result in the previously-projected cost-savings on federal construction projects." He explained: The Department was not required to ignore changed circumstances, new concerns, or new information that it discovered in the two-and-a-half years since the regulations were last implemented, especially when this new information suggests that one of the fundamental bases of the revised helper regulations (the widespread use of helpers) no longer holds true. Therefore, assuming a rational basis for the Department's findings, not only was it committed to the Department's discretion to seek an indefinite postponement of the effective date, it arguably was its duty to [do] so. Judge Sporkin pointed out that the Department ought not to have waited three months between the expiration of the congressional spending prohibition and the publication of notice of intent indefinitely to suspend implementation of the regulations; but, since the Department had ultimately published such a notice, the "claim attacking that delay is now moot." Judge Sporkin reviewed the contentions of each side, noting that while the plaintiffs were clearly opposed to the actions taken by the Department, they had tended to focus upon the substance of the helper regulations, per se , rather than the procedural issues that were before the court. They had offered, Judge Sporkin observed, "little evidence" that the delays on the part of DOL were "arbitrary and capricious." Instead, he noted, they "argue that none of the reasons cited by the Department justify such re-examination" of the helper regulations. On the contrary, the court found that the rationale offered by the Department was, on its face, reasonable. Even the assertion that implementation of the helper regulations "would reduce the costs of government construction by more than $600 million" was called into question by more recent data and altered assumptions, the court found. Ultimately, Judge Sporkin ruled in behalf of the DOL. With the concurrence of the courts, the helper regulation was indefinitely suspended. Proposed Restoration of the Pre-1980s Standard? In the Federal Register for April 9, 1999, DOL published notice of a new proposed rule on the use of helpers on Davis-Bacon projects. The Wage and Hour Division affirmed that the rule would re-institute "its longstanding policy" on the helper issue and would reflect "current" practice. It would allow the use of helpers on covered projects only where "(1) the duties of the helper are clearly defined and distinct from those of the journeyman or laborers, (2) the use of such helpers is an established prevailing practice in the area, and (3) the term 'helper' is not synonymous with 'trainee' in an informal training program." The notice reviewed the various Departmental initiatives: the proposals and counter-proposals, the fate of each before the courts, and the restraints imposed by the Congress upon implementation of a new helper rule—even when sustained by the courts. It recalled that, in crafting the helper proposals of the early 1980s, DOL had operated on the expectation that the new policy (a) would more closely reflect private sector industry practice, (b) that it would "effect significant savings in federal construction costs," and (c) that it would "provide additional job and training opportunities to unskilled workers, in particular women and minorities." However , after nearly 2 decades of hearings and analysis, the agency had come to a quite different set of conclusions: namely, (a) that the suspended rule (the result of the various earlier proposals) "likely ... cannot be enforced effectively," (b) that the use of helpers in the private sector is not so widespread as had earlier been assumed, and (c) that the suspended rule, "if fully implemented, could have a negative impact on apprenticeship and training." A New Perspective The assumptions and findings of the DOL under the Clinton Administration appear, in some measure, different from those of the Reagan and Bush Administrations. Thus, the agency that had developed the suspended regulation and that had defended it, variously, through a decade and a half, now found little in it with which to concur. Essentially, it would revert to pre-1980s practice. Difficult to Administer The suspended regulation, DOL now concluded, posed "significant administrative difficulties" and "cannot be effectively enforced in a manner consistent with the goals of the statute." The Department critiqued the definition of "helper" used in the earlier rule (traditionally, a semi-skilled worker) as "internally inconsistent" and not distinguishable from that of a general laborer. It explained: Wage and Hour has traditionally identified and differentiated among job classifications on the basis of the tasks performed by each classification. Among the issues Wage and Hour struggled with in trying to develop enforcement guidelines were: (1) What it means to be semi-skilled; (2) how to identify the line between a semi-skilled and skilled journeyworkers; (3) whether at some point a semi-skilled helper could acquire sufficient skills to qualify as a skilled worker, and how to determine when that had occurred; (4) whether a skilled worker could accept a position as a semi-skilled helper—and therefore be paid the lower helper wage rate—without violating the regulation or the intent of the Act; and (5) whether hiring as a semi-skilled helper a skilled worker who failed to disclose his skill level would violate the regulations or the Act. One by one, the Department dissected the provisions of the suspended rule. "Supervision by a journeyworker is not a practical standard for distinguishing semi-skilled helpers from others on the worksite, as even laborers and journeylevel construction workers may work under the 'direction and supervision' of other journeyworkers," DOL argued. "The definition does not indicate the nature or amount of direction and supervision that helpers must receive to distinguish them from others on the worksite." The definition in the suspended rule, it contended, "provides little meaningful guidance for distinguishing between a 'semi-skilled helper' who used the tools of the trade, and a journeyworker with little experience." That it allowed "significant overlap between the duties of helpers and those of laborers increases the difficulty of identifying helpers as a distinct classification." This overlap, it suggested, "increases the likelihood that helpers will displace laborers, or that laborers will be misclassified as helpers." Further, it stated, "the term 'helper' has multiple, quite different meanings within the construction industry." The Department pointed to the "subjectivity" of the helper definition in the suspended rule and questioned whether "any regulatory definition of helpers" would "adequately reflect the actual and varied practice in the construction industry as a whole or even in any particular area." It concluded that "conducting a meaningful wage determination process concerning helpers" would be difficult, given that "contractors responding to area wage surveys would ascribe very different meanings to the term 'helpers.'" Use of Helpers Not Widespread While the suspended rule had been based upon the assumption that the use of helpers was widespread, the Department now concluded that the assumption had been in error or, at least, overstated. During the later stages of litigation, prior to implementation of the rule, survey data convinced the Department that such use was "substantially lower" than it had thought. Here again, the problem of definition arose. Thus, survey data may be problematic. A Negative Impact for Apprentice Training Through the years, the Department has assumed that "formal structured training programs are more effective than informal on-the-job training alone." It explained: "Workers enrolled in formal apprenticeship training programs are more likely to achieve journeylevel status, and to do so more quickly, than workers trained informally, who may become stuck in low-paying jobs. Apprenticeship programs," it added, "are also more likely to produce better skilled, more productive and safety-conscious workers." One objective of Departmental policy, as it has considered Davis-Bacon implementation, has been "to encourage training for unskilled and semi-skilled workers, including in particular, women and minorities." By permitting, under that act, lower rates of pay in structured programs for training apprentices and trainees, employers are encouraged to enter into such programs. "Wage and Hour believes that the suspended helper regulations could undermine effective training in the industry," it reasoned, "if contractors use helpers, who may never become journeylevel workers, in lieu of apprentices and trainees participating in formal programs." Call for Comment The announcement for the proposed new helper rule provided a comment period of two months: until June 8, 1999. No target date was set for publication of a final rule. Review of submissions commenced—potentially, an extended process; but, because the new rule would be a confirmation of current practice, timing may not have been critical. Legislative Interest Continues: the 105th and the 106th Late in the 105 th Congress, Representative Norwood introduced legislation ( H.R. 4546 ) to establish by statute that "helpers of laborers and mechanics" be recognized as a separate classification of worker under the Davis-Bacon Act and "paid the prevailing wage" of helpers on similar projects in the locality. No action was taken on the Norwood bill. Early in the 106 th Congress, Representative Norwood reintroduced the proposal ( H.R. 1012 ). It defined "helper" as "a semi-skilled worker (other than a skilled journeyman mechanic)" who: (1) works under the direction of and assists a journeyman; (2) under the journeyman's direction and supervision, performs a variety of duties to assist the journeyman such as preparing, carrying, and furnishing materials, tools, equipment, and supplies, maintaining them in order, cleaning and preparing work areas, lifting, positioning, and holding materials or tools, and other related semi-skilled tasks as directed by the journeyman; and (3) may use tools of the trade at and under the direction and supervision of the journeyman. Introduced March 4, 1999, the bill was referred to the Committee on Education and the Workforce and, subsequently, to the Subcommittee on Workforce Protections. No action was taken on the Norwood proposal. In presenting it proposed rule of April 1999, however, DOL (without referring directly to H.R. 1012 ) reviewed the approach taken in the legislation. It concluded that language such as that represented by the proposed legislation, was imprecise and would result in significant administrative burdens. (See discussion above.) A Final Rule on Helpers Goes into Effect Under date of November 17, 2000, the DOL issued a final rule on the use of helpers on Davis-Bacon projects. In its opening summary of the new regulation, the Department affirmed that it was amending the regulations "to incorporate the Wage and Hour Division's longstanding policy" with respect to the recognition of helpers as a separate category of workers. The regulation took effect on January 19, 2001, during the closing hours of the Clinton Administration. DOL Assessment of the Suspended Rule In assessing comment on the proposed rule (returning to 1970s practice), the Department followed a pattern similar to that of prior years. And, with some detail, it explained why the regulations that it had proposed through the years (during previous Administrations) would not work in a satisfactory manner. First. DOL concluded that the suspended rule, with its definition of helpers, would be difficult to administer and enforce and insisted on a duties-based approach . The BCTD of the AFL-CIO seems to have concurred; industry spokespersons, to have dissented. The latter reasoned that "the Department should be able to identify helper classes through area practice surveys as easily as it differentiates among the various trade classifications." The Department reasoned that a laborer or mechanic "is entitled to be paid the prevailing rate for the work performed according to the local area practice, and therefore, is classified based on the duties the worker performs." It continued: Because under the suspended definition, helpers may perform the duties of other classifications—both journeylevel workers and laborers—without any limitations other than that they be supervised by and assist a journeyworker, it would be extremely difficult for the Department to identify the work of a helper in any given area, both for enforcement and wage determination purposes." Further, the Department affirmed, "the suspended rule would allow the duties of a helper to overlap with those of other classifications that prevail within the locality, possibly leading to the employment of helpers to perform the work of other classifications at lower wages." Thus, the suspended rule, it found, would have undermined the prevailing wage structure. Indicative of a change of policy within the Department, DOL pointed to the "vague, subjective criteria of its definition" of helper in the suspended rule that it had earlier proposed. The Department stated that it "does not believe it [DOL] could draw the line effectively between semi-skilled and skilled work, especially given that, in today's construction market, skilled craft workers may perform a whole range of duties from unskilled to semi-skilled to skilled, and laborers often perform what may be considered semi-skilled work as well." Even the element of supervision would not be helpful in this respect, the Department insisted. Laborers and journeyworkers, DOL stated, "like helpers under the suspended rule, also may work under the 'direction and supervision' of other journeyworkers." It described "supervision on a construction worksite" as "often an amorphous concept" and that it "does not lend itself to objective evaluation." Further, it stressed the "definitional ambiguities" of the suspended rule. DOL expressed concern that, under the suspended rule, the Wage and Hour Administration "would not be able to conduct a meaningful wage determination process using the suspended definition of helpers in light of the likelihood that contractors responding to area wage surveys would ascribe very different meanings to the term 'helpers.'" The impact of the suspended rule was raised by the Mercatus Center at George Mason University. While it acknowledged the difficulties the rule would pose with respect to enforcement and administration, it cautioned "that they must be balanced against the productivity and cost-saving benefits" the suspended rule would provide. The Department countered that although "cost-saving features are certainly desirable, they cannot be determinative" where a regulation "cannot be fairly and effectively administered in a manner consistent with the goals of the statute"—that is, "to protect prevailing wages for the corresponding classes of work performed." Further, DOL recalled that the purpose of the Davis-Bacon Act "was to set a floor on wages so that wages would not be reduced below the prevailing wage" in the locality of construction—not to secure the cheapest possible labor. Second. DOL found (and argued) that helpers are used less widely than had been supposed . The Department explained that, during its initial rulemaking process with respect to employment of helpers (during the Reagan Administration), it had been "projected that the use of helpers would be found to be a prevailing practice in from two-thirds to 100 percent of all craft classifications surveyed, except where collectively bargained rates were found to prevail and did not provide for a helper classification." With more recent experience, DOL found that this was not the case: "in only 69, or 3.9 percent of the 1763 classifications issued" was it found that the use of helpers prevailed. It went on to cite other estimates; and, while there was some variation in the statistics, the percentage of helpers estimated as employed in construction was extremely low. A BLS projection set the figure at 1.2%; others, marginally higher. The issue would seem to have been impacted, in part, by the assumptions made about the structure of the construction industry and the manner in which such concepts as "widespread" and "prevailing" or "identifiable," etc., are defined. After a lengthy discussion of conflicting methodologies, the Department affirmed that it "continues to believe that helpers are not as widespread as it had previously assumed." Third. The Department found that the suspended helper rule could have an adverse impact for formal apprenticeship and training programs . DOL expressed its belief that "the suspended helper regulations could undermine effective training in the construction industry" if contractors were permitted to substitute low-wage helpers ("who may never become journeylevel workers") for more highly paid apprentices in formal structured programs under the Fitzgerald Act (the National Apprenticeship Act, 29 U.S.C. 50 et seq .). The building trades unions argued (as summarized by DOL) that "contractors and subcontractors who participate in and provide financial support for formal apprenticeship and training programs would be placed at a competitive disadvantage vis-à-vis contractors using helpers" and that the use of helpers, thus, would undermine the apprentice training program. The unions also expressed concern, DOL noted, that "the suspended rule's failure to encourage formal craft training would eventually lead to a severe shortage of skilled craft workers in the industry." This contention was disputed by employers. Both the Associated Builders and Contractors and the Associated General Contractors "commented that there is no basis for the Department's concern." Various employer-oriented spokespersons suggested a preference for helpers over apprentices or, at least, that employment of helpers was a useful alternative. The Department, however, held "that formal structured training programs are more effective than informal on-the-job training alone." DOL, like the unions, expressed concern that "implementation of the suspended rule would discourage the growth of such programs and result in the replacement of DBRA-covered [Davis-Bacon] projects of apprentices and trainees enrolled in formal programs, by helpers who," the Department stated, "could perform the same work as apprentices and trainees at a lower cost to the construction contractor and without any restrictions as to how helpers are used." It concluded that "the increased use of helpers under the suspended rule poses a significant risk that formal apprenticeship and training programs on DBRA-covered projects would be undermined." A Final Definition of Helper After more than 2 decades of consideration, the definition of helper was restored, essentially, to its original meaning. The final rule (effective January 19, 2001), provides (4) A distinct classification of "helper" will be issued in wage determinations applicable to work performed on construction projects covered by the labor standards provisions of the Davis-Bacon and Related Acts only where: (i) The duties of the helper are clearly defined and distinct from those of any other classification on the wage determination; (ii) The use of such helpers is an established prevailing practice in the area; and (iii) The helper is not employed as a trainee in an informal training program. A "helper" classification will be added to wage determinations pursuant to 5.5(a)(1)(ii)(A) only where, in addition, the work to be performed by the helper is not performed by a classification in the wage determination. Legislative Interest During the New Century At the beginning of the 21 st century, the last outstanding rule from the Reagan Administration had been dealt with. However, interest in restructuring the regulation dealing with helpers continued in the Congress. In the 107 th Congress on May 23, 2001, Representative Norwood again introduced legislation dealing with the helper issue (the "Helpers Job Opportunity Act," H.R. 1972 ). No action was taken in the 107 th Congress on the Norwood proposal. On June 2, 2003 (the 108 th Congress), Representative Marsha Blackburn (R-TN), with Representatives Norwood and Steve King (R-IA), introduced H.R. 2283 : again, the "Helpers Job Opportunity Act." The proposal mandated that helpers "of laborers and mechanics shall be considered to be a separate classification" for Davis-Bacon purposes and "shall be paid the prevailing wage of helpers and laborers or mechanics employed on projects which are of a character similar" to the project in question in the locality of the construction work. Under the Blackburn proposal, a "helper" was defined as "a semi-skilled worker (other than a skilled journeyman mechanic)" (a) who "works under the direction of and assists a journeyman" (b) who, "under the journeyman's direction and supervision," assists the journeyman in a series of specified tasks, and (c) who "may use tools of the trade at and under the direction and supervision of the journeyman." The bill was referred to the Committee on Education and the Workforce and, subsequently, to the Subcommittee on Workforce Protections, but no action was taken on the proposal. On September 27, 2005 (the 109 th Congress), Representative Blackburn, with Representative Norwood, reintroduced the "Helpers Job Opportunities Act" ( H.R. 3907 ). The measure was assigned to the Committee on Education and the Workforce, and subsequently to the Subcommittee on Workforce Protections; but no action was taken on the measure. Thus far, the specific issue of helpers does not appear to have reemerged during the 110 th Congress—though Davis-Bacon has frequently emerged. Concluding Comment The Davis-Bacon Act had been subjected to substantive review by the Congress in the early 1960s and has remained a focus of public policy debate since that time: frequently the subject of congressional hearings, reports from GAO, and expressions of concern by the parties directly at interest: contractors and the building trades unions. The only major change in the act, however, that this oversight produced was the expansion of the concept of prevailing wage to include a fringe benefit component (1964). A new round of review of Davis-Bacon occurred in the late 1970s during the Carter Administration, resulting in rulemaking, a process that continued to the final days of the Carter Presidency and carried over into the Reagan Administration. The Carter regulations were withdrawn and, in 1981, new regulations were proposed. These dealt, in part, with the issue of helpers. Litigation followed. Portions of the proposed rule won court approval and, through the years, were implemented. The helper provision won such approval only in 1992, a decade after it was first proposed. At that point, Congress intervened and, through the appropriations process, blocked enforcement of the helper regulation until the middle of 1996. By that time, DOL was having second thoughts about the use of helpers on Davis-Bacon construction. The regulation, now, was simply not enforced. Indeed, DOL declared the regulation to be "non-administrable" and suspended it for further review. When the Associated Builders and Contractors sought a court order for enforcement of the regulation (summer 1996), the Department reopened the rulemaking process and, in December 1996, suspended implementation of the regulation until further notice. In so doing, DOL reverted to the status quo prior to the Reagan Administration: that is, to the late 1970s. In issuing its final (December 1996) suspension of the helper regulation, the Department indicated that new evidence had been developed that would make it advisable for the agency to reassess the basis upon which the original rule (and its subsequent amended editions) had been issued. During July 1997, the United States District Court for the District of Columbia ruled that the Department had acted appropriately in its withdrawal of the helper regulation. Then, on April 9, 1999, the Department published in the Federal Register notice of a new proposed rule. Essentially, the new rule would reinstate the Department's longstanding practice with respect to the use of helpers. A comment period was set, expiring after June 8, 1999. On November 20, 2000, the Department published its final helper rule which took effect on January 19, 2001, just hours before the end of the Clinton Administration. To this point, the process of defining appropriate wage treatment of helpers employed on Davis-Bacon projects had consumed over 2 decades. Through that period, the regulation had never fully been implemented, though through a brief period in the mid-1990s, implementation was allowed. Between 1981 and 1993, the Department defended, at times vigorously, different versions of its proposed administrative reforms. Then, after 1993, it began to reassess its position, becoming increasingly critical of its own earlier efforts. With publication of its new rule in April 1999, the Department would revert to its longstanding (1970s) practice where helpers were concerned. With the release of a final rule in November 2000, DOL would largely repudiate its helper policy of the 1980s and 1990s—and the documentation upon which it was based. Congress had followed the administrative proposals dealing with the "helper" issue. Variously, it had entered into the debate and, at times, had endorsed the new helper classification. In the 109 th Congress, legislation ( H.R. 3907 ) was introduced by Representative Blackburn, with Representative Norwood, once again proposing recognition of a separate "helper" classification on Davis-Bacon projects. However, the Blackburn-Norwood bill died at the close of the 109 th Congress. To date, the issue has not reemerged in the 110 th Congress.

The Davis-Bacon Act of 1931, as amended, requires that not less than the locally prevailing wage (not necessarily the union rate) be paid to workers engaged in contract construction work to which the government of the United States or of the District of Columbia is a party. The coverage threshold is $2,000. Under Davis-Bacon, the Secretary of Labor makes wage rate determinations for "the various classes of laborers and mechanics" employed on covered work. The Secretary has, through regulation, recognized apprentices and trainees, registered in formal programs, as special categories and allowed a special reduced wage for these workers. Some contractors, however, have created yet another category of worker: i.e., "helpers." These may be informal trainees, or they may simply be general utility workers employed outside of a craft classification. These workers are most often not recognized as a separate category for wage rate determination purposes. Through the years, the Department of Labor (DOL) had rigorously adhered to this general worker classification system as necessary to assure that not less than the locally prevailing rate would be paid to "the various classes of laborers and mechanics" on a project. Were helpers indiscriminately substituted for journeymen or laborers, DOL holds, wage rates would be depressed and the intent of Congress in crafting the Davis-Bacon Act would be subverted. In 1979, the Carter Administration began a general review of Davis-Bacon—including the helper issue. New regulations were issued in January 1981. Before they could be implemented, they were withdrawn and rewritten by the Reagan Administration (1982). Through the next decade, these new Davis-Bacon regulations were largely implemented—but the helper segment remained in litigation. When, in 1992 (following a series of legal maneuvers), judicial approval of the helper regulations was finally secured, Congress blocked their enforcement through the appropriations process, variously denying funding for their implementation. In mid-1996, the Associated Builders and Contractors sought court assistance to require enforcement of the helper regulation. DOL responded by returning to the rulemaking process. Subsequently, DOL published a proposed rule (April 1999) defining the concept of helpers and soliciting comment. The proposed rule, essentially, reaffirmed Departmental practice of the 1970s with respect to the use of helpers: the issue had come full circle. This final rule was issued by the Department and took effect on January 19, 2001. Administrative initiatives found a counterpart in legislative proposals, introduced periodically up through the 109th Congress. No such proposals have as yet been introduced in the 110th Congress. This report, which will be updated periodically as events unfold, tracks the administrative, judicial and legislative evolution of the "helper" issue.

The WTO Agreement on Government Procurement Overview The United States' WTO obligations with respect to government procurement are containedin the WTO Agreement on Government Procurement (AGP). (1) Generally, the AGP appliesthe basic WTO national treatment and most-favored-nation obligations to the area of governmentprocurement. The AGP was negotiated during the Uruguay Round of the General Agreement onTariffs and Trade (GATT), and took effect in the United States on January 1, 1996. (2) Unlike other provisions of theWTO, which countries must accept as a condition of membership, the AGP is a plurilateralagreement. Therefore, AGP parties are only committed to apply the agreement to other AGP parties. Presently, in addition to the United States, the AGP has been accepted by the European Communities(EC), each of the 25 EC Member countries, (3) Canada, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein,Netherlands with respect to Aruba, Norway, Singapore, and Switzerland. (4) General Obligations The AGP applies to "any law, regulation, procedure or practice regarding any procurementby entities covered by the Agreement." (5) This includes central and sub-central governmental entities, as wellas other government-related entities that a member Party designates. (6) In addition, the AGP governs"procurement by any contractual means, including through such methods as purchase or as lease,rental or hire purchase, with or without an option to buy, including any combination of products andservices." (7) Pursuant to Article I, each Party to the AGP must submit an Appendix with Annexes that listthe Party's covered entities, as well as the products and services that it may or may not procure forAGP purposes. The Appendix is divided into five Annexes: Annex I covers central governmententities; Annex II, sub-central government entities; Annex III, all other entities which procure inaccordance with the AGP; Annex IV, services and; Annex V, construction services. (8) It is important to note that the AGP does not apply to all procurement contracts, but only tothose contracts that are covered by a Party's specific commitments. Further, of the covered contracts,the AGP only applies to those that are valued at or exceed designated monetary thresholds set forthin each Party's Annexes in terms of Special Drawing Rights (SDRs). (9) In the United States thethresholds are given official dollar amounts in biennial notices issued by the Office of the UnitedStates Trade Representative (USTR). (10) The U.S. Annexes, which set out the scope of U.S.commitments, will be discussed in detail later in this report. (11) The AGP further provides that where governmental entities, "in the context of" AGP-coveredprocurement, require non-listed enterprises to award contracts in accordance with particularrequirements, Article III obligations regarding national treatment and non-discrimination "apply mutatis mutandis to such requirements." (12) One commentator explains this requirement by stating that "alisted entity could not oblige an independent enterprise to favour national suppliers when purchasinggoods on its behalf," and further notes that "[t]he increasing privatization of public services givesadded importance to this rule." (13) Consistent with the overall framework of the WTO, the AGP requires national treatment andnondiscrimination in contracting. In addition, the AGP contains obligations regarding tenderingprocedures, qualification of suppliers, offsets, invitations to participate in procurements, tender andselection procedures, awarding of contracts, transparency, and challenge procedures. Disputes underthe Agreement are generally subject to WTO consultation and dispute settlement procedures,although the AGP does establish some special rules. The AGP also contains general exceptions fromAgreement obligations, as well as a specific national security exception. A party to the AGP mayalso make changes to its Schedule, however, the changes are subject to consultations with the WTOand, in the case of significant changes, negotiations with member states on possible compensation. National Treatment and Non-discrimination (Article III) AGP national treatment and most-favored nation (MFN) obligations apply with respect togoods, services, and suppliers of goods and services and involve issues related to the country oforigin of goods and the degree of foreign affiliation or ownership of locally established servicesuppliers. Both the national treatment and MFN obligations are contained in Article III paragraph 1,which provides that Article III, paragraph 2 of the AGP prohibits discrimination against locally-establishedsuppliers based on foreign ownership links or foreign supply. The provision states that Article III also provides that the obligations stated above do not apply to "customs duties andcharges of any kind imposed on or in connection with importation, the method of levying such dutiesand charges, other import regulations and formalities, and measures affecting trade in services otherthan laws, regulations, procedures and practices regarding government procurement covered by thisAgreement." (15) Rules of Origin (Article IV) Rules of Origin are defined in Annex 1A of the WTO as laws, regulations and administrative determinations ofgeneral application applied by any Member to determine the country of origin of goods providedsuch rules of origin are not related to contractual or autonomous trade regimes leading to the grantingof tariff preferences going beyond the application of paragraph 1 of Article I of GATT 1994. (16) While the AGP itself does not contain separate rules of origin, it does provide that a Party may notimplement rules of origin regarding the importation or supply of government procured products orservices "which are different from the rules of origin applied in the normal course of trade and at thetime of the transactions in question to imports of supplies of the same products or services from theParties." (17) Article IV,paragraph 2, however, allows this requirement to be amended in light of the results of WTOnegotiations on rules of origin for products and services. (18) Tendering Procedures (Article VII) Article VII of the AGP establishes the general rules regarding tendering procedures. Atendering procedure is the system through which companies engage in competitive bidding forgovernment and other contracts. Specifically, Parties to the AGP are to ensure that their proceduresare "applied in a non-discriminatory manner" (19) and "shall not provide to any supplier information with regardto a specific procurement in a manner which would have the effect of precluding competition." (20) Article VII, paragraph 3defines the three types of tendering procedures governed by the AGP as: (1) open tenderingprocedures -- in which all interested supplies may bid; (2) selective tendering procedures -- underwhich only those suppliers invited to bid may do so and; (3) limited tendering procedures -- wherethe entity contacts the suppliers individually and requests bids. (21) Qualification of Suppliers (Article VIII) Article VIII requires that AGP Parties not discriminate among suppliers of other Parties, orbetween domestic suppliers and suppliers of other Parties in the process of drawing up lists ofqualifying suppliers. (22) Article VIII also requires qualification procedures to be consistent with eight categories ofrequirements including that "[a]ny conditions for participation in tendering procedures . . . be limitedto those which are essential to ensure the firms' capability to fulfill the contract in question." (23) Article VIII(b) further mandates that participation requirements "be no less favourable tosuppliers of other parties than to domestic suppliers and shall not discriminate among suppliers ofother parties." In addition, when evaluating the financial or technical capacity of a potential supplierunder Article VIII, both "the supplier's global business activity as well as . . . its activity in theterritory of the procuring entity" shall be taken into account. (24) Moreover, Article VIII provides that nothing in the listed requirements "shall preclude the exclusion of any supplier ongrounds such as bankruptcy or false declarations, provided that such an action is consistent with thenational treatment and non-discrimination provisions of this Agreement." (25) Selective Tendering Procedures (Article X) Article X requires that for every covered procurement, the selection of suppliers be fair,non-discriminatory and that international competition be ensured by "inviting tenders from themaximum number of domestic suppliers and supplier of other parties, consistent with the efficientoperation of the procurement system." (26) As provided in Article VIII, Parties may establish qualificationprocedures and keep lists of qualified suppliers. However, in cases where there is sufficient time tocomplete the qualification procedures, suppliers requesting participation "shall be permitted tosubmit a tender and be considered." (27) The only exclusionary principle is the efficient operation of theprocurement system. In other words, additional suppliers who meet the qualification proceduresmust be permitted until the admission of additional suppliers would make the operation of theprocurement system inefficient. Limited Tendering Procedures (Article XV) Parties may utilize limited tendering procedures as provided for in Article VII if they are "notused with a view to avoiding maximum possible competition or in a manner which would constitutea means of discrimination among suppliers of other Parties or protection to domestic producers orsuppliers." (28) ArticleXV provides numerous situations where limited tender provisions are appropriate. (29) The situations include: The absence of tenders under open or selectiveprocedures. When the tenders received are collusive. When the tenders received are not in conformity with the essentialrequirements of the tender. When the tenders received are from suppliers who do not comply with theconditions for participation established in accordance with the AGP. When the products or services can only be supplied by a particular supplier andno reasonable alternative or substitute exists, such as in the case of art work or other exclusive rightsarraignments (i.e., patents or copyrights). When the products or services can not be obtained in time by means of an openor selective tendering procedure. (30) In the case of additional deliveries, (i.e., replacement parts for existing suppliesor installations) by the original supplier, or in situations where a change in supplier would requirethe purchase of equipment or services that are not interchangeable with existingsupply. In the case of prototypes, first products or services that are developed in thecourse of contracts for research, experiment, study or original development. Where additional construction, within the objectives of the original tender, arenecessary to complete the terms of the original tender. (31) New construction services that are the repetition of similar constructionservices for which an initial contract was awarded under open or selective tenderprocedures. Products purchased on the commodities market. Purchases made under exceptionally advantageous conditions arising in thevery short term. (32) Contracts awarded to the winners of design contests, provided the contest isconsistent with the principles of the AGP. Offsets (Article XVI) Pursuant to the AGP, governmental entities may not impose, seek, or consider offsets eitherin qualifying and selecting suppliers, products, or services, or in evaluating tenders and awardingcontracts. (33) Offsetsare defined in the AGP as "measures used to encourage local development or improve thebalance-of-payments accounts by means of domestic content, licensing of technology, investmentrequirements, counter-trade or similar requirements." (34) At the same time a developing country, may, subject to certainlimitations, negotiate conditions for the implementation of offsets. For example, at the time ofaccession to the AGP, a developing country may bargain to obtain "requirements for incorporatingdomestic content." (35) Challenge Procedures (Article XX) In addition to the possibility of party-to-party dispute settlement under the general WTOdispute resolution procedures, the AGP requires that suppliers have access to separate challengeprocedures for alleged breaches in the context of government procurement. In the event that asupplier complains of a breach, each Party must initially encourage the supplier to seek resolutionof its complaint in consultations with the procuring entity. (36) The procuring entity isthen committed to "accord[ing] impartial and timely consideration to any such complaint, in amanner that is not prejudicial to obtaining corrective measures under the challenge system." (37) The AGP then sets forthrequirements for the challenge procedures themselves, generally requiring that they be"non-discriminatory, timely, transparent and effective." (38) Dispute Settlement (Article XXII) The WTO Dispute Settlement Understanding (DSU) applies to consultations and disputesettlement involving the AGP with certain exceptions. (39) For example, only AGP Parties may participate in decisions oractions by the DSU in AGP disputes. (40) Also, cross-retaliation is not available with respect to theAGP. (41) As such, WTOMembers may not suspend AGP benefits as a countermeasure in a dispute arising under a separateWTO agreement. (42) Exceptions (Article XXIII) The AGP contains a national security exception, which is generally patterned after ArticleXXI of the 1994 GATT. (43) The exception states that: Nothing in this Agreement shall be construed to preventany Party from taking any action or not disclosing any information which it considers necessary forthe protection of its essential security interest relating to the procurement of arms, ammunition orwar materials, or to procurement indispensable for national security or for national defensepurposes. (44) In addition to the national security exemption, the AGP also contains a number of generalexceptions, which are to some extent modeled on the general exceptions contained in Article XX theGATT 1994. (45) Examples of exemptions include, but are not limited to, public morals, order or safety, intellectualproperty and philanthropic institutions. Rectifications and Possible Compensation (Article. XXIV) A Party to the AGP has an opportunity to make rectifications to its Appendix, to transfer anentity from one Annex to another, and "in exceptional cases" to make "other modifications" bynotifying the WTO Committee on Government Procurement. (46) A WTO Member seekingsuch action must also provide information as to the likely consequences of the change for the"mutually agreed coverage of the Agreement." (47) If these changes are of a "purely formal or minor nature," theywill become effective if there is no objection within 30 days of notification. (48) In other cases, theChairman of the Committee is required to promptly convene a Committee meeting, where proposalsand claims for "compensatory adjustments" will be considered. Consideration of proposals andclaims is to be done "with a view to maintaining a balance of rights and obligations and acomparable level of mutually agreed coverage provided in this Agreement prior to suchnotification." (49) If anagreement is not reached, Parties are then free to pursue the matter under WTO consultation anddispute settlement procedures. The United States Appendix to the AGP To fully understand the scope of U.S. obligations, it is essential to examine the U.S.Appendix to the Agreement, which includes the U.S. government and quasi-government agenciescovered by the AGP, the U.S. threshold for procurement contracts, and various exceptions that theU.S. has taken to AGP obligations. (50) Federal Agencies (Annex I). Subject to monetarythreshold requirements, (51) the AGP applies to all federal (including legislative and judicialbranch) agencies, except the Federal Aviation Administration. (52) While the Department ofDefense (DOD) is a listed entity, the Agreement does not apply to specified DOD purchases, suchas textiles and specialty metals. (53) Furthermore, DOD purchases in 14 Federal SupplyClassification (FSC) categories are generally not covered by the AGP for national securityreasons. (54) Moreover,the United States Department of Agriculture listing does not include procurement of agriculturalproducts made in furtherance of agricultural support or human feeding programs. (55) Finally, the U.S. Agencyfor International Development is not covered with respect to procurement for the direct purpose ofproviding foreign assistance. (56) The United States has invoked the Article XXIII national security exception for variousfederal procurements. Specifically, regarding the Department of Transportation, the Annex states that"pursuant to Article XXIII, the national security considerations applicable to the Department ofDefense are equally applicable to the Coast Guard, a military unit of the United States." (57) With respect to theDepartment of Energy, the Annex states that "pursuant to Article XXIII, national security exceptionsinclude procurements made in support of safeguarding nuclear materials or technology and enteredinto under the authority of the Atomic Energy Act, and oil purchases related to the StrategicPetroleum Reserve." (58) The United States has also provided that 14 FSC categories "are not generally covered" with respectto DOD procurements "due to the application of Article XXIII, paragraph 1." (59) Finally, the United Stateshas reserved the right to invoke Article XXIII, paragraph 1 with respect to purchases by all coveredfederal entities in 56 FSC categories. State Agencies (Annex II). Thirty-seven statesand their covered agencies are currently listed in the U.S. Annex II. (60) Commitments regardingstate procurement are subject to the U.S. General Notes, any exceptions listed for a particular state,and the following Annex II general exceptions: for specified states the AGP does not apply to the procurement ofconstruction-grade steel (including requirements on subcontracts), motor vehicles andcoal; the AGP does not apply to preferences or restrictions associated with programspromoting the development of distressed areas and businesses owned by minorities, disabledveterans and women; Annex II may not be construed to prevent any state entity from applyingrestrictions that promote the general environmental quality in the state, as long as the restrictions arenot disguised barriers to trade; the AGP does not apply to any procurement made by a covered entity on behalfof non-covered entities at a different level of government (e.g., a county or city);and the AGP does not apply to restrictions attached to Federal funds for masstransit and highway projects. (61) "All Other Entities" (Annex III). This Annexcovers procurement by the following entities: Tennessee Valley Authority (TVA); the PowerMarketing Administrations (PMAs) of the Department of Energy; the Port Authority of New Yorkand New Jersey; the Port of Baltimore; the New York Power Authority; and, Rural ElectrificationAdministration Financing. (62) Procurements by some of these entities are subject to specificexceptions stated in the Annex as well as the General Notes. In addition, the AGP does not applyto restrictions attached to federal funds for airport projects with respect to all of the listed entities. Services (Annex IV). Annex IV includes onlythose services that are not covered by AGP obligations. The U.S. Annex states that the followingservices from the Universal List of Services, (63) are excluded: all transportation services, including launching services, and transportationservices where incidental to a contract for the procurement of supplies; dredging; all services purchased in support of military forces locatedoverseas; management and operation contracts of certain government or privately-ownedfacilities utilizedd for government purposes, including federally-funded research and developmentcenters; public utilities services, including telecommunication and ADP-relatedtelecommunication services except enhanced (i.e. value-added) telecommunicationsservices; research and development and; printing services (for Annex II entities only). (64) Also applicable to the Annex are the U.S. General Notes. For example, General Note 8contains the U.S. reciprocity requirement for services that is explained in the Statement ofAdministrative Action submitted to Congress along with the Uruguay Round agreements. TheAdministration described this requirement as follows: Most countries limited their coverage of services tothose sectors in which they were willing to make market access commitments under the GeneralAgreement on Trade in Services. The United States offered coverage of services procurement in allbut seven services sectors, but only on the basis of reciprocal access from other signatories. MostCode members were willing to apply the 1996 Code to procurement of key services, such ascomputer, environmental, and value-added telecommunications services. (65) Construction Services (Annex V). Annex Vdefines a construction services contract as "a contract which has as its objective the realization bywhatever means of civil or building works, in the sense of Division 51 of the Central ProductClassification [CPC]," (66) and includes within its AGP commitment all services listed inDivision 51 of the CPC. The threshold levels for the procurement of construction services are listedin Annexes I-III. (67) Ahigher threshold for certain construction services of the Republic of Korea, however, is provided forin the U.S. General Notes. General Notes. The United States has claimedexceptions in its General Notes for set-asides on behalf of small and minority businesses. (68) The General Notes also state that except as otherwise specified in its Appendix, procurementin terms of U.S. coverage does not include non-contractual agreements or any form of governmentassistance, including cooperative agreements, grants, loans, equity infusions, guarantees, fiscalincentives, and government provision of goods and services to persons or government authoritiesnot specifically covered under U.S. annexes to this agreement. (69) In addition, procurement does not include the acquisition of fiscal agency or depositoryservices, liquidation and management services for regulated financial institutions and sale anddistribution services for government debt. (70) Further, for contracts to be awarded by non-covered entities, theAGP may not be construed to cover any goods or service component of that contract. (71) As noted earlier, the United States has established a reciprocity requirement for services,stating that "[a] service listed in Annex 4 is covered with respect to a particular Party only to theextent that such Party has included that service in its Annex 4." (72) The U.S. General Notes also contain several country-specific exclusions: Canada: AGP does not apply to procurement of goods and services, includingconstruction, by Annex II and III entities. (73) Korea: for construction services, AGP applies only to procurement by AnnexII and III entities above a 15 million SDR threshold. (74) Japan: AGP does not apply to procurement of goods and services, includingconstruction, by NASA (75) Japan: U.S. will not extend AGP benefits regarding the award of contracts byAnnex III entities that are responsible for the generation or distribution of electricity. (76) The North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA), as approved and implemented byCongress, entered into force on January 1, 1994. (77) Chapter 10 of NAFTA contains extensive procurementobligations, which generally follow and build upon provisions contained in the 1979 GATTProcurement Code. (78) Since Mexico is not currently a party to the WTO AGP, its procurement obligations with the UnitedStates are governed solely by NAFTA. Procurement obligations between the United States andCanada had been, prior to NAFTA, contained in the U.S.-Canada Free Trade Agreement, whose$25,000 threshold for federal goods contracts has been carried forward into the NAFTAagreement. (79) In addition to exceptions in individual schedules, NAFTA procurement obligations, likethose of the AGP, are subject to national security and general exceptions. (80) Article 1018, paragraph1 contains the Agreement's national security exemption, stating that: The NAFTA general exception, set forth in Article 1018 paragraph 2, states: Procurement Obligations Under Other Free Trade Agreements In addition to the WTO and NAFTA, many of the other Free Trade Agreements (FTAs) thatthe United States has in effect contain provisions with respect to government procurement. Theagreements vary in their respective details, but all share provisions in common, including, but notlimited to, exemptions for certain Department of Defense procurements and threshold requirements. For example, the U.S.-- Israel FTA contains provisions for the waiver of any buy national provisionsfor contracts with a value greater than $50,000. (83) Moreover, our most recent FTAs such as the U.S.-- Chile FTA,U.S.-- Singapore FTA, U.S.-- Morocco FTA and the U.S.-- Australia FTA (84) each contain procurementprovisions that closely track those provided for by the AGP. (85) With respect to thresholdrequirements, however, some of the newer FTAs contain thresholds that are much lower comparedto the AGP. (86) It is alsoimportant to note that while there are "essential security" provisions in the agreements with bothChile and Singapore, (87) currently, neither the Morocco or Australia agreements contain a national security exceptionspecifically applicable to government procurement obligations. Furthermore, the DominicanRepublic-Central American Free Trade Agreement (DR-CAFTA) also contains provisions relatingto government procurement that are similar to those contained in the U.S.- Morocco andU.S.-Australia FTAs ( i.e., without a national security exception), however, while implementinglegislation has been enacted for DR-CAFTA, the agreement has not yet taken effect. (88) United States Statutes that Effect International Government-ProcurementObligations Buy American Act(89) Initially adopted in 1933, the Buy American Act is the major domestic preference statute thatgoverns procurement by the federal government. (90) The Buy American Act requires that the government buydomestic "articles, materials, and supplies" when they are acquired for public use unless a specificexception applies. (91) Goods qualify as domestic under the statute if they are "such unmanufactured articles,materials, and supplies as have been mined or produced in the United States," or "such manufacturedarticles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in theUnited States." (92) Federal regulations define the term "substantially all" as meaning that the "cost of domesticcomponents must exceed 50 percent of the cost of all the components." (93) There are five primary exceptions to the Buy American Act. The Act does not apply toprocurements where its application would be inconsistent with the public interest or unreasonablein cost. (94) In addition,the Act does not apply to procurements of products for utilization outside the United States, or ofproducts not produced or manufactured in the United States in sufficient and reasonably availablecommercial quantities and of satisfactory quality. (95) Lastly, the Act does not apply to procurements under$2,500. (96) Trade Agreements Act of 1979 (TAA) When Congress approved the GATT Procurement Code in the Trade Agreements Act of1979, it also authorized the President to waive procurement restrictions such as the Buy AmericanAct in implementation of international obligations. (97) Specifically, the statute permits the President to: The President may designate a foreign country for purposes of the TAA only if he determinesthat the country or instrumentality: is a party to one of the WTO Agreement on Government Procurement or theNAFTA and will provide appropriate reciprocal competitive government procurement opportunitiesto U.S. products and suppliers of such products; is a country or instrumentality, other than a major industrial country, which willotherwise assume WTO procurement obligations and will provide such opportunities to suchproducts and suppliers; is a country or instrumentality, other than a major industrial country, which willprovide such opportunities to such products and suppliers; or is a least developed country. (98) A provision added in the NAFTA Implementation Act of 1993 makes the waiver authorityinapplicable to any small business or minority preference. (99) To encourage additional countries to join the WTO AGP, and to provide reciprocalcompetitive government procurement opportunities to U.S. goods and suppliers, the TAA requiresthe President, with regard to procurement covered by the Agreement, to prohibit procurement ofproducts of a foreign country or instrumentality that has not been designated by the President. (100) The prohibition does not apply, however, in the case of procurement for which there are nooffers of U.S. products or services or of eligible products, or such offers are insufficient to fulfillU.S. Government requirements. (101) As amended by the Uruguay Round Agreements Act, the TAAalso authorizes the President to waive the prohibition on procurement of products from a non-Partycountry or instrumentality where the country has: (1) agreed to apply transparent and competitiveprocedures to its government procurement equivalent to those in the Agreement and (2) maintainsand enforces effective prohibitions on bribery and other corrupt practices in connection with itsgovernment procurement. The TAA also permits the President to authorize agency heads to waivethe prohibition on a case-by-case basis when in the national interest, and to authorize the Secretaryof Defense to waive the prohibition for products of countries or entities that enter into a reciprocalprocurement agreement with the Department of Defense. (102) Specific amendments to the TAA have been made through the years to implementprocurement obligations contained in U.S. FTAs. (103) At this time, however, no statutory changes have been madeto implement the procurement chapters of the U.S. FTAs with Jordan, Chile or Singapore.

This report contains an overview of the major procurement agreements to which the UnitedStates is a party, including the World Trade Organization (WTO) Agreement on GovernmentProcurement, the procurement chapter of the North American Free Trade Agreement (NAFTA) andprovisions from other free trade agreements. In addition, this report highlights major federal lawsthat relate to the government-procurement obligations of the United States.

Introduction The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act ( S. 2260 ) would extend a set of expired tax provisions (including bonus depreciation) through the end of 2015. This bill subsequently became part of an amendment to H.R. 3474 . The bill did not advance in the Senate, as a motion to end debate on H.R. 3474 was voted down on May 15, 2014. An earlier bill introduced by Senate Majority Leader Reid at the end of 2013, the Tax Extenders Act of 2013 ( S. 1859 ), would have extended expiring tax provisions, including bonus depreciation, through 2014. In the House, Committee on Ways and Means Chairman Dave Camp's tax reform discussion draft, the Tax Reform Act of 2014, released in February, made some extenders permanent, but not bonus depreciation. His draft bill further restricted depreciation deductions. Many of the proposed permanent extenders in this draft were introduced as separate bills, passed separately, and subsequently combined into a single bill, the Jobs for America Act ( H.R. 4 , adopted September 18). One of these permanent provisions was bonus depreciation (originally, in H.R. 4718 , adopted on July 11), although this provision was not in the Camp draft. The temporary provisions enacted in the past for only a year or two and extended multiple times are generally referred to collectively as the "extenders." One reason advanced for temporary provisions has been that time is needed to evaluate them. Most of these provisions, however, have been extended multiple times (e.g., the R&D credit has been extended 15 times since 1981) without such an evaluation, which leads some to suggest that these provisions are actually permanent but are extended a year or two at a time because assuming permanence would increase costs in budget projections. The inclusion of bonus depreciation in the latest extenders bill, which would reflect an extension through an eighth year, creates ambiguity about the nature of this provision, which is far from a minor provision. Similarly, the House proposals that would, in one case, eliminate bonus depreciation, and, in the other, make it permanent, add to this ambiguity. Bonus depreciation is not a traditional "extender." It was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession. Its temporary nature is critical to its effectiveness. Most of the major provisions of the stimulus bills in 2008 and 2009 (the Economic Stimulus Act of 2008, P.L. 110-185 , and the American Recovery and Reinvestment Act, P.L. 111-5 ) or their replacements have expired. Therefore, a question arises about the nature of bonus depreciation. If it is not included in the extenders package, its status as a temporary provision becomes clear. But if it is included, the action may or may not indicate that the provision has become permanent. However, if it is effectively permanent, there are important implications for the overall treatment of capital income, international comparisons of tax rates, consistency with tax reform proposals, and revenue issues. This report discusses bonus depreciation as either a temporary stimulus provision or a permanent part of the tax code. What Is Bonus Depreciation? Tax depreciation rules determine how quickly the cost of an investment in assets, such as equipment or buildings, can be deducted. Because these assets produce output over a period of years, the cost of acquiring them is also deducted over a period of years so that costs can be matched with receipts to measure profits. To measure profits correctly, the deduction in each period should match the decline in the value of the asset (i.e., the change in price if it were to be sold); this change in value is called economic depreciation. Tax Depreciation Tax law contains rules that prescribe how asset costs are deducted. These rules consist of a life (the number of years over which deductions are taken) and a method. If deductions are taken in equal amounts in each year (for example, if a $1 million asset is deducted over 10 years with $100,000 deducted in each year) the method is called straight line. Faster methods are declining balance methods where a rate higher than straight line is applied to the undepreciated balance. In the 10-year example, with double declining balance, twice the rate (2/10, or 20%) would apply the first year for a deduction of $200,000. This 20% rate would apply the next year on the $800,000 not yet depreciated (for $160,000) and so on, with a switch to straight line allowed at any time. At that point, which is optimal after the fifth year, straight line depreciation of the remaining balance over the remaining life (that is, one-fifth of the remaining balance per year) is allowed. Other declining balance rates (such as 150%, where the first year's deduction is 1.5 times straight line) have also been used, now and in the past. When depreciation rules were set in the Tax Reform Act of 1986 ( P.L. 99-514 ), they allowed for accelerated deductions to offset the lack of indexing for inflation, so that the discounted present value of tax depreciation deductions was roughly equal to the discounted present value of economic depreciation. Since that time, inflation has declined and caused the value of tax depreciation to be more beneficial than economic depreciation. For non-residential buildings, the inflation effect has been offset by an increase in tax lives. For equipment, with costs deducted over relatively short periods of time and under accelerated declining balance methods, tax depreciation is more generous than economic depreciation. If tax depreciation is equal to economic depreciation in present value, the effective tax rate for the firm (the difference between the before-tax rate of return on the investment and the firm's after-tax return, divided by the before tax return) is equal to the statutory rate for an equity investment. (Rates are higher for equity investment when shareholder taxes are imposed, but may be negative for debt-financed investment.) If depreciation has a greater present value than economic depreciation the effective tax rate falls below the statutory rate for firm-level taxes on equity investment; if all of the cost is immediately deducted the effective tax rate is zero. Most equipment is depreciated over 5 years or 7 years using the double declining balance method. Some longer-lived assets are depreciated over 10, 15, or 20 years, and some shorter-lived property is deducted over 3 years. Property with a life over 10 years is depreciated using the 150% declining balance method. Depreciation rules also include a half-year convention because assets are purchased over the course of a year. This rule allows only half of the full year's depreciation to be taken in the first year. Thus, a five-year asset actually generates six years of depreciation deductions. Buildings are depreciated using the straight line method; commercial and industrial buildings are depreciated over 39 years and residential buildings over 27.5 years. Bonus Depreciation Bonus depreciation allows a fraction of the cost to be deducted immediately (referred to as partial expensing). The most recent bonus depreciation rule allowed half of the cost of equipment purchased and placed in service in 2013 to be deducted immediately. Thus, it is similar to accelerated depreciation in that bonus depreciation lowers the tax burden on new investment. For example, as shown above in the straight line depreciation of a $1 million asset over 10 years, with bonus depreciation, half ($500,000) would be deducted immediately and the remaining $500,000 would be deducted over 10 years with $50,000 deducted per year. Depreciation in the first year would increase from $100,000 to $550,000. Although general bonus depreciation has expired for most property, certain property that has a long pre-production period and transportation property is still eligible for bonus depreciation through 2014. Section 179 Expensing Bonus depreciation is often discussed along with another provision that allows more generous depreciation than the normal rules, a provision allowing the expensing of a limited dollar amount of investment. An increase in these dollar limits has recently been extended in tandem with bonus depreciation. This expensing provision has, however, a limited scope compared with bonus depreciation and is not analyzed in this report. Historical Development Bonus depreciation was first enacted in the Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ) at a 30% rate, for three years, with the purpose of stimulating investment during an economic slowdown. Concerns about the economy had come in the aftermath of the 2001 terrorist attacks. Although the bonus depreciation rate was increased by the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) to 50% in the following year and extended for a year, it expired at the end of 2005. With the financial distress and recession that began in 2007, the Economic Stimulus Act of 2008 ( P.L. 110-185 ) was enacted to stimulate the economy, including a single year of bonus depreciation at 50%. Bonus depreciation was not the centerpiece of the stimulus; the major tax cut, much larger than bonus depreciation, was an individual tax rebate. As the recession continued, a much larger stimulus measure was adopted in 2009 (the American Recovery and Reinvestment Act, P.L. 111-5 ). It extended bonus depreciation for an additional year, through 2009. Bonus depreciation was only a minor part of a larger package that included a two-year individual tax credit aimed at low-income individuals (the Making Work Pay Credit) and spending increases that were much larger than the tax reductions. Bonus depreciation has continued to be extended. It expired in 2010 but was extended retroactively through 2010 by the Small Business Jobs Act of 2010 ( P.L. 111-240 ), enacted at the end of September 2010. This bill was not a stimulus bill, but one associated with small business. There are a couple of points to note regarding the inclusion of bonus depreciation in the 2010 Small Business Jobs Act. First, bonus depreciation is more valuable to large firms, especially when small businesses are given higher allowances. Second, most of the extension of bonus depreciation was retroactive (three quarters of the year had passed when the bill was adopted). Thus, the extension provided a windfall to firms for that period, rather than a stimulus. At the end of 2010, several tax provisions were to expire. As expected for a number of years, the tax cuts enacted in 2001 and 2003 (and popularly known as the Bush tax cuts) were to expire. The regular "extenders" had already expired at the end of 2009. Finally, many of the stimulus provisions enacted in 2009, including the Making Work Pay credit along with provisions relating to education, the child credit, and the earned income credit (along with some spending provisions) were expiring. Bonus depreciation and increased Section 179 expensing were also expiring. The Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) extended the Bush tax cuts and the 2009 provisions relating to education, the child credit, and the earned income credit for two years and retroactively extended the "extenders" for two years (through 2011). It increased bonus depreciation to 100% for the period from September 8, 2010, through 2011, and then allowed it at 50% through 2012, while also extending increased Section 179 expensing. The legislation did not extend the Making Work Pay credit, but it instead reduced the employee's share of the payroll tax by two percentage points. This legislation, enacted when the economy still appeared to be in recession or at least slow recovery, was still pursuing fiscal stimulus objectives, in part. Although the expiration of the Bush tax cuts had been expected for a number of years, their expiration came at a time when large tax increases could damage an economic recovery, so those extensions, at least in part, were also associated with short-term stimulus. As the slow recovery of the economy continued, issues were raised about a "fiscal cliff" at the end of 2012, when the Bush tax cuts along with the payroll tax relief and some spending measures were due to expire. In addition, previously planned cuts to discretionary spending were scheduled. Many economists expressed concern that this combination of increased taxes and reduced spending would stall the recovery or even lead to a recession. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ), which was adopted in early January 2013, made most of the Bush tax cuts permanent and extended bonus depreciation for another year, among other things. With the possible exception of the Small Business Jobs Act of 2010, the legislation that introduced bonus depreciation and extended it through six years was largely associated with fiscal stimulus bills (or bills that contained other fiscal stimulus proposals). Moreover, even the Small Business Jobs Act of 2010 was intended to stimulate investment and addressed provisions that had, unlike other tax cuts in the 2009 stimulus, expired. The proposal to include bonus depreciation in a standard "extenders" bill separates the provision from a fiscal stimulus objective. This inclusion creates uncertainty about the expected future of bonus depreciation and suggests an analysis of it either as a temporary stimulus or a permanent provision. Effectiveness as a Temporary Fiscal Stimulus Investment incentives may be relatively ineffective during a recession that reflects inadequate demand, when firms have idle capital. The temporary nature of bonus depreciation makes it, in theory, a more effective fiscal stimulus than other investment incentives because it is in the nature of a fire sale. The bonus depreciation enacted in late 2002 and lasting through 2005 set the stage for the potential effectiveness of the provision in the 2007-2009 recession by signaling that it was temporary. The continual extension of the current provision, that thus far has lasted six years, may undermine the use of the provision in the future if firms expect the provision to last a long time. Some evidence suggests that the temporary bonus depreciation enacted in 2002 had little or no effect on business investment. A study of the effect of temporary expensing by Cohen and Cummins at the Federal Reserve Board found little support for a significant effect. They suggested several potential reasons for a small effect. One possibility was that firms without taxable income could not benefit from the timing advantage. In a Treasury study, Knittel confirmed that firms did not elect bonus depreciation for about 40% of eligible investment, and speculated that the existence of losses and loss carry-overs may have made the investment subsidy ineffective for many firms, although there were clearly some firms that were profitable that did not use the provision. Cohen and Cummins also suggested that the incentive effect was quite small (largely because depreciation already occurs relatively quickly for most equipment), reducing the user cost of capital by only about 3%, and that planning periods may have been too long to adjust investment across time. Knittel also suggests that firms may have found the provision costly to comply with, particularly because most states did not allow bonus depreciation. A study by House and Shapiro found a more pronounced response to bonus depreciation, given the magnitude of the incentive, but they also found that the overall effect on the economy was small. In their view, this effect was due in part to the limited category of investment affected and the small size of the incentive. Their differences with the Cohen and Cummins study reflected, in part, uncertainties about when expectations were formed and incentive effects occurred. Cohen and Cummins also reported the results of several surveys of firms, which showed that between two-thirds and more than 90% of respondents indicated bonus depreciation had no effect on the timing of investment spending. A study by Hulse and Livingstone found mixed results on the effectiveness of bonus depreciation, which they interpret as weakly supportive of an effect. Forecasters vary in the multipliers they assign different tax and spending provisions. (A multiplier estimates the amount of economic output resulting from a certain amount of stimulus.) For example, CBO, during discussion of the fiscal cliff, indicated a multiplier of 0.15 for business tax cuts in general, and a multiplier of 0.6 for expensing. The latter suggests a dollar of budgetary cost spending induces a 60-cents increase in output. The dollar of cost was measured as the present value of bonus depreciation. This multiplier was among the smaller ones with payroll taxes having a multiplier of 0.9 and unemployment insurance a multiplier of 1.1. Zandi had similar multipliers for these latter provisions but assigned a multiplier of 0.2 for bonus depreciation, measuring the provision as the first year tax saving (a larger number than present value). Overall, bonus depreciation did not appear to be very effective in providing short-term economic stimulus compared with alternatives. Concerns also exist about the effectiveness of bonus depreciation when the extension is retroactive. When bonus depreciation is extended retroactively, the benefit is a windfall, which cannot affect investment. Although S. 1859 was introduced in 2013 and would not have had a windfall if enacted when introduced, enacting a retroactive extension for 2014 currently would have windfall elements. Bonus Depreciation as a Permanent Provision If bonus depreciation is permanent, it affects the size and allocation of the capital stock. In particular, it lowers the tax rate on equipment relative to other depreciable assets. Effective Tax Rates The standard way to measure the effect of depreciation rules on tax burdens is to consider the influence of the provision on the required return to a new investment. This approach requires an estimate of the required internal pre-tax rate of return for an investment to break even (i.e., the pre-tax rate of return needed to earn a required after-tax return). The effective tax rate is measured as the pre-tax return minus the after-tax return, divided by the pre-tax return. In other words it measures the share of the investment's earnings that is paid in tax. The formula for this calculation is presented in the Appendix . Table 1 provides estimated effective tax rates for nonresidential equipment and structures with and without bonus depreciation. The first 22 rows are equipment as classified in the National Income and Product Accounts (NIPA), and the last six rows are structures. As indicated in the table, equipment assets generally have favorable tax depreciation rules, even without bonus depreciation, with effective tax rates falling as low as 17% but generally around the mid-20s, well below the 35% statutory rate. Public utility structures and farm structures are treated as equipment in the tax code and also have lower tax rates. Non-residential buildings (commercial, industrial, and other) tend to be taxed at or above the statutory rate. Residential buildings, not shown, are taxed at around 32%. Bonus depreciation benefits equipment, already favored by the tax code, producing effective tax rates that range from 9% to 21%, with most around the mid-teens. Assets in Table 1 are listed from least durable to most durable. In general tax rates within the equipment category tend to be higher for less durable assets because inflation increases the tax burden of shorter-lived assets more than longer-lived ones. Bonus depreciation tends to have a proportional reduction and brings tax rates closer together because it reduces effective rates more for assets with higher effective rates to begin with (see Appendix for formulas). For example, the tax rate for autos, initially at 34% rate, falls by 13 percentage points, whereas the tax rate for ships and boats, initially at 17%, falls by 8 percentage points. That makes bonus depreciation a more attractive option for permanent tax subsidies than the investment credit, which substantially favors short-lived assets. Because expensing applies only to equipment, it increases the distortion between tax burdens on equipment and structures. Table 2 provides a weighted average (with the pre-tax returns weighted by asset share) for equipment, structures, and the total. This table indicates that, with bonus depreciation as a permanent part of the tax cost, the effective tax rate on equipment falls from 26% to 15%. Note that these calculations do not account for the Section 199 domestic production activity deduction, which allows a 9% reduction in taxable income (a 3.15 percentage point reduction in the statutory tax rate) for domestic production in certain industries. Where applicable, it reduces the effective tax rate for equipment by about 2.5 percentage points, or to around 23%, and the effective tax rate with bonus depreciation by 1.6 percentage points, or to around 13%. These tax rates capture firm level taxes on investments in equipment and structures. Considering all taxes, the tax rate would be slightly higher, about 5 percentage points for buildings and 4.6 to 7.3 percentage points for equipment under current law, and 5.3 to 8.4 percentage points for equipment with bonus depreciation. Effective tax rates with debt-financed investment are discussed in the next section. Debt-Financed Investment Some might approve of partial expensing as a step toward full expensing of all assets because they prefer a consumption tax, and full expensing of investments is a feature of a consumption tax. Such a tax was proposed as a possible alternative to an income tax in President Bush's Advisory Panel's proposals. A piecemeal approach to a consumption tax can create negative tax rates on debt financed investment. Under a consumption tax such as that outlined by the Advisory Panel, interest payments would no longer be deductible to firms (or taxed to individuals). If the tax system allows economic depreciation and there is no inflation, no taxes are collected at the firm level because the profit is offset by the interest deduction. The creditor will pay tax and the tax burden on the interest and the tax burden on the investment return is that supplier's tax rate. Allowing accelerated depreciation whether by expensing or other methods causes a negative tax rate at the firm level, because the profit is taxed at the lower effective tax rate and the interest is deducted at the statutory rate. A differential in the tax rate of the firm and the creditor can also contribute to potentially negative tax rates with inflation, because the inflation portion of interest is deducted at the firm's rate and taxed at the individual's rate. To indicate these effects, with the assumptions in the Appendix , the interest rate is 7.5% and the inflation rate is 2%. The marginal individual (creditor) tax rate on interest is 23% and half of it is held in exempt form, for a weighted tax rate of 11.5%. For the creditor, after paying an 11.5% tax, the after-tax nominal interest is 6.64%. The real return after subtracting inflation is 4.64%. At the firm level, the after-tax real cost of debt is the interest rate minus the 35% tax, which is 4.875%. Subtracting the 2% inflation results in an after-tax real cost of 2.875%. To calculate an effective tax rate (which is the pre-tax return minus the after-tax return divided by the pre-tax return) this after-tax return must be divided by one minus the effective tax rate to measure the pre-tax return. If there is economic depreciation and the effective tax rate is 0.35, then the after-tax rate of return is 2.875%/(1-.35) or 4.42%. This pre-tax return is below the after-tax return, and the total tax rate is a negative 4.8%. This effect is solely due to deducting the inflation portion of the interest rate at a high rate and taxing it at a low one. Accelerated depreciation exacerbates this negative effect. Under the average 26% effective tax rate for equipment under current law without bonus depreciation, the effective tax rate on debt financed investment is -19%. With bonus depreciation, it is -37%. As these calculations indicate, bonus depreciation is estimated to increase the absolute value of the negative tax rate on debt-financed equipment investment from 19% to 37%. International Tax Rate Comparisons One criticism frequently made of the U.S. corporate tax is that its rate is the highest in the world, thus discouraging investment in the United States relative to other countries. Currently the combined federal and state statutory tax rate for the United States is 39.2%, and the rate for the remaining countries in the Organisation for Economic Development and Cooperation (OECD), with countries weighted by size of output, is 28.4%. The statutory rate in the United States would be 36.3% if the domestic production activities deduction were available, which would apply to manufacturing and some other activities. Average effective tax rates and marginal effective tax rates are estimated to be closer together. Table 3 presents estimates of the marginal effective tax rates for four basic categories of assets (equipment, structures, inventories, and intangibles) and the overall weighted average. These rates are the ones that should affect international investment. The rates for the United States differ somewhat from the estimates in Table 2 because they are from an international study that uses representative assets, but comparable ones. This table indicates that the U.S. effective marginal tax rate is 22.2% compared with 16.4% in the OECD weighted by size of output. If the Section 199 production activities deduction is available, the U.S. effective rate is 20.2%. The domestic production activities deduction applies to manufacturing, construction, and extraction and thus would apply to most multinationals' physical investment. Thus the difference between these effective tax rates is 4-6 percentage points as compared with an 8-11 percentage point difference in statutory rates. The differences are largest for inventories. If bonus depreciation is a permanent feature of the tax code, these estimates should be adjusted. Incorporating bonus depreciation reduces overall tax rates by two percentage points, leaving the effective marginal rates very close together and virtually the same when both bonus depreciation and the Section 199 deduction are included. For equipment, the tax rates are two to four percentage points larger; bonus depreciation lowers the U.S. rate to six to seven percentage points below the OECD average. Comparison to Tax Reform Proposals The drive for an income tax reform that would broaden the base and lower the rate has existed for a number of years. Several recent proposals are currently of interest and relevant to bonus depreciation: the Wyden-Coats bill ( S. 727 ) in the 112 th Congress, the Senate Finance Committee discussion draft released in November 2013 as a preliminary to tax reform, and the draft proposal by Dave Camp, chairman of the Ways and Means Committee, released in February 2014. These tax reform proposals involve broadening the base to permit lower rates and all have a reform of depreciation that affects effective tax rates on equipment investment. To indicate the nature of the depreciation plan in these proposals, their effective tax rates are discussed with reference to a 35% tax rate, although Wyden-Coats proposes a 24% tax rate, the Senate draft proposes lower rates but does not provide a specific number, and the Camp proposal would lower the rate to 25%. The Wyden-Coats bill proposes to return depreciation to the alternative depreciation system (now available as an option), with longer lives and straight line depreciation. This system would closely approximate economic depreciation with an estimated effective tax rate (given a 35% statutory rate) of 36% for equipment, 34% for structures, and an overall rate of 35%. The Senate Finance Committee discussion draft would adopt a system similar to that proposed by the Treasury Department during the debate over tax reform in 1986. At the heart of the system would be open-ended pools of aggregated assets, in which a depreciation rate would apply to each pool (and investment would be added each year). The objective of this proposal is to achieve economic depreciation in the aggregate. Ways and Means Chairman Camp has released a tax reform draft proposal that, like the Wyden-Coats proposal, would move to the alternative depreciation system. This proposal would also index depreciation for inflation. At the same time, it would limit the deduction to recovery of the original basis. Overall, this treatment amounts to accelerated depreciation that depends on the inflation rate. Because current inflation is relatively low, a slight degree of acceleration would occur. The estimated tax rates for equipment, structures, and overall if the statutory rate were 35% would be 35%, 33%, and 34% respectively. Thus tax rates would be lower by about one percentage point compared with a move to the alternative depreciation system. The Wyden-Coats bill would reduce the statutory tax rate to 24% and the Camp proposal would reduce it to 25%. Thus both proposals would impose a 24% effective rate on equipment and structures overall. Bonus Depreciation and Revenues Some have suggested that the traditional extenders have been repeatedly enacted on a temporary basis because the revenue cost is much smaller for a single year's extension compared with a permanent extension with the 10-year budget horizon. Without growth, one would expect a standard provision to cost only 10% of the permanent 10-year cost; with growth it would be somewhat less because each year's cost would be slightly larger than the year before. Bonus depreciation and Section 179 expensing cost even less compared with their cost in the 10-year budget horizon because most of the initial revenue loss is recovered during the budget horizon. Contrast the patterns in Table 4 , which shows the last revenue estimate for a one-year extension, and Table 5 , which shows the revenue loss if both provisions are made permanent. In Table 4 , there is an initial loss from bonus depreciation (generally spread over the first two fiscal years), but revenue is gained in the following years as firms no longer take deductions that would have been taken under normal depreciation. In Table 5 , there is a new round of investment in each year, always with a revenue loss, but one that declines as each year there are more gains from not taking depreciation on earlier vintages of investment to offset the current year's loss. Although the estimates in the two tables are separated by a year, they provide some idea of the magnitude of the difference. The combination of bonus depreciation and half of Section 179 expensing in Table 4 is only 1.7% of the total of these provisions in Table 5 . Half of the traditional extenders estimate in Table 4 is 7.7% of the total estimate for other expiring provisions in Table 1 . (These ratios would be slightly larger if both tables covered the same time periods.) Table 5 does not separate the cost of bonus depreciation and Section 179 expensing. Based on revenue estimates in Table 4 , bonus depreciation is about 90% of the total (4.7/(4.7+.5*2.3)). However, the latest CBO estimate for the federal budget in coming years indicates a revenue cost of $263 billion for a permanent extension of bonus depreciation for the period FY2014-FY2024, which indicates bonus depreciation is about 76% of the total cost for a permanent extension. Thus, these estimates indicate that a one year extension costs $5 billion for FY2014-FY2024, less than 2% of the cost of $263 billion for a permanent provision. The Joint Committee on Taxation has subsequently confirmed this estimate and scored the extension of bonus depreciation in H.R. 4718 as $263 billion for FY2014-FY2024. Bonus depreciation has a somewhat smaller score, $244.9 billion, in estimates for H.R. 4 , but this smaller estimate is probably due to interactions with other provisions. Note also that the cost of a permanent extension of bonus depreciation is larger than the steady state cost if the system had been in place for a long time. The cost declines in Table 5 for bonus depreciation and Section 179 expensing, because as each year passes more revenue gain occurs for more previous investments. If the 10 th year is an approximate steady state, as appears to be the case, the permanent cost would be around 40% of the totals in Table 5 , or $140 billion, and bonus depreciation (at 76% of the cost) would be $105 billion. That would make a one-year extension about 5% of the steady state. By contrast, for most of the expiring provisions revenue costs rise over time under a permanent extension, which reflects growth and, to a limited extent, some part of each year's cost that falls in future years for some provisions. Appendix. Methodology for Effective Tax Rates This appendix contains explanations of several mathematical equations needed to provide estimates in this report. Calculation of Effective Tax Rates The effective tax rates in this paper are calculated by first determining, given a required after-tax rate of return and an expected rate of decline in productivity of the asset due to economic depreciation, how much the investment must initially produce in order for the sum of after-tax profits over time, discounted by the after-tax rate of return, to equal the investment outlay (i.e., to break even). Then all of the tax payments and deductions are eliminated and the before-tax profit flows are used to determine what pre-tax discount rate would sum the flows to the original cost. The effective tax rate is the pre-tax rate of return minus the after-tax rate of return, divided by the pre-tax rate. Discounting means dividing each flow by a discount factor. For a flow earned a year from now, the discount factor is ( 1 + R), for a flow earned two years from now ( 1 + R), 2 for a flow three years from now ( 1 + R), 3 where R is the discount rate. In practice, however, the analysis uses a continuous time method with continuous compounding. The formula derived from this method is (1) r = ( R + d )( 1 – u z ) / ( 1 – u ) - d where r is the pre-tax rate of return, R is the after-tax real discount rate of the corporation , d is the economic depreciation rate, u is the statutory tax rate and z is the present value of depreciation deductions (discounted at R + π , where π is the inflation rate). The effective tax rate for an investment financed wholly by equity at the firm level is ( r – R ) / r . When including individual level taxes and debt finance, the tax rate is measured by determining r as above, where R = f ( i ( 1 – u ) – π) + ( 1 – f ) E , where f is the share of the investment that is debt financed, i is the nominal interest rate, and E is the real rate of return to equity before individual tax but after the corporate tax. The value of f is 0 when considering an equity investment and one when considering a debt-financed investment. E is equal to D + g, where D is the dividend rate and g is the real growth rate. The after-tax real rate of return, R , is f ( i ( 1 – t ) – π ) + ( 1 – f )( D ( 1 – b) + g ( 1 – c )), where t is the effective individual tax rate b is the effective rate on dividends and c is the effective capital gains tax rate. The total tax rate is ( r – R ) / r . For a more complete description of the methodology and data sources, including useful lives for depreciation purposes, formulas for measuring z, and the allocation of assets in the economy, see [author name scrubbed], The Economic Effects of Taxing Capital Income , Cambridge, MA, MIT Press, 1994. For purposes of the analysis, the following assumptions were made: the interest rate is 7.5%, the inflation is 2%, and the real return to equity before individual taxes is 7%, with a 4% (or 57% of real profits) paid as dividends. The corporate rate is 35%, and the average individual marginal tax rate on investment income is 23% (data consistent with calculations in the National Bureau of Economic Research TAXSIM model). Tax rates on dividends and capital gains are 15%, although an alternative rate of 23.8% that applies to very high income individuals is also considered. One half of corporate stock is sold; the remaining half held until death; and the holding period is five years. Half of financial assets are held in tax exempt forms such as pensions and IRAs. How Partial Expensing Affects the Effective Tax Rate The tax rate can be calculated for 50% expensing by measuring z in equation (1) as 0.5(1+z) meaning that half of the investment is expensed and half is depreciated in the normal way. There is a general relationship that can be found, which is helpful in understanding the effects of bonus depreciation by transforming the effect into a relationship between effective tax rates. To calculate this effect measure z as a combination of economic depreciation and excess depreciation in equation (1), noting that economic depreciation is equal to d/R+d so that z is redefined as z +d/(R+d) and z now represents the present value of depreciation in excess of economic depreciation. Solve this equation for the effective tax rate, u*: (2) u* = [Ru-uz(R+d)]/(R-uz(R+d) When z is zero the tax rate is the statutory rate, u. The present value of depreciation with the 50% bonus provision is now 0.5(1+z+d/(R+d)). Solve equation (2) for z in terms of the other variables and replace z with this value to solve for the effective tax rate under bonus depreciation. The new tax rate with bonus depreciation, u b is: (3) u b = 0.5u*/(1-0.5u*) For typical effective tax rates the effective tax rate is reduced by somewhat over 40%. Determining the Useful Life in the Camp Depreciation Proposal Estimating the present value of depreciation for the Camp proposal requires not only the stated life, T, that is used to determine straight-line depreciation rate (1/T) but also the effective life when all of the cost is recovered. The limit of depreciation to original cost means that it is not an indexation of depreciation, but an acceleration, with the rate of acceleration rising as the inflation rate increases. To determine the useful life in continuous time, integrate e πt /T from 0 to T*, with t representing time, and set that value equal to 1. T* is the point where 100% of the cost is recovered, T is the life for determining the straight line rate, and π is the inflation rate. Solving for the integral and making other transformations, the result is T* = (ln(1+ πT))/ π.

The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act (S. 2260) would extend expiring provisions, including bonus depreciation. The Jobs for America Act (H.R. 4) would make bonus depreciation permanent. The temporary provisions enacted in the past for only a year or two and extended many times are generally referred to collectively as the "extenders." One reason advanced for these extenders is that time is needed to evaluate them. Most provisions have been extended multiple times, and some suggest they are actually permanent but are extended a year or two at a time because permanent provisions would significantly increase the costs in the budget horizon. Historically, bonus depreciation has not been a traditional "extender." Bonus depreciation allows half of equipment investment to be deducted immediately rather than depreciated over a period of time. Bonus depreciation was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession. Most stimulus provisions have expired. Bonus depreciation has been in place six years (2008-2013), contrasted with an earlier use of bonus depreciation in place for three years. Is bonus depreciation temporary or permanent? The analysis of bonus depreciation differs for a temporary stimulus provision, compared with a permanent provision that can affect the size and allocation of the capital stock. A temporary investment subsidy was expected to be more effective than a permanent one for short-term stimulus, encouraging firms to invest while the benefit was in place. Its temporary nature is critical to its effectiveness. Yet, research suggests that bonus depreciation was not very effective, and probably less effective than the tax cuts or spending increases that have now lapsed. If bonus depreciation is made permanent, it increases accelerated depreciation for equipment, contributing to lower, and in some cases more negative, effective tax rates. In contrast, prominent tax reform proposals would reduce accelerated depreciation. Making bonus depreciation a permanent provision would significantly increase its budgetary cost. Compared with a statutory corporate tax rate of 35%, bonus depreciation lowers the effective tax rate for equipment from an estimated 26% rate to a 15% rate. Buildings are taxed approximately at the statutory rate. Total tax rates would be slightly higher because of stockholder taxes. Because nominal interest is deducted, however, effective tax rates with debt finance can be negative. For equity assets taxed at an effective rate of 35%, the effective tax rate on debt-financed investment is a negative 5%. The rate on equipment without bonus depreciation is minus 19%; with bonus depreciation it is minus 37%. If bonus depreciation is permanent, estimates of U.S. effective tax rates reflecting concerns that the U.S. rate is higher than that of other countries overstate the effective U.S. corporate tax rate; U.S. effective tax rates on equipment would be significantly lower than the OECD average. Moving to permanent bonus depreciation is inconsistent with tax reform proposals made by the Wyden-Coats bill, the Senate Finance Committee Staff discussion draft, and Chairman Camp's proposal. All of these proposals would reduce the current accelerated depreciation for equipment. The usual extenders cost a fraction of the cost of permanent provisions in a 10-year budget window, but bonus depreciation is a smaller fraction because it is a timing provision. A one-year extension costs $5 billion for FY2014-FY2024, less than 2% of the cost of $263 billion for a permanent provision.

Background The Congressional Budget Office (CBO) was established by Title II of the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ; July 12, 1974; 2 U.S.C. 601-603). The organization officially came into existence on February 24, 1975, upon the appointment of the first director, Alice Rivlin. CBO's mission is to support the House and Senate in the federal budget process by providing budgetary analysis and information in an objective and nonpartisan manner. Specific duties are placed on CBO by various provisions in law, particularly Titles II, III, and IV of the 1974 Congressional Budget Act, as amended. CBO prepares annual reports on the economic and budget outlook and on the President's budget proposals and provides cost estimates of legislation, scorekeeping reports, assessments of unfunded mandates, and products and testimony relating to other budgetary matters. In addition to statutory duties, CBO is subject to directives included in annual budget resolutions. The FY2009 budget resolution ( S.Con.Res. 70 , 110 th Congress), for example, imposed a requirement that the CBO director prepare estimates of the deficit impact of certain legislation in support of a point-of-order procedure in the Senate against legislation increasing the deficit over the long term. Nine persons so far have served as CBO director: Alice Rivlin, Rudolph Penner, Robert Reischauer, June O'Neill, Dan Crippen, Douglas Holtz-Eakin, Peter R. Orszag, Douglas Elmendorf, and Keith Hall. The current director, Keith Hall, was first appointed on March 3, 2015. Eleven persons have served as deputy director; five of them also served as the acting director (for periods amounting in total to about three years). The current deputy director, Robert A. Sunshine, was appointed to the position in August 2007; he served as acting director during the two-month interregnum between directors Orszag and Elemendorf. Appointment Process The requirements regarding the appointment and tenure of the CBO director, which are simple and straightforward, are set forth in Section 201(a) of the 1974 Congressional Budget Act, as amended, and codified at 2 U.S.C. 601(a) (see the Appendix ). The Speaker of the House of Representatives and the President pro tempore of the Senate jointly appoint the director after considering recommendations received from the House and Senate Budget Committees. The Budget Committee chairs inform the congressional leaders of their recommendations by letter. The appointment usually is announced in the Congressional Record . Section 201(a) requires that the selection be made "without regard to political affiliation and solely on the basis of his fitness to perform his duties." Media reports over the years indicate that the CBO director is selected under informal practices in which the House and Senate Budget Committees alternate in recommending a nominee to the Speaker and President pro tempore of the Senate. These reports also indicate that the Speaker and President pro tempore have adhered to the Budget Committees' recommendations in making past selections. To the extent that these practices are informal, there may be disagreement with regard to their operation in the future selection of a CBO director. The director is appointed to a four-year term that begins on January 3 of the year that precedes the year in which a presidential election is held. If a director is appointed to fill a vacancy prior to the expiration of a term, then that person serves only for the unexpired portion of that term. There is no limit on the number of times that a director may be reappointed to another term. Section 201(a) also authorizes a CBO director to continue to serve past the expiration of his term until a successor is appointed. A CBO director may be removed by either house by resolution. Section 201(a) also provides that the director shall appoint a deputy director. The deputy director serves during the term of the director that appointed the deputy director (and until his or her successor is appointed) but may be removed by the director at any time. The deputy director serves as the acting director if the director resigns, is incapacitated, or is otherwise absent. Record of Appointments and Tenure Nine persons have served as director of CBO during the nine terms beginning in 1975 (see Table 1 ): Alice M. Rivlin Alice Rivlin served two terms as CBO director from 1975 to 1983. Prior to serving as CBO director, Rivlin served as assistant secretary for planning and evaluation with the Department of Health, Education, and Welfare and as a senior fellow with the Brookings Institution. Rudolph G. Penner Rudolph Penner served as CBO director for one term from 1983 to 1987. Previously, Penner served as chief economist at the Office of Management and Budget under President Gerald Ford and as director of tax policy studies with the American Enterprise Institute. Robert D. Reischauer Robert Reischauer served two terms as CBO director from 1989 to 1995. (He was not appointed until about halfway into the first four-year term.) Reischauer previously served as CBO deputy director (under Alice Rivlin) and as a senior vice president of the Urban Institute. June Ellenoff O'Neill June O'Neill served as CBO director for one term covering 1995-1999. Previously, O'Neill headed the Center for the Study of Business and Government at Baruch College and was an adjunct scholar at the American Enterprise Institute. Dan L. Crippen Dan Crippen served as CBO director for one term covering 1999-2003. Prior to his appointment, Crippen served as chief counsel and economic policy adviser to Senate Majority Leader Howard Baker and domestic policy adviser to President Ronald Reagan and was a member of the law firm Washington Counsel. Douglas Holtz-Eakin Douglas Holtz-Eakin served as CBO director for one term (leaving a little more than a year before the term's completion). Prior to beginning his term, he served as chief economist for the Council of Economic Advisers. While director, he was on leave from Syracuse University, where he held the position of Trustee Professor of Economics at the Maxwell School. Peter R. Orszag Peter Orszag served as CBO director for about half of one term. He resigned on November 25, 2008, a little more than two years before the term's completion. Previously, Orszag was the Joseph A. Pechman senior fellow and deputy director of economic studies at the Brookings Institution, and before that, he held positions with the President's Council of Economic Advisers and National Economic Council. Douglas W. Elmendorf Douglas Elmendorf began his service as CBO director on January 22, 2009, about half-way through the term to which Peter Orszag had originally been appointed. Prior to his appointment, Elmendorf was a senior fellow in the economic studies program at the Brookings Institution, serving as the director of the Hamilton Project, and before that, he was a senior economist at the White House's Council of Economic Advisers, a deputy assistant secretary for economic policy at the Department of the Treasury, and an assistant director of the Division of Research and Statistics at the Federal Reserve Board. Keith Hall Keith Hall began his term as the director of CBO on March 3, 2015. Previously, Hall spent more than 10 years with the U.S. International Trade Commission conducting studies on international trade and trade policy. In addition, he served a four-year term as the commissioner of the Bureau of Labor Statistics and served as the chief economist for both the White House Council of Economic Advisers and the U.S. Department of Commerce. Eleven persons have served as deputy director of CBO: Robert Reischauer (in two instances), Robert A. Levine, Raymond Scheppach, Eric A. Hanushek, Edward Gramlich, Robert Hartman, James Blum, Barry Anderson, Elizabeth Robinson, Donald B. Marron, and Robert A. Sunshine, the current deputy director. The position was vacant on two occasions. Five different deputy directors served as acting director, as discussed below. As Table 1 shows, the gap between the beginning of a term and the appointment of the director has varied considerably. Peter Orszag was appointed 15 days after the beginning of his term; Alice Rivlin, June O'Neill, Dan Crippen, Douglas Holtz-Eakin, and Keith Hall were appointed (or reappointed) within three months of the beginning of their terms. Rudolph Penner, however, was not appointed until nearly seven months after his term had begun (and did not assume his office until more than a month later). Robert Reischauer began his first term more than two years after it had started. As a consequence of these appointment gaps, incumbent directors have remained in office for weeks or months after their terms have expired, or CBO has operated with an acting director. Alice Rivlin stayed in office for nearly eight months (until August 31, 1983) before her successor, Rudolph Penner, took over. Penner remained in office for about four months (until April 28, 1987) but left long before a new director was appointed. Edward Gramlich, and then James Blum, served successively as acting directors for a period of nearly two years. Robert Reischauer stayed on as director for almost two months (until February 28, 1995) before he was succeeded. June O'Neill stayed in office nearly a month after her term ended (until January 29, 1999) but left about a week before her successor was appointed. James Blum served as acting director during the interim. Barry Anderson served as acting director from the time that Dan Crippen left office on January 3, 2003, until Douglas Holtz-Eakin was appointed to succeed him on February 5. Douglas Elmendorf stayed on as director for two months before he was succeeded. Similarly, appointment gaps may occur when a director resigns before his or her term is completed. As indicated previously, Douglas Holtz-Eakin resigned on December 29, 2005, a little more than a year before the completion of his term (on January 3, 2007). The deputy director, Donald B. Marron, began serving as acting director at that time; he continued in that capacity until the appointment of Peter Orszag just over a year later. Orszag resigned on November 25, 2008, a little more than two years before the term's completion. On the same day, Robert A. Sunshine, the current deputy director, also began serving as the acting director; he continued in that role until the appointment of Douglas Elmendorf about two months later. Appendix. Establishment of the Congressional Budget Office Under Section 201(a) of the 1974 Congressional Budget Act (2 U.S.C. 601(a))

The requirements regarding the appointment and tenure of the CBO director, which are simple and straightforward, are set forth in Section 201(a) of the 1974 Congressional Budget Act, as amended, and codified at 2 U.S.C. 601(a). The Speaker of the House of Representatives and the President pro tempore of the Senate jointly appoint the director after considering recommendations received from the House and Senate Budget Committees. The Budget Committee chairs inform the congressional leaders of their recommendations by letter. The appointment is usually announced in the Congressional Record. Section 201(a) requires that the selection be made "without regard to political affiliation and solely on the basis of his fitness to perform his duties." Media reports over the years indicate that the CBO director is selected under informal practices in which the House and Senate Budget Committees alternate in recommending a nominee to the Speaker and President pro tempore of the Senate. These reports also indicate that the Speaker and President pro tempore have adhered to the Budget Committees' recommendations in making past selections. To the extent that these practices are informal, there may be disagreement with regard to their operation in the future selection of a CBO director. The director is appointed to a four-year term that begins on January 3 of the year that precedes the year in which a presidential election is held. If a director is appointed to fill a vacancy prior to the expiration of a term, then that person serves only for the unexpired portion of that term. There is no limit on the number of times that a director may be reappointed to another term. Section 201(a) also authorizes a CBO director to continue to serve past the expiration of his term until a successor is appointed. A CBO director may be removed by either house by resolution. Section 201(a) also provides that the director shall appoint a deputy director. The deputy director serves during the term of the director that appointed the deputy director (and until his or her successor is appointed) but may be removed by the director at any time. The deputy director serves as the acting director if the director resigns, is incapacitated, or is otherwise absent. Nine persons so far have served as CBO director: Alice Rivlin, Rudolph Penner, Robert Reischauer, June O'Neill, Dan Crippen, Douglas Holtz-Eakin, Peter R. Orszag, Douglas Elmendorf, and Keith Hall. The current director, Keith Hall, was appointed on March 3, 2015. Eleven persons have served as deputy director; five of them also served as the acting director (for periods amounting in total to about three years). The current deputy director, Robert A. Sunshine, was appointed to the position in August 2007; he served as acting director during the two-month interregnum between directors Orszag and Elemendorf. This report will be updated as developments warrant.

FY2014 Budget Request Congress not only appropriates federal payments to the District to fund certain activities, but also reviews, and may modify, the District's entire budget, including the expenditure of local funds as outlined in the District's Home Rule Act. Since FY2006, the District's appropriations act has been included in a multi-agency appropriations bill; before FY2006 the District budget was considered by the House and the Senate as a stand-alone bill. It is currently included in the proposed Financial Services and General Government Appropriations Acts (FSGG) ( S. 1371 and H.R. 2786 ). District of Columbia appropriations acts typically include the following three components: 1. Special federal payments appropriated by Congress to be used to fund particular initiatives or activities of interest to Congress or the Administration. 2. The District's operating budget , which includes funds to cover the day-to-day functions, activities, and responsibilities of the government; enterprise funds that provide for the operation and maintenance of government facilities or services that are entirely or primarily supported by user-based fees; and long-term capital outlays such as road improvements. District operating budget expenditures are paid for by revenues generated through local taxes (sales and income), federal funds for which the District qualifies, and fees and other sources of funds. 3. General provisions are typically the third component of the District's budget reviewed and approved by Congress. These provisions can be grouped into several distinct but overlapping categories, with the most predominant being provisions relating to fiscal and budgetary directives and controls. Other provisions include administrative directives and controls, limitations on lobbying for statehood or congressional voting representation, congressional oversight, and congressionally imposed restrictions and prohibitions related to social policy. It should be noted that Congress has, from time to time, included language authorizing new programmatic initiatives or amendments to the District of Columbia home rule charter in the District's Appropriations bill. For example, in 1995, Congress included language authorizing the creation of public charter schools in the District of Columbia as part of P.L. 104-134 , a consolidated appropriation measure. In 2004, Congress included statutory provisions creating a school voucher program as part of the District of Columbia Appropriations, which was a component of a consolidated appropriations act, P.L. 108-199 . The President's FY2014 Budget Request On April 10, 2013, the Obama Administration released its detailed budget request for FY2014. The Administration's proposed budget included $676.3 million in special federal payments to the District of Columbia, which is $2.2 million more than the District's FY2013 appropriation of $674.1 million. Approximately 80% ($543.4 million) of the President's proposed budget request for the District would be targeted to the courts and criminal justice system. This includes $222.7 million in support of court operations; $49.9 million for Defender Services; $227.9 million for the Court Services and Offender Supervision Agency for the District of Columbia, an independent federal agency responsible for the District's pretrial services, adult probation, and parole supervision functions; $1.8 million for the Criminal Justice Coordinating Council; $40.6 million for the public defender's office; and $500,000 to cover costs associated with investigating judicial misconduct complaints and recommending candidates to the President for vacancies to the District of Columbia Court of Appeals and the District of Columbia Superior Court. The President's budget request also includes $87.2 million in support of education initiatives, including $52.2 million to support elementary and secondary education, $500,000 to support the D.C. National Guard college access program, and $35 million for college tuition assistance. These amounts represent 12.9% of the Administration's federal payment budget request for the District of Columbia. District's FY2014 Budget On March 28, 2013, the mayor of the District of Columbia submitted a proposed budget to the District of Columbia Council. On May 22, 2013, the council approved an FY2014 budget that included $12.2 billion in operating funds and $2.2 billion in capital outlays. The mayor signed the measure (A20-0127) on July 24, 2013. Included in the act are provisions that would grant the District greater self-governance. The act proposed providing some level of budget autonomy in the expenditure of local funds and legislative autonomy. Specifically, the act would have, by reference, enacted the Local Budget Autonomy Act of 2012. The act, if approved by Congress, would have amended the District's home rule charter by removing language that currently subjects the District's general fund budget to the congressional appropriations process. Specifically, under the Local Budget Autonomy Act, the District's local budget would become effective if Congress failed to enact a joint resolution of disapproval within a 30-day congressional review period. Thus the District's local budget would no longer require active approval by Congress. In addition to budget autonomy, the District's Fiscal Year 2014 Budget Request Act of 2013 included several provisions intended to advance legislative autonomy. The act would have eliminated the requirement that proposed amendments to the District's home rule charter be transmitted to Congress; no longer subject proposed charter amendments to the 35-day congressional review period; no longer subject the District's borrowing authority to the congressional appropriations process; and shorten the congressional review period (which currently allows Congress 30 legislative days to review non-criminal-code legislation passed by the District of Columbia Council and 60 days for legislation related to criminal offenses, procedures, and prisoners) by eliminating language that excludes Saturdays, Sundays, holidays, and any day on which neither chamber is in session because of an adjournment sine die, a recess of more than 3 days, or an adjournment of more than 3 days beginning on the day the legislation is transmitted to the House or Senate. Congressional Action Senate Committee Bill, S. 1371 On July 25, 2013, the Senate Appropriations Committee reported S. 1371 , its version of the Financial Services and General Government Appropriations Act for FY2014, with an accompanying report ( S.Rept. 113-80 ). As reported, the bill recommended $676.2 million in special federal payments to the District. This is approximately $700,000 more than appropriated for FY2013, and $1.5 million less than requested by the Administration. The bill included $9.4 million more in funding for court operations than requested by the Administration, but $7.4 million less than appropriated in FY2013. It would have appropriated $10 million less than the President's FY2014 request, or $17.7 million less than the FY2013 appropriated amount for elementary and secondary education initiatives. These funds would have been allocated among three specific initiatives: public school improvements ($30 million), support for public charter schools ($20 million), and funding a private school voucher program ($2.2 million for evaluation and administration activities). The Senate report accompanying the bill noted that there were sufficient unexpended funds available from pervious appropriations to meet the needs of the program. General Provisions The Senate committee bill's general provisions mirrored some of the language included in the House committee bill. Like the House committee bill, S. 1371 included provisions governing budgetary and fiscal operations and controls. It also includes provisions restricting or prohibiting the use of federal funds to support District statehood or congressional voting representation and includes provisions that would continue prohibiting the use of federal funds to support or defeat any legislation being considered by Congress or a state legislature; cover salaries, expenses, and other costs associated with the office of Statehood Representative and Statehood Senator for the District of Columbia; and support efforts by the District of Columbia Attorney General or any other officer of the District government to provide assistance for any petition drive or civil action seeking voting representation in Congress for citizens of the District. The bill also included changes in three provisions that city officials have sought to eliminate or modify. The bill would have continued the prohibition against the use of federal funds to provide abortion services; prohibited the use of federal funds to regulate and decriminalize the medical use of marijuana; and maintained the current prohibition on the use of federal funds to support a needle exchange program. The Senate committee bill included provisions not included in previous District of Columbia appropriations acts passed by Congress that would have amended the District's home rule charter. The Senate measure would have granted the city budget autonomy over the expenditure of locally raised funds, an action long sought by District officials. Specifically, the Senate measure would have decoupled the District's fiscal year from the federal fiscal year and would have granted the District the authority to spend local funds if Congress failed to enact a federal appropriation authorizing the expenditure of local funds before the start of the District's fiscal year. House Committee Bill, H.R. 2786 On July 17, 2013, the House Appropriations Committee approved the Financial Services and General Government Appropriations Act of 2014, H.R. 2786 , with an accompanying report ( H.Rept. 113-172 ). The bill included $635.8 million in special federal payments to the District. This was $38.3 million less than appropriated for FY2013, $40.5 million less than requested by the Obama Administration and $39 million less than recommended by the Senate committee bill. The bill did not include funding for the District's Water and Sewer Authority, and included a substantial decrease ($20 million) in the amount proposed to be appropriated for the Resident Tuition Support (college access) program. The bill also would have directed $54 million in funding to support the District of Columbia Public Schools ($18 million), public charter schools ($18 million), and private school vouchers ($18 million). General Provisions Like its Senate counterpart, the House committee bill included several general provisions governing budgetary and fiscal operations and controls, including prohibiting deficit spending within budget accounts, establishing restrictions on the reprogramming of funds, and allowing the transfer of local funds to capital and enterprise fund accounts. In addition, the bill would have required the city's Chief Financial Officer to submit a revised operating budget for all District government agencies and the District public schools within 30 days after the passage of the bill. The House committee bill also included several general provisions relating to statehood or congressional representation for the District, including provisions that would have continued prohibiting the use of federal funds to support or defeat any legislation being considered by Congress or a state legislature; cover salaries, expenses, and other costs associated with the office of Statehood Representative and Statehood Senator for the District of Columbia; and support efforts by the District of Columbia Attorney General or any other officer of the District government to provide assistance for any petition drive or civil action seeking voting representation in Congress for citizens of the District. Unlike the Senate committee bill, H.R. 2786 would have prohibited the use of both District and federal funds for abortion services. In addition, the bill would have continued to prohibit the use of federal funds to administer needle exchange or to decriminalize or regulate the medical use of marijuana. Consolidated Appropriations, P.L. 113-76 Unable to reach agreement on several appropriation acts, including the Financial Services and General Government Appropriations Act of 2014, before the beginning of 2014 fiscal year, Congress approved a continuing appropriation measure, P.L. 113-46, providing funding for federal agencies and their activities until January 15, 2014. Although P.L. 113-46 did include provisions releasing the city's General Fund budget for FY2014 from further congressional review, it did not include funding for special federal payments to the District. On January 17, 2014, the President signed the Consolidated Appropriations Act of 2014, P.L. 113-76 , which appropriated funds for federal agencies and activities, including $673 million in special federal payments to the District of Columbia. General Provisions Like its Senate and House committee bills, the Consolidated Appropriations Act for FY2014, P.L. 113-76 , includes several general provisions governing budgetary and fiscal operations and controls, including requiring the city's Chief Financial Officer to submit a revised operating budget for all District government agencies and the District public schools within 30 days after the passage of the act. P.L. 113-76, as passed by Congress and signed by the President, includes several general provisions relating to statehood or congressional representation for the District, including provisions prohibiting the use of federal funds to support or defeat any legislation being considered by Congress or a state legislature; cover salaries, expenses, and other costs associated with the office of Statehood Representative and Statehood Senator for the District of Columbia; and support efforts by the District of Columbia Attorney General or any other officer of the District government to provide assistance for any petition drive or civil action seeking voting representation in Congress for citizens of the District. Like the House committee bill, H.R. 2786, the Consolidated Appropriations Act for FY2014, P.L. 113-76, prohibits the use of both District and federal funds for abortion services, except in cases involving rape, incest, or a threat to the life of the pregnant woman if the fetus was carried to term. In addition, like the bills approved by the House and Senate appropriation committees, the act, as signed by the President, continues to prohibit the use of federal funds to administer a needle exchange program or to decriminalize or regulate the medical use of marijuana. Despite the federal prohibition, on June 12, 2012, the city announced the certification of four privately operated medical marijuana dispensaries. The first dispensary opened on July 29, 2013. The Consolidated Appropriations for FY2014 also included a general provision—Section 816—that would allow the District to access local funds as outlined in the Fiscal Year 2015 Budget Request Act of 2014 as submitted to the Congress, during any period of the 2015 fiscal year when Congress has failed to pass a regular appropriations for the District of Columbia or approve a short-term continuing resolution for the District. This provision is a step toward budget autonomy. For FY2015, city leaders will not have to concern themselves with the prospect of being unable to access local funds if Congress does not approve an FY2015 appropriations act for the District. Special Federal Payments Both the President and Congress may propose financial assistance to the District in the form of special federal payments in support of specific activities or priorities. As noted in the sections above, the Obama Administration budget proposal for FY2014 included a request for $676.3 million in special federal payments for the District of Columbia. The Financial Services and General Government Appropriations Act for FY2014, H.R. 2786 , as reported by the House Appropriations Committee on July 17, 2013, included $635.8 million in special federal payments to the District of Columbia. One week later, on July 25, 2013, the Senate Appropriations Committee reported its version of the Financial Services and General Government Appropriations Act, S. 1371 . The Senate committee bill recommended $674.8 million in special federal payments for the District of Columbia. On January 17, 2014, the President signed the Consolidated Appropriations Act of 2014, P.L. 113-76 , which includes $673 million in special federal payments to the District of Columbia. Table 2 shows details of the District's federal payments, including the FY2013-enacted amounts, the amounts included in the President's FY2014 budget request, the amounts recommended by the House and Senate Appropriations Committees, and the final amounts included in P.L. 113-76. Local Operating Budget As noted previously, the District's General Fund Budget for FY2014, which was signed by the mayor on July 24, 2013, as A20-0127, was incorporated by reference in both the House and Senate committee bills ( H.R. 2786 and S. 1371 ) for the purpose of congressional review and approval. The District's FY2014 General Fund Budget totaled $12.2 billion, including $10.1 billion for operating expenses and $2.1 billion for enterprise funds ( Table 3 ). Of the $12.2 billion budgeted for operating expenses, $961.8 million is projected to be derived from federal grants and $1.918 billion from Medicaid payments. Congressional Action: Continuing Appropriations Under the District's Home Rule Act Congress retains the power to review and approve all legislative acts of the District government, including its annual budget. Congress was unable to reach agreement on any of the 12 regular appropriations, including FSGG, before the beginning of the 2014 federal fiscal year on October 1, 2013, resulting in a 16-day government shutdown. Despite the lack of congressional approval of its FY2014 budget, District officials were able to tap into a $144 million contingency reserve fund that allowed the city to continue to provide most essential services during the shutdown period. On October 16, 2013, Congress passed an amended version of H.R. 2775 , a bill providing continuing appropriations through January 15, 2014, with some exceptions. One of those exceptions—Section 127—released the District of Columbia General Fund Budget (operating budget) for FY2014 from further congressional review and approval and allowed the District of Columbia to expend locally raised revenues as outlined in the its Fiscal Year 2014 Budget Request Act of 2013 (D.C. Act 20-0127). The bill, H.R. 2775 , was signed into law as P.L. 113-46 on October 17, 2013. Consolidated Appropriations Act, P.L. 113-76 On January 17, 2014, the President signed the Consolidated Appropriations Act for FY2014, P P.L. 113-76 . The act includes a provision approving the District's General Fund Budget for the remainder of FY2014 detailed in the District's Fiscal Year 2014 Budget Request Act of 2013 (D.C. Act 20-0127) submitted to Congress and amended as of the date of enactment of P.L. 113-76. General Provisions: Key Policy Issues Needle Exchange Addressing the spread of HIV and AIDS among intravenous drug abusers is one of several key policy issues that Congress has faced in reviewing the District's appropriations for FY2014. The controversy surrounding funding a needle exchange program touches on issues of home rule, public health policy, and government sanctioning and facilitating the use of illegal drugs. Proponents of a needle exchange program contend that such programs reduce the spread of HIV among illegal drug users by reducing the incidence of shared needles. Opponents of these efforts contend that such programs amount to the government sanctioning illegal drugs by supplying drug-addicted persons with the tools to use them. In addition, opponents contend that public health concerns raised about the spread of HIV and AIDS through shared contaminated needles should be addressed through drug treatment and rehabilitation programs. Another view in the debate focuses on the issue of home rule and the city's ability to use local funds to institute such programs free from congressional restrictions. Congress also faces the decision of whether or not to use federal funds to address this issue. The prohibition on the use of federal and District funds for a needle exchange program was first approved by Congress as Section 170 of the District of Columbia Appropriations Act for FY1999, P.L. 105-277 . The 1999 act did allow private funding of needle exchange programs. The District of Columbia Appropriations Act for FY2001, P.L. 106-522 , continued the prohibition on the use of federal and District funds for a needle exchange program; it also restricted the location of privately funded needle exchange activities. Section 150 of the District of Columbia Appropriations Act for FY2001 made it unlawful to distribute any needle or syringe for the hypodermic injection of any illegal drug in any area in the city that is within 1,000 feet of a public elementary or secondary school, including any public charter school. The provision was deleted during congressional consideration and thus from the District of Columbia Appropriations Act of FY2002, P.L. 107-96 . The act also included a provision that allowed the use of private funds for a needle exchange program, but it prohibited the use of both District and federal funds for such activities. At present, one entity, Prevention Works, a private nonprofit AIDS awareness and education program, operates a needle exchange program in the district. The FY2002 District of Columbia Appropriations Act required such entities to track and account for the use of public and private funds. During consideration of the FY2004 District of Columbia Appropriations Act, District officials unsuccessfully sought to lift the prohibition on the use of District funds for needle exchange programs. A Senate provision, which was not adopted, had proposed prohibiting only the use of federal funds for a needle exchange program and allowing the use of District funds. The House and final conference versions of the FY2004 bill allowed the use of private funds for needle exchange programs and required private and public entities that receive federal or District funds in support of other activities or programs to account for the needle exchange funds separately. The Financial Services and General Government Appropriations Act for FY2008, P.L. 110-161 , contained language that modified the needle exchange provision included in previous appropriations acts. The act allowed the use of District funds for a needle exchange program aimed at reducing the spread of HIV and AIDS among users of illegal drugs. The provision was a departure from previous appropriations acts that prohibited the use of both District and federal funds in support of a needle exchange program. In addition, the explanatory statement accompanying the act encouraged the George W. Bush Administration to include federal funding to help the city address its HIV/AIDS health crisis. The President's budget proposal for FY2014 and related House and Senate committee bills included language that would have retained language included in the FY2013 appropriations act that allowed the use of District funds, but prohibited the use of federal funds, in support of a needle exchange program. The Consolidated Appropriations Act for FY2014, P.L. 113-76 , continues to prohibit the use of federal funds to administer a needle exchange program. Medical Marijuana The city's medical marijuana initiative is another issue that has engendered controversy. The District of Columbia Appropriations Act for FY1999, P.L. 105-277 (112 Stat. 2681-150), included a provision that prohibited the city from counting ballots of a 1998 voter-approved initiative that would have allowed the medical use of marijuana to assist persons suffering from debilitating health conditions and diseases, including cancer and HIV infection. Congress's power to prohibit the counting of a medical marijuana ballot initiative was challenged in a suit filed by the DC Chapter of the American Civil Liberties Union (ACLU). On September 17, 1999, District Court Judge Richard Roberts ruled that Congress, despite its legislative responsibility for the District under Article I, Section 8, of the Constitution, did not possess the power to stifle or prevent political speech, which included the ballot initiative. This ruling allowed the city to tally the votes from the November 1998 ballot initiative. To prevent the implementation of the initiative, Congress had 30 days to pass a resolution of disapproval from the date the medical marijuana ballot initiative (Initiative 59) was certified by the Board of Elections and Ethics. Language prohibiting the implementation of the initiative was included in P.L. 106-113 (113 Stat. 1530), the District of Columbia Appropriations Act for FY2000. Opponents of the provision contended that such congressional actions undercut the concept of home rule. The District of Columbia Appropriations Act for FY2002, P.L. 107-96 (115 Stat. 953), included a provision that continued to prohibit the District government from implementing the initiative. Congress's power to block the implementation of the initiative was again challenged in the courts. On December 18, 2001, two groups, the Marijuana Policy Project and the Medical Marijuana Initiative Committee, filed suit in U.S. District Court, seeking injunctive relief in an effort to put another medical marijuana initiative on the November 2002 ballot. The District's Board of Elections and Ethics ruled that a congressional rider that had been included in the general provisions of each District appropriations act since 1998 prohibited it from using public funds to do preliminary work that would have put the initiative on the ballot. On March 28, 2002, a U.S. district court judge ruled that the congressional ban on the use of public funds to put such a ballot initiative before the voters was unconstitutional. The judge stated that the effect of the amendment was to restrict the plaintiff's First Amendment right to engage in political speech. The decision was appealed by the Justice Department, and on September 19, 2002, the U.S. Court of Appeals for the District of Columbia Circuit reversed the ruling of the lower court without comment. The appeals court issued its ruling on September 19, 2002, which was the deadline for printing ballots for the November 2002 general election. On June 6, 2005, the Supreme Court, in a six-to-three decision, ruled that Congress possessed the constitutional authority under the Commerce Clause to regulate or prohibit the interstate marketing of both legal and illegal drugs. This includes banning the possession of drugs in states and the District of Columbia that have decriminalized or permitted the use of marijuana for medical or therapeutic purposes. Since the passage of District of Columbia Appropriations Act for FY2010, subsequent appropriations acts have not included language prohibiting the use of District funds to regulate the medical use of marijuana. In 2010, the District of Columbia Council approved legislation (A18-0429) regulating the medical use of marijuana. Although the legislation was subject to 30-day congressional review period, which would have allowed Congress to pass a resolution of disapproval, Congress took no action to block its implementation. The legislation directed the city's Health Department to license up to five facilities to dispense medical marijuana to authorized patients. The first of those dispensaries began operations on July 30, 2013. Both the House and Senate committee bills ( H.R. 2786 and S. 1371 ) would have continued to prohibit the use of federal funds to carry out any law or regulation that would legalize or reduce federal penalties associated with the use or distribution of any controlled substance, including the medical use of marijuana. The Consolidated Appropriations Act for FY2014, P.L. 113-76 , prohibits the use of federal funds to decriminalize or regulate the medical use of marijuana. Abortion Services The public funding of abortion services for District of Columbia residents is a perennial issue debated by Congress during its annual deliberations on District of Columbia appropriations. District officials have cited the prohibition on the use of District funds as another example of congressional intrusion into local matters. Since 1979, with the passage of the District of Columbia Appropriations Act of 1980, P.L. 96-93 (93 Stat. 719), Congress has placed some limitation or prohibition on the use of public funds for abortion services for District residents. From 1979 to 1988, Congress restricted the use of federal funds for abortion services to cases where the woman's life was endangered or the pregnancy resulted from rape or incest. The District was free to use District funds for abortion services. When Congress passed the District of Columbia Appropriations Act for FY1989, P.L. 100-462 (102 Stat. 2269-9), it restricted the use of District and federal funds for abortion services to cases where the woman's life would be endangered if the pregnancy were taken to term. The inclusion of District funds and the elimination of rape or incest as qualifying conditions for public funding of abortion services were endorsed by President Reagan, who threatened to veto the District's appropriations act if the abortion provision was not modified. In 1989, President George H.W. Bush twice vetoed the District's FY1990 appropriations act over the abortion issue. He signed P.L. 101-168 (103 Stat. 1278) after insisting that Congress include language prohibiting the use of District revenues to pay for abortion services except in cases where the woman's life was endangered. The District successfully sought the removal of the provision limiting District funding of abortion services when Congress considered and passed the District of Columbia Appropriations Act for FY1994, P.L. 103-127 (107 Stat. 1350). The FY1994 act also reinstated rape and incest as qualifying circumstances allowing for the public funding of abortion services. The District's success was short-lived, however. The District of Columbia Appropriations Act for FY1996, P.L. 104-134 (110 Stat. 1321-91), and subsequent District of Columbia appropriations acts, limited the use of District and federal funds for abortion services to cases where the woman's life was endangered or cases where the pregnancy was the result of rape or incest. In FY2010, with the passage of P.L. 111-117 , Congress lifted the prohibition on the use of District funds for abortion services, but maintained the restriction on the use of federal funds for such services except in cases of rape, incest, or a threat to the life of the woman. The position was reversed with the passage of the appropriations acts for FY2011 ( P.L. 112-10 ) and FY2012 ( P.L. 112-74 ). Those acts included provisions restricting the use of both federal and District funds for abortion services, except in instances of rape, incest, or the woman's life was endangered if the pregnancy was carried to term. During the 112 th Congress, two bills were considered in the House that would have banned or restricted the provision of abortion services in the District of Columbia. On May 4, 2012, the House passed H.R. 3 , the No Taxpayer Funding for Abortions Act. The measure included a provision (Section 309) that would have permanently prohibited the use of federal and District funds for abortion services, except in instances of rape, incest, or a threat to the life of the woman. On June 17, 2012, the House Judiciary Committee ordered reported H.R. 3803 , the District of Columbia Pain-Capable Unborn Child Protection Act. The bill would have permanently banned doctors and health facilities from performing abortions in the District after the 20 th week of pregnancy, except when the pregnancy would result in the woman suffering from a physical disorder, injury, or illness that endangers her life. It would have imposed fines and imprisonment on doctors who violated the act and would have allowed the pregnant woman, the father of the unborn child, or maternal grandparents of a pregnant minor to bring a civil action against any person who performed an abortion after the 20 th week of pregnancy. The act would have required any physician that performs an abortion to report specific information to the relevant health agency in the District, including post-fertilization age of the fetus and the abortion method used. The District health agency would have been required to compile such information and issue an annual report to the public. The District's delegate to Congress, Eleanor Holmes Norton, though not allowed to testify before the Committee, spoke out against the measures as infringements on home rule. The Obama Administration's FY2014 budget request included a provision that would have prohibited the use of federal funds for abortion services except in cases of rape, incest, or when the woman's life would be endangered if the pregnancy were carried to term, but did not include language that would restrict the use of District funds for abortion services. S. 1371 , as reported, supported the Administration position restricting the use of federal funds. H.R. 2786 , as reported, included language that would have restricted the use of both federal and District funds for abortion services, except in instances of rape, incest, or when the woman's life is endangered. The Consolidated Appropriations Act for FY2014, P.L. 113-76 , includes a provision consistent with the language included in the House Committee bill prohibiting the use of both District and federal funds for abortion services, except in instances of rape, incest, or when the woman's life is endangered. District of Columbia Opportunity Scholarship Program24 The Consolidated Appropriations Act for FY2004, P.L. 108-199 , which combined six appropriations bills—including the FY2004 District of Columbia Appropriations Act—authorized and appropriated funding for the Opportunity Scholarship program, a federally funded school voucher program for the District of Columbia. The program provides scholarships (also known as vouchers) to students in the District of Columbia to attend participating private elementary and secondary schools, including religiously affiliated private schools. P.L. 108-199 also provided funding for the District of Columbia Public Schools (DCPS) for the improvement of public education and for the State Education Office for public charter schools. The provision of federal funds for DCPS, public charter schools, and vouchers is commonly referred to as the "three-prong approach" to supporting elementary and secondary education in the District of Columbia. The Opportunity Scholarship program was subsequently reauthorized through the Scholarship for Opportunity and Results Act (division C of the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-10 ). Appropriations for the program were authorized for FY2012 through FY2016 at $60 million each year. P.L. 112-10 requires that appropriations provided for the program to be divided evenly among DCPS for the improvement of public education, public charter schools to improve and expand quality public charter schools, and the Opportunity Scholarship program, regardless of the actual amount appropriated. Thus, the reauthorized Opportunity Scholarship program continues to be included in a broader approach to supporting elementary and secondary education in the District of Columbia. The Obama Administration's proposed budget for FY2014 includes $30 million for DCPS, $20 million for public charter schools, and $2.2 million to carry out evaluation and administrative activities of the program support the Opportunity Scholarship program. S. 1371 , as reported, would have provided a total of $52.2 million for a federal payment for school improvement. Rather than dividing these funds equally between the aforementioned three prongs, funds would have been allocated as follows: $30 million for DCPS, $20 million for public charter schools, and $2.2 million for the Opportunity Scholarship program. H.R. 2786 , as reported, would have provided $54 million for a federal payment for school improvement, with $18 million provided to each of the three prongs. P.L. 113-76 appropriates $48 million divided evenly ($16 million each) among public schools, charter schools, and scholarships to private schools. Local Budget Autonomy In 1973, Congress granted the city limited home rule powers and empowered citizens of the District to elect a mayor and city council. At the same time, however, Congress retained the power to review and approve all District laws, including the District's annual budget. Under the District's home rule charter, the mayor must submit operating and capital budgets to the city council for review and adoption by a date specified by the council. The council must act on the budget within 56 calendar days of receiving the budget from the mayor. The mayor then forwards the approved budget to the President, who transmits it to Congress. Once forwarded to Congress, the District's budget moves through the congressional appropriations process. This typically includes subcommittee hearings, which may take place before the actual budget submission to Congress; subcommittee and committee markups in the House and the Senate; committee reports and votes; floor action; conference report consideration; and final passage. All of this is supposed to happen within approximately 120 calendar days before the beginning of the District's fiscal year on October 1. District of Columbia political leaders have consistently expressed concern that Congress has repeatedly delayed passage of the appropriations act for the District (in which Congress approves the city's budget) well after the start of the District's fiscal year. The city's elected leaders contend that delay in Congress's approval of its budget hinders their ability to manage the District's financial affairs and negatively affects the delivery of public services. During the past 18 years, approval of the District's annual budget has been delayed by complications in the congressional appropriations process. Rather than being enacted on its own, the District of Columbia appropriations act has often been folded into omnibus or consolidated appropriations acts, and continuing resolutions. As documented in Table 4 , FY1997 was the only year out of the past 18 years for which the D.C. appropriations act was enacted before the start of the fiscal year (on October 1 of the prior-numbered year). The Senate committee version of the Financial Services and General Government Appropriations Act for FY2014, S. 1371 , consistent with language in the Administration's FY2014 budget documents, included provisions that would have provided the District with some level of autonomy over locally raised revenues. Specifically, the bill would have allowed the District to decouple its fiscal year from the federal fiscal year allowing the District to establish when its local fiscal year would start; permitted District officials to obligate and expend local funds upon enactment by the District of its local annual budget; and granted the District the authority to spend local funds if Congress did not enacted a federal appropriation authorizing the expenditure of local funds before the start of the District's fiscal year. The House committee bill, H.R. 2786 , did not include similar language. The Consolidated Appropriations Act for FY2014, P.L. 113-76 , included a provision allowing the District to spend local funds if Congress does not enacted a continuing resolution or federal appropriation authorizing the expenditure of local funds before the start of the District's 2015 fiscal year. FY2014 Funding Lapse To mitigate the impact of congressional delays in the approval of the District's appropriation before the beginning of a fiscal year, Congress has routinely included language in continuing budget resolutions allowing the District to expend local funds on programs and activities included in its General Fund budget. Before the beginning of FY2014 fiscal year, Congress did not approve the District of Columbia Appropriation for FY2014. As a stopgap measure, on October 2, 2013, the House considered and passed H.J.Res. 71 , the District of Columbia Continuing Appropriations Resolution, 2014, which would allow the District to use locally raised revenues to fund District operations through December 15, 2013. The Senate did not take up consideration of the bill. During the 16-day shutdown city officials continued to press the Senate to consider the bill passed by the House, contending that a $144 million contingency fund used to keep the city operating would soon be exhausted, forcing the furloughing of all but essential city personnel. Mayor Vincent Gray asserted that the absence of a congressionally approved budget had forced the city to delay payments to Metro and threatened to delay payments to the District's 60 charter schools. On October 16, 2013, Congress passed an amended version of H.R. 2775 , a bill providing continuing appropriations through January 15, 2014. The bill, which was approved by both Houses of Congress on October 16, 2013 and signed into law as P.L. 113-46 on October 17, 2013, included a provision—Section 127—releasing the District of Columbia General Fund Budget (operating budget) for FY2014 from further congressional review and approval and allowing the District of Columbia to expend locally raised revenues as outlined in the its Fiscal Year 2014 Budget Request Act of 2013 (D.C. Act 20-0127). Although P.L. 113-46 allowed the District access to its locally generated revenues it did not fund any of the special federal payment accounts. Instead, Congress took action on these accounts when it considered and approved the Consolidated Appropriations Act of FY2014, P.L. 113-76 . The act appropriated funds for the remainder of the 2014 fiscal year, including the District's General Fund Budget and special federal payments to the District.

On April 10, 2013, the Obama Administration released its budget request for FY2014. The Administration's proposed budget included $676.3 million in special federal payments to the District of Columbia. Approximately 80% ($543.4 million) of the President's proposed budget request for the District would be targeted to the courts and criminal justice system. The President's budget request also includes $87.2 million in support of education initiatives. On May 22, 2013, the District of Columbia Council approved an FY2014 budget that included $12.1 billion in total operating funds and $2.1 billion in capital outlays. The mayor signed the measure (A20-0127) on July 24, 2013. Included in the act were provisions that would have granted the District significant autonomy over its budgetary and legislative affairs. Specifically, the act would have repealed portions of the District's code governing congressional review of all acts passed by the District of Columbia Council. On July 25, 2013, the Senate Appropriations Committee reported S. 1371, its version of the Financial Services and General Government Appropriations Act for FY2014. The bill recommended $674.8 million in special federal payments to the District. This was $700,000 more than appropriated for FY2013. On July 17, 2013, the House Appropriations Committee approved its version of the Financial Services and General Government Appropriations Act of 2014, H.R. 2786. The bill included $635.8 million in special federal payments to the District. The Senate and House committee bills included several general provisions that city officials had sought to eliminate or modify. The Senate committee bill would have lifted the prohibition on the use of District funds to provide abortion services, but would have continued the prohibition against the use of federal funds for the same services. The House committee bill would have restricted the use of both District and federal funds for abortion services to instances involving rape, incest, or a health threat to the life of the pregnant woman. Both the House and Senate committee bills would have (1) continued to prohibit the use of federal funds to regulate and decriminalize the medical use of marijuana, (2) continued to prohibit the District from using federal funds for a needle exchange program to combat the spread of HIV/AIDS, and (3) provided funding for a school voucher program. The Senate committee measure included provisions that would have granted the city budget autonomy over the expenditure of locally raised funds. In an effort to mitigate the impact of a federal shutdown because of a failure to pass FY2014 appropriations for the District of Columbia, the House approved H. J. Res., 71, a measure that would have allowed the District to spend its local tax revenues to fund District operations through December 15, 2013. The Senate did not taken up consideration of the bill. Congress was unable to reach agreement on any of the 12 regular appropriations, including FSGG, before the beginning of the 2014 federal fiscal year, resulting in a 16-day government shutdown. On October 16, 2013, Congress passed an amended version of H.R. 2775, a bill providing continuing appropriations through January 15, 2014, with some exceptions. One of those exceptions—Section 127—released the District's operating budget for FY2014 from further congressional review and allowed the District to expend locally raised revenues as outlined in the city's Fiscal Year 2014 Budget Request Act of 2013 (D.C. Act 20-0127). The bill was signed into law as P.L. 113-46 on October 17, 2013. Before the expiration of P.L. 113-46 on January 15, 2014, Congress approved a short-term appropriation act, P.L. 113-73, before approving the Consolidated Appropriations Act, P.L. 113-76, appropriating funds for the remainder the 2014 fiscal year. In addition to $673 million in special federal payments for the District, P.L. 113-76 also prohibited the use of District and federal funds for abortion services, except in cases of rape, incest, or the life of the pregnant woman is jeopardized. This report will be updated as events warrant.

Introduction The proposed Keystone XL pipeline has received considerable attention in recent months. If constructed, the pipeline would transport crude oil (e.g., synthetic crude oil or diluted bitumen) derived from oil sands resources in Alberta, Canada, to refineries and other destinations in the United States. Policy makers continue to debate various issues associated with the proposed pipeline. Although some groups have raised concerns over previous oil pipelines—Alberta Clipper and the Keystone mainline pipelines, both of which are operating—the Keystone XL proposal has generated substantially more interest among environmental stakeholders. Before the Keystone XL pipeline can be constructed, its owner/operator, TransCanada, must receive a Presidential Permit, which is issued by the State Department. The decision of whether to issue this permit has provided (and continues to provide) a rallying point for environmental groups who have voiced various concerns over the construction of the pipeline and/or further development of the oil sands. The Presidential Permit application—submitted by TransCanada—for the pipeline's construction represents a singular decision made by the Administration about whether or not the pipeline would serve the national interest. Such a decision requires the identification of factors that would inform that determination, as well as an assessment of the resulting impacts of both building and not building the pipeline. Stakeholders who raise concerns with the pipeline project are not a monolithic group. Some raise concerns about potential local impacts, such as oil spills. Some highlight the oil extraction impacts in Canada. Some argue the pipeline would have national energy and climate change policy implications. For these stakeholders, the Presidential Permit decision has been seen as a gauge of the Administration's support for reducing domestic fossil fuel use and greenhouse gas emissions. Thus, the pipeline proposal has provided a vehicle to galvanize advocates interested in climate change mitigation, particularly the reduction or replacement of fossil fuel use. Arguments supporting the pipeline's construction also cover a range of issues. Proponents of the Keystone XL Pipeline, including high-level Canadian officials and U.S. and Canadian petroleum industry stakeholders, base their arguments supporting the pipeline primarily on increasing the security and diversity of the U.S. petroleum supply and economic benefits, especially jobs. An analysis of these issues is beyond the scope of this report. For more discussion of these and other issues, see CRS Report R41668, Keystone XL Pipeline Project: Key Issues , by [author name scrubbed] et al. This report focuses on selected environmental concerns raised in conjunction with the proposed pipeline and the oil sands crude it will transport. As such, the environmental issues discussed in this report do not represent an exhaustive list of concerns and issues. Moreover, many of the environmental concerns are not unique to oil sands. One could compose analogous lists for all forms of energy: coal, natural gas, nuclear, biofuels, conventional crude oil. Therefore, the oil sands/pipeline issues discussed in this report, when practicable, will be compared to other energy sources, particularly conventional crude oil development. Section One provides an overview of oil sands by addressing the following questions: what are oil sands; how are they extracted; how do oil sands crude oils compare to other crude oils? Section Two provides an overview of the Keystone XL pipeline, including a project description; a discussion of the federal requirements to consider environmental impacts from the pipeline, including the Department of State's national interest determination, obligations pursuant to the National Environmental Policy Act, and a list of recent milestones in the national interest determination process; and information about other international oil pipelines. Section Three discusses selected environmental issues, including greenhouse gas emissions intensity, related climate change concerns, pipeline oil spill risks, and two oil sands extraction concerns: land disturbance and water resources. An Appendix provides a list of agencies with jurisdiction or expertise relevant to pipeline impacts. This report is intended to complement other CRS reports that address different aspects of the Keystone XL proposal, including the following: CRS Report R41668, Keystone XL Pipeline Project: Key Issues , by [author name scrubbed] et al. CRS Report R42124, Proposed Keystone XL Pipeline: Legal Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report R42537, Canadian Oil Sands: Life-Cycle Assessments of Greenhouse Gas Emissions , by [author name scrubbed]. CRS Report R43415, Keystone XL: Greenhouse Gas Emissions Assessments in the Final Environmental Impact Statement , by [author name scrubbed]. Section 1: Oil Sands—Overview The term oil sands generally refers to a mixture of sand, clay and other minerals, water, and a very dense and highly viscous (i.e., resistant to flow) form of petroleum called "bitumen." At room temperature, oil sands bitumen has the consistency of cold molasses. This property makes it difficult to transport. Bitumen can also be processed into a fuel, because it is a form of crude oil that has undergone degradation over geologic time. At some point, the bitumen may have been lighter crude oil that lost its lighter, more volatile components due to natural processes. Companies developing oil sands reserves currently must process or dilute the bitumen before it can be transported. This processed/diluted bitumen falls into three general categories: Upgraded bitumen, or synthetic crude oil (SCO). SCO is produced from bitumen at a refinery that turns the very heavy hydrocarbons into a lighter material. Diluted Bitumen (DilBit). DilBit is bitumen that is blended with lighter hydrocarbons, typically natural gas condensates, to create a lighter, less viscous, and more easily transportable material. DilBit may be blended as 25% to 30% condensate and 70% to 75% bitumen. Synthetic bitumen (Synbit). Synbit is typically a combination of bitumen and SCO. Blending the lighter SCO with the heavier bitumen results in a product that more closely resembles conventional crude oil. Typically the ratio is 50% synthetic crude and 50% bitumen, but blends, and their resulting properties, may vary significantly. Figure 1 illustrates the proportions of crude oil types that Canada has exported to the United States in recent years. The figure indicates that "blended bitumen" exports, which include both DilBit and Synbit, have nearly tripled in the past six years. They are also expected to constitute most of the growth in oil sands production in the foreseeable future. Canadian crude oil imports accounted for approximately 33% of U.S. crude oil imports in 2013, up from 28% in 2012. Oil Sands Estimates and Locations Resource estimates indicate that oil sands deposits are located throughout the world in varying amounts ( Figure 2 ). By far, the two largest estimated deposits of oil sands are in Canada, particularly the Province of Alberta, and in Venezuela's Orinoco Oil Belt ( Figure 2 ). As stated by the U.S. Geological Survey, the "resource quantities reported here … are intended to suggest, rather than define the resource volumes that could someday be of commercial interest." For a variety of reasons (e.g., technology and economics), less than 0.4%—based on information in 2007—of the estimated oil sands resources are currently being produced. Perhaps a more useful estimate of oil resources is "proven reserves." According to the Energy Information Administration (EIA), proven energy reserves are "estimated quantities of energy sources that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions." The Government of Alberta estimates that its proven oil sands reserves are approximately 170 billion barrels, which accounts for 97% of Canada's total proven oil reserves, 7%-10% of the total estimated resource in Canada's geologic basin ( Figure 2 ). Figure 3 illustrates the estimated proven oil reserves for the top 15 nations in 2012. Canada ranks third behind Venezuela and Saudi Arabia, due to its supply of oil sands in Alberta. Note that proven reserve estimates can change dramatically over a relatively short time ( Figure 3 ). EIA data indicate that Canada's proven reserve estimate increased from approximately 5 billion barrels of oil (BBO) in 2002 to 175 BBO in 2003. Similarly, Venezuela's estimated proven reserves increased from 73 BBO in 2000 to 298 BBO in 2013. The increases resulted from the addition of oil sands in Canada and extra-heavy oil in Venezuela to the total estimated proven reserves for each country. Oil Sands Extraction Processes Oil sands extraction processes are generally divided into two categories: mining and in situ operations, which are described below. Figure 4 identifies the locations of areas accessible to mining and in situ sites of oil sands in Alberta. According to the Government of Alberta, 80% of the Canadian oil sands are accessible by in situ methods only. The year 2012 was the first year in which in situ operations accounted for a larger percentage (55%) of oil sands production than mining. The Canadian Association of Petroleum Producers (CAPP) projects in situ production to increase its share of production in coming years, accounting for approximately 62% of total production by 2020. Both processes are briefly discussed below. Mining Oil sands deposits that are less than about 250 feet below the surface can be removed using conventional strip-mining methods. The strip-mining process includes removal of the overburden (i.e., primary soils and vegetation), excavation of the resource, and transportation to a processing facility. Nearly all mined bitumen is currently upgraded to synthetic crude oil. In Situ Oil sands deposits that are deeper than approximately 225 feet are recovered using one of three in situ methods: primary production, cyclic steam stimulation (CSS), and steam-assisted gravity drainage (SAGD). CSS and SAGD, which accounted for approximately 75% of Alberta's in situ recovery in 2012, involve injecting steam into an oil sands reservoir. The steam heats the bitumen, decreasing its viscosity and enabling its collection. Based on 2012 data, SAGD accounts for the greatest percentage of in situ recovery and is the preferred method of recovery for most new projects. SADG involves a top well for steam injection and a bottom well for bitumen production. Figure 5 provides an illustration of this process. In contrast to bitumen from mining operations, which generally produce synthetic crude oil, the vast majority of bitumen from in situ operations becomes DilBit. Properties of Oil Sands-Derived Crudes Compared to Other Crudes Crude oil is a complex mix of hydrocarbons, ranging from simple compounds with small molecules and low densities to very dense compounds with extremely large molecules. Three key properties of crude oils include the following: API Gravity. API gravity measures the weight of a crude oil compared to water. It is reported in degrees (") by convention. API gravities above 10" indicate crude oils lighter than water (they float); API gravities below 10" indicate crude oils heavier than water (they sink). Although the definition of "heavy" crude oil may vary, it is generally defined by refiners as being at or below 22" API gravity. Sulfur Content. Sulfur content in crude oil is an indication of potential corrosiveness due to the presence of acidic sulfur compounds. Sulfur content is measured as an overall percentage of free sulfur and sulfur compounds in a crude oil by weight. Total sulfur content in crude oils generally ranges from below 0.05% to 5.0%. Crudes with more than 1.0% free sulfur or other sulfur-containing compounds are typically referred to as "sour," below 0.5% sulfur as "sweet." Total Acid Number. Total Acid Number (TAN) measures the composition of acids in a crude which can gauge its potential for corrosion, particularly in a refinery. TAN value is measured as the number of milligrams (mg) of potassium hydroxide (KOH) needed to neutralize the acids in one gram of oil. As a rule-of-thumb, crude oils with a TAN greater than 0.5 are considered to be potentially corrosive due to the presence of naphthenic acids. Table 1 compares Alberta's different oil sands crudes with other crude oils extracted in the United States and around the world. The data indicate that all oil sands crudes would be considered heavy crudes. Heavy crudes are found throughout the world, including the United States. The data indicate that oil sands crudes resemble other heavy crudes in terms of sulfur content and TAN. Section 2: Keystone XL Pipeline—Overview As originally proposed by TransCanada in September 2008, the Keystone XL pipeline would have involved two major segments ( Figure 6 ). The first segment—approximately 875 pipeline miles in the United States—would cross the U.S.-Canadian border into Montana, pass through South Dakota, and terminate in Steele City, NE. The second segment—approximately 485 miles and labeled as the "Gulf Coast Project" in Figure 6 —would connect an existing pipeline in Cushing, OK, with locations in southern Texas. Following action from Congress, DOS, and state governments (see Table 2 for details), DOS ultimately denied TransCanada's initial permit application in January 2012. TransCanada then proceeded with construction of the Gulf Coast Pipeline. That segment did not require a permit from DOS because it does not cross a U.S. border. (See " Presidential Permit Requirements for Cross-Border Pipelines ," below.) The Gulf Coast Pipeline Project became operational on January 22, 2014. In May 2012, TransCanada submitted a new permit application to DOS for the proposed Keystone XL Pipeline. That application is for only the 875-mile northern pipeline segment. Once complete, the entire Keystone XL pipeline system would have the capacity to deliver 830,000 barrels per day (bpd), a substantial flow rate compared to other U.S.-Canada import pipelines ( Table 3 in the section below, " Other Oil Pipelines from Canada "). Assuming the pipeline were to deliver this maximum capacity each day of the year, it would transport approximately 300 million barrels per year, a considerable volume when compared to the 420 million barrels of DilBit and synthetic crude oil Canada exported to the United States in 2013 ( Figure 1 ). The 36-inch-diameter pipeline would require a 50-foot-wide permanent right-of-way along the route. Approximately 88% of the pipeline right-of-way would be on privately owned land; the remaining 12% is owned by local, state, or federal governments. Rangeland and agricultural land comprise most of the land crossed by the proposed pipeline. Additional facilities associated with the pipeline system include pump stations (with associated electric transmission interconnection facilities), mainline valves, and delivery metering facilities. The Keystone XL pipeline and the Gulf Coast Project would combine with two existing pipeline segments to complete TransCanada's Keystone Pipeline System. This system is depicted in Figure 6 . These existing segments include the following: The Keystone Mainline: A 30-inch pipeline with a capacity of nearly 600,000 bpd that connects Alberta oil sands to U.S. refineries in Illinois. The U.S. portion runs 1,086 miles and begins at the international border in North Dakota. The Keystone Mainline began operating in June 2010. The Keystone Cushing Extension: A 36-inch pipeline that runs 298 miles from Steele City, NE, to existing crude oil terminals and tank farms in Cushing, OK. The Cushing Extension began operating February 2011. Federal Requirements to Consider the Pipeline's Environmental Impacts The DOS decision-making process related to a Presidential Permit application is subject to environmental review requirements established pursuant to the National Environmental Policy Act (NEPA, 42 U.S.C. §4321 et seq.). Compliance with NEPA is intended, in part, to assure that DOS fully identifies and considers any significant environmental impacts associated with the issuance or denial of a permit to construct, operate, and maintain the pipeline system and associated facilities. The analysis of impacts prepared during the NEPA process is intended to inform the federal decision-making process. As a result, compliance with NEPA must be documented and demonstrated before DOS can make a final decision on the Presidential Permit. Issues that arose and environmental impacts identified during DOS efforts to process TransCanada's application for a Presidential Permit ultimately resulted in the denial of its 2008 permit application. With TransCanada's 2012 reapplication for a permit to construct the newly configured Keystone XL pipeline project, the Presidential Permit process and NEPA compliance process began anew. Generally, federal agencies have no authority to control siting of oil pipelines, even interstate pipelines. Instead, the primary siting authority for oil pipelines generally would be established under applicable state law (which may vary considerably from state to state). However, in accordance with Executive Order 13337, a facility connecting the United States with a foreign country, including a pipeline, requires a Presidential Permit from DOS before it can proceed. Key elements of the Presidential Permit process, including DOS efforts to identify environmental impacts associated with the TransCanada's 2008 and 2012 permit applications are discussed below (and summarized in Table 2 ). Included in that discussion are relevant activities and requirements associated with DOS compliance with NEPA and its obligation to determine whether the proposed pipeline would serve the national interest. Presidential Permit Requirements for Cross-Border Pipelines A decision to issue or deny a Presidential Permit application is based on a determination that the proposed project would serve the "national interest." This term is not defined in applicable Executive Orders. However, when discussing the 2008 permit application, DOS stated, "Consistent with the President's broad discretion in the conduct of foreign affairs, DOS has significant discretion in the factors it examines in making a National Interest Determination. The factors examined and the approaches to their examination are not necessarily the same from project to project. " More recently, DOS stated that its national interest determination will involve "consideration of many factors including: energy security; environmental, cultural, and economic impacts; foreign policy; and compliance with relevant federal regulations and issues." In addition, DOS stated that some of the key factors it considered in past decisions include the following: environmental impacts of the proposed projects; impacts of the proposed projects on the diversity of supply to meet U.S. crude oil demand and energy needs; the security of transport pathways for crude oil supplies to the United States through import facilities constructed at the border relative to other modes of transport; stability of trading partners from whom the United States obtains crude oil; relationship between the United States and various foreign suppliers of crude oil and the ability of the United States to work with those countries to meet overall environmental and energy security goals; impact of proposed projects on broader foreign policy objectives, including a comprehensive strategy to address climate change; economic benefits to the United States of constructing and operating proposed projects; and relationships between proposed projects and goals to reduce reliance on fossil fuels and to increase use of alternative and renewable energy sources. DOS may consider additional factors to inform its national interest determination for a given project. However, pursuant to E.O. 13337, for each permit application it receives for an energy-related project, DOS must request the views of the Attorney General, Administrator of the Environmental Protection Agency (EPA), and Secretaries of Defense, the Interior, Commerce, Transportation, Energy, and Homeland Security (or the heads of those departments or agencies with relevant authority or responsibility over relevant elements of the proposed project). DOS may request the views of additional federal department and agency heads, as well as additional local, state, or tribal agencies, as it deems appropriate for a given project. DOS must also invite public comment on the proposed project. If, after considering the views and assistance of various agencies and the comments from the public, DOS finds that the proposed project would serve the national interest, then a Presidential Permit must be issued. Specific to the Keystone XL pipeline, in its 2012 Presidential Permit application, TransCanada states the following: The project will serve the national interest of the United States by providing a secure and reliable source of Canadian crude oil to meet the demand from refineries and markets in the United States, by providing critically important market access to developing domestic oil supplies in the Bakken formation in Montana and North Dakota, and by reducing U.S. reliance on crude oil supplies from Venezuela, Mexico, the Middle East, and Africa. The project will also provide significant economic and employment benefits to the United States, with minimal impacts on the environment. To ensure that environmental impacts are considered before final agency decisions are made, NEPA requires an environmental impact statement (EIS) must be prepared for every major federal action that may have a "significant" impact upon the environment. With respect to the Presidential Permit applications submitted by TransCanada for Keystone XL, the State Department concluded that approval of a permit did require the preparation of an EIS. Analysis included in the EIS is intended to identify any significant impact of the proposed pipeline, including anticipated impacts of taking no action (e.g., denying the permit) and potential mitigation measures or protections necessary to reduce the potential for adverse environmental impacts. DOS uses that assessment of environmental impacts, with other factors, to determine if the project does, in fact, serve the national interest. Identification of Environmental Impacts During the NEPA Process48 The DOS review of a Presidential Permit application explicitly requires compliance with multiple federal environmental statutes. Environmental requirements identified within the context of the NEPA process have drawn considerable attention. Pursuant to NEPA, when considering an application for a Presidential Permit, DOS must take into account environmental impacts of a proposed facility and directly related construction. The EIS for the proposed Keystone XL Pipeline project identifies significant impacts associated with the construction, connection, operation, and maintenance of the pipeline and its associated facilities. In August 2011, DOS issued a final EIS that identified reasonably foreseeable impacts associated with approving or denying a permit for the Keystone XL pipeline, as proposed in 2008. On January 31, 2014, DOS released the final EIS prepared for the 2012 permit application. EIS preparation is done in two stages, resulting in a draft and final EIS. NEPA regulations require the draft EIS to be circulated for public and agency comment, followed by a final EIS that incorporates those comments. The agency responsible for preparing the EIS, in this case DOS, is designated the "lead agency." In developing the EIS, DOS must rely on information provided by TransCanada. For example, TransCanada's original permit application included an Environmental Report which was intended to provide the State Department with sufficient information to understand the scope of potential environmental impacts of the project. In preparing the draft EIS, the lead agency must request input from "cooperating agencies," which include any agency with jurisdiction by law or with special expertise regarding any environmental impact associated with the project. The original Keystone XL permit process involved 11 federal cooperating agencies, including the Environmental Protection Agency (EPA), as well as state agencies. Table A-1 (in the Appendix ) provides a list of various agencies and their roles in the pipeline permitting process. In addition to its role as a cooperating agency, EPA is also required to review and comment publicly on the EIS and rate both the adequacy of the EIS itself and the level of environmental impact of the proposed project. EPA's role in rating draft EISs for the Keystone XL pipeline project had a significant impact on the NEPA process for TransCanada's 2008 Presidential Permit application. On March 1, 2013, the State Department released the draft EIS for the 2012-proposed Keystone XL Pipeline project as a supplement to the final EIS prepared for the 2008 Presidential Permit application (released in August 2011). In contrast to EISs prepared for the 2008 permit application, EISs prepared for the 2012 permit application evaluated potential impacts associated with a pipeline route from Montana to Steele City, NE, that avoids the Nebraska Sand Hills and excludes the proposed Gulf Coast Project. The EISs expand upon and update information included in the 2011 final EIS prepared for the 2008 permit application. EPA provided comments on the draft EIS for the 2012 permit application. It rated the draft EIS as "EO-2" (Environmental Objections—Inadequate Information). EPA stated that, while the agency believes the draft EIS strengthens the analysis presented to date in the NEPA process, it recommended several improvements to the analysis of the proposed project's impacts and to mitigate certain impacts. The recommendations for improvements to the EIS fell broadly into categories regarding the analyses of GHGs, pipeline safety, alternative pipeline routes, and community and environmental justice impacts. On January 31, 2014, the State Department released the final EIS for the 2012 permit application. Any additional or revised analysis included in the final EIS reflects DOS's response to comments from the public, EPA, and any federal, state, tribal, or local agency. With the release of the final EIS, DOS begins the process to determine whether the project will serve the national interest. Identification of Environmental Impacts During the National Interest Determination Generally, the NEPA process is considered complete when (or if) the federal agency issues a final Record of Decision (ROD), formalizing the selection of a project alternative. However, for a project subject to a Presidential Permit, issuance of a final EIS marks the beginning of the DOS process to make its national interest determination. For previous Presidential Permits, a ROD and National Interest Determination (NID) were issued as the same document. With the publication of the final EIS, the process to make the NID begins. As required in Executive Order 13337, DOS will seek input from selected federal agencies to determine whether issuance of a Presidential Permit for the pipeline would serve the national interest. Those agencies have 90 days to submit relevant information to DOS. DOS also provided a 30-day public comment period, ending on March 7, 2014. Issuance of the ROD and NID involve distinctly different, but interrelated requirements. Under NEPA, DOS must fully assess the environmental consequences of an action and potential project alternatives before making a final decision. NEPA does not prohibit a federal action that has adverse environment impacts; it requires only that a federal agency be fully aware of and consider those adverse impacts before selecting a final project alternative. That is, NEPA is intended to be part of the decision-making process, not dictate a particular outcome. The NID, however, does dictate a particular outcome—approval or denial of a Presidential Permit. Issuance of a Presidential Permit is predicated on the finding that the proposed project would serve the national interest. While NEPA does not prohibit federal actions with adverse environmental impacts, a project's adverse environmental impacts may lead the DOS to determine that the project is not in the national interest. To illustrate the relationship between the NEPA process and NID process, Table 2 summarizes milestones in the Presidential Permit process for TransCanada's 2008 and 2012 permit application. Consideration of Environmental Impacts Outside of the United States NEPA does not require DOS to identify or analyze environmental impacts that occur within another sovereign nation that result from actions approved by that sovereign nation. However, to further the purpose of the NEPA, Executive Order 12114 "Environmental Effects Abroad of Major Federal Actions," requires federal agencies to prepare an analysis of significant impacts from a federal action abroad. This order does not, however, require federal agencies to evaluate the impacts of projects outside the United States when that project is undertaken with the involvement or participation of the foreign nation in which the project is undertaken—as is the case with Canada's participation in the Keystone XL pipeline project. While it is not subject to it, as a matter of policy, DOS uses the order as guidance and includes information in the final EIS regarding the environmental analysis conducted by the Canadian government. Apart from any obligation under NEPA, however, DOS may take into consideration extraterritorial project impacts, as it deems necessary, as part of its national interest determination. For example, as noted above, factors DOS considered in making its determination for past pipeline projects included the proposed project's impact on broader policy objectives, including a comprehensive strategy to address climate change, and the relationships between the proposed project and U.S. goals to reduce reliance on fossil fuels and to increase use of alternative and renewable energy sources. In its January 2012 denial of TransCanada's initial Presidential Permit application, DOS did not specifically cite these issues as playing a role in its determination. However, these issues continued to generate concern among some stakeholders. It is uncertain whether or the degree to which environmental impacts abroad will affect DOS's determination that the proposal will serve the national (i.e., U.S.) interest. Other Oil Pipelines from Canada As illustrated in Figure 7 , multiple pipelines connect Canadian oil resources with the United States. Several of these pipelines have been constructed in recent years. Table 3 identifies pipelines that have applied for a Presidential Permit in the past six years. The table indicates that the Keystone XL permit process timetable, which is ongoing, has substantially exceeded prior permit process timetables. When DOS issued the Presidential Permit for the first Keystone pipeline project in 2008, DOS concluded that the project "would result in limited adverse environmental impacts" and would serve the national interests of the United States for the following reasons: It increases the diversity of available supplies among the United States' worldwide crude oil sources. Increased output from the [Western Canada Sedimentary Basin] can be utilized by a growing number of refineries in the United States that have access and means of transport for these increased supplies. It shortens the transportation pathway for a portion of United States crude oil imports. Crude oil supplies in Western Canada represent the largest and closest foreign supply source to domestic refineries that do not require marine transportation. It increases crude oil supplies from a source region that has been a stable and reliable trading partner of the United States and does not require exposure of crude oil in high seas transport and railway routes that may be affected by heightened security and environmental concerns. It provides additional supplies of crude oil to make up for the continued decline in imports from several other major U.S. suppliers. Some stakeholders may point to these statements as reasons to issue a Presidential Permit to the XL proposal. Section 3: Selected Environmental Issues Environmental issues related to the Keystone XL pipeline and the oil sands crude oil it would carry cover a wide spectrum. These issues involve both local/regional concerns—some in the United States, some in Canada—and national/global concerns. This section does not provide an exhaustive list of environmental issues. Instead, this section discusses several key issues, including the following: greenhouse gas emissions intensity; climate change policy; oil spill risk; and oil sands extraction impacts. GHG Emissions Intensity of Oil Sands Crude Oils61 Greenhouse gas (GHG) emissions, primarily carbon dioxide (CO 2 ) and methane, are emitted during a variety of stages in oil sands production. Although all fossil fuel development activities—and other forms of energy to varying degrees—emit GHG emissions, some have raised concern that oil sands have a higher emissions intensity than other forms of crude oil. In this context, emissions intensity means GHG emissions per units of production (e.g., barrels). Other stakeholders, including the Alberta government and industry associations, argue that this conclusion is overstated, asserting that GHG emissions from oil sands crude oil are comparable to some other global crudes, some of which are produced and/or consumed in the United States. The issue has generated considerable debate, attention, and analyses from multiple parties. This section (1) describes the tool—life-cycle assessments—used for comparisons; (2) discusses the oil sands life-cycle assessment results; and (3) compares oil sands emissions intensities with other crude oils. Life-Cycle Assessments A life-cycle assessment (LCA) is an analytic method used for evaluating and comparing the environmental impacts of various products. LCAs can be used to identify, quantify, and track emissions of CO 2 and other GHG emissions arising from the development of hydrocarbon resources, and to express them in a single, universal metric: carbon dioxide equivalent (CO 2 e) per unit of fuel or fuel use. The results of an LCA can be used to evaluate the GHG emissions intensity of various stages of the fuel's life cycle, as well as to compare the emissions intensity of one type of fuel or method of production to another. GHG emissions profiles modeled by most LCAs are based on a set of boundaries commonly referred to as "cradle-to-grave," or, in the case of transportation fuels such as petroleum, "Well-to-Wheel" (WTW). WTW assessments for petroleum-based transportation fuels focus on the emissions associated with the entire life cycle of the fuel. This includes extraction; transportation; upgrading and/or refining; distribution of refined product (e.g., gasoline, diesel, jet fuel); and combustion of the fuel. Inclusion of the final combustion phase allows for the most complete picture of crude oil's impact on GHG emissions, as this phase can contribute up to 70%-80% of WTW emissions. However, other LCAs, such as well-to-tank (WTT) assessments, may focus solely on production and/or extraction. Both study types are valid, but they tell different stories. Focusing on the WTT assessment would show oil sands crudes' emissions intensities to be considerably higher than conventional oils, because the assessment is weighted more proportionally to the production phase. Focusing on the WTW assessments returns values for the emission intensity differences which are less pronounced due to the inclusion of the combustion phase. GHG Life-Cycle Assessments of Canadian Oil Sands A number of published and publicly available studies have attempted to assess the life-cycle GHG emissions data for Canadian oil sands crudes. The studies examined in this report include the LCAs analyzed by DOS in its 2014 FEIS. A CRS survey of these studies reveals the following: 1. Canadian oil sands crudes are generally more GHG emission-intensive than other crudes they may displace in U.S. refineries, emitting an estimated 17% more GHGs on a life-cycle basis than the average barrel of crude oil refined in the United States; 2. compared to selected crude oil imports, Canadian oil sands crudes emit an estimated 2%-19% more GHGs on a life-cycle basis (well-to-wheels (WTW)); and 3. they emit an estimated 9%-102% more GHGs on a well-to-tank (WTT) basis, which omits the combustion phase. These dramatically different ranges highlight the importance of LCA boundaries and data presentation. When a comparison is expressed on a WTT basis rather than on a WTW basis, GHG emissions from Canadian oil sands crudes show values that are significantly higher than reference crudes. This difference is due to the omission of the combustion phase, which generates the vast majority of GHG emissions and generally yields minimal variance among different crude oils. The studies identify two main reasons for the range of increases in GHG emissions intensity: oil sands are heavier and more viscous than lighter crude oil types on average, and thus require more energy- and resource-intensive activities to extract; and oil sands are compositionally deficient in hydrogen, and have a higher carbon, sulfur, and heavy metal content than lighter crude oil types on average, and thus require more processing to yield consumable fuels by U.S. standards. Figure 8 presents a summary of the WTW GHG emissions estimates for various Canadian oil sands crude types and production processes as reported by several studies. Variability among the estimates is the result of each study's design and input assumptions. Canadian Oil Sands Compared to Other Crude Oils Many of the LCA studies examined by DOS compared the GHG emission intensity of Canadian oil sands crude oil to other crude oils. Figure 9 presents the results of one of the more comprehensive studies, which was prepared by the U.S. Department of Energy's National Energy Technology Laboratory (NETL) in 2009. NETL compared WTW GHG emissions of reformulated gasoline across various crude oil feedstocks. NETL concluded that WTW GHG emissions from gasoline produced from a weighted average of Canadian oil sands crudes are approximately 17% higher than that from gasoline derived from the average mix of crudes sold or distributed in the United States in 2005 ( Figure 9 ). This corresponds to an increase in WTT (i.e., "production") GHG emissions of 80% over the 2005 average production emissions for imported transportation fuels to the United States (18 gCO 2 e/MJ). Similar to the LCAs of Canadian oil sands crudes, assessments of other global crude oil resources are bounded by specific design factors and input assumptions that can affect the results. Parties from both sides of the issue may be able to use results from one or more of the above studies to advance their positions. For example, some stakeholders often use WTT comparisons to highlight the GHG emissions intensity of the oil sands extraction process. On the other hand, other groups often point out that the GHG emissions intensity of oil sands is comparable to other heavy crudes that are used and/or produced in the United States. Both assertions are supported by the analyses, but the above results suggest that these assertions may not tell the complete story. The data underlying the assertions are generated by conducting LCAs. Although LCAs have emerged as an important analytical tool for comparing the GHG emissions of various hydrocarbon resources, LCAs retain many variables and uncertainties. The life-cycle of hydrocarbon fuels is complex and differs by fuel. LCAs rely on a large number of analytical design features that are needed to model their emissions. As noted above, certain factors that could alter the results (e.g., land use changes and combustion of co-products) may be omitted, due, in part, to their additional complexity. Therefore, comparing results across resources or production methods may be problematic. GHG Emissions Intensities of Fossil Fuels How does the GHG emissions intensity of oil sands compare to other fossil fuels, particularly coal? Authoritative analyses that provide such comparisons are sparse. One study from a peer-review journal compares the GHG emissions intensity of oil sands with other fossil fuels. The study found that oil sands crude oil emissions intensity is slightly less than emissions intensity from underground coal mining, but surpasses the life-cycle emissions intensity from surface coal mining. Figure 10 illustrates this result. CRS added the line with the arrows to focus one's attention on the comparison described above. One must be cautious when singling out oil sands crudes, because other heavy crude oils would also be comparable to coal's emissions intensity, as indicated in Figure 9 . Regardless, the relative comparison in Figure 10 may draw the attention of certain stakeholders. If heavier crudes, such as those derived from oil sands, were to replace crude oils in the United States with less GHG emissions intensity, the emissions intensity of the U.S. energy portfolio would—all things being equal—increase. Such a result would make GHG emissions reductions more difficult. Climate Change Concerns During a June 2013 speech, President Obama stated that an evaluation of the "net effects of the pipeline's impact on our climate" would factor into the State Department's national interest determination in order to determine if the project would "significantly exacerbate the problem of carbon pollution." Therefore, the 2014 FEIS GHG emission and climate change discussion has generated considerable debate among stakeholders. The first section below discusses the DOS analysis in its 2014 FEIS of GHG emissions related to the proposed pipeline and potential climate change impacts. The second section discusses oil sands development and its potential impact on the so-called "global carbon budget." Many stakeholders have raised concerns that the pipeline's approval would facilitate further development of oil sands, a potential outcome, they argue, that runs counter to maintaining a specific carbon budget. The 2014 FEIS GHG and Climate Change Analysis Among the various impacts identified in the project's environmental impact statement are those involving GHG emissions. As required under NEPA, the 2014 FEIS identifies anticipated direct and indirect impacts of the project as proposed by TransCanada as well as various project alternatives, including analysis of the "no action alternative" (i.e., an assessment of the impacts associated with denying TransCanada's permit application). The 2014 FEIS finds the following: the GHG emissions released during the construction period for the project would be approximately 0.24 million metric tons of carbon dioxide equivalents (MMTCO 2 e) due to land use changes, electricity use, and fuels for construction vehicles (equivalent to 0.004% of U.S. annual GHG emissions); the GHG emissions released during normal operations would be approximately 1.44 MMTCO 2 e/year due to electricity use for pumping stations, fuels for maintenance and inspection vehicles, and fugitive emissions (equivalent to 0.02% of U.S. annual GHG emissions); the total, or gross, life-cycle GHG emissions (i.e., the aggregate GHG emissions released by all activities from the extraction of the resource to the refining, transportation, and end-use combustion of refined fuels) attributable to the oil sands crude transported through the proposed pipeline would be approximately 147 to 168 MMTCO 2 e per year (equivalent to 2.2%-2.6% of U.S. annual GHG emissions); the incremental, or net, life-cycle GHG emissions (i.e., GHG emissions over-and-above those from the crude oils expected to be displaced in U.S. refineries) is estimated to be 1.3 to 27.4 MMTCO 2 e per year (equivalent to 0.02%-0.4% of U.S. annual GHG emissions); but according to the State Department's market analysis, "approval or denial of any one crude oil transport project, including the proposed project, is unlikely to significantly impact the rate of extraction in the oil sands or the continued demand for heavy crude oil at refineries in the United States based on expected oil prices, oil-sands supply costs, transport costs, and supply-demand scenarios." The 2014 FEIS presents the crude oil market analysis separately from the GHG emissions assessment. By determining that the most likely scenario is one in which oil sands production would be unaffected by expected market conditions, the Final EIS implies that the "incremental" life-cycle GHG emissions attributable to the oil sands crudes transported through the proposed pipeline are negligible. With this determination, the only difference in estimates between competing scenarios would be attributable to the operational GHG emissions of the alternative modes of transportation (e.g., GHG emissions from rail cars, trucks, or tankers versus the pipeline). The FEIS reports that the annual operational emissions attributed to the "no action" alternatives range from 4.0 to 4.4 MMTCO 2 e per year (an increase of 29%-42% over the 3.1 MMTCO 2 e per year in operational emissions for the proposed project inclusive of the existing southern leg). Some stakeholders have questioned many of the conclusions in the 2014 FEIS and argue that the project may have greater climate change impacts than the DOS projects. They contend that there is nothing presumed or inevitable about the rate of expansion for the Canadian oil sands. Current oil sands projects face a challenging financial environment, and up-front production costs and price differentials are comparatively higher for oil sands crudes, making new investment sensitive to changes in supply costs and global prices. Commentators have highlighted the many reported instances where current price discounts for oil sands crudes have dampened investment and project development, including questions about whether rail transport will be used if the pipeline is not built. They stress that oil market projections and transportation options are rife with uncertainty, and that the proposed Keystone XL Pipeline could have a much more significant impact on expansion if a number of key variables differ from the DOS assumptions. These variables include lower global oil prices than projected; higher rail costs than projected; higher new project costs than expected; greater competition from shale oil and tight oil plays; and future carbon pricing or procurement policies in the United States or Canada. Any decrease or delay in oil sands development could have significant impacts on the rate of growth in global GHG emissions both directly (by curtailing production) and indirectly (by allowing more time for the development of energy-efficiency strategies, the promulgation of climate policies, and the deployment of lower-carbon energy technologies). On the other hand, other stakeholders agree with a market analysis similar to the one outlined in the 2014 FEIS. They argue that as long as there is strong global demand for petroleum products, resources such as the Canadian oil sands will be produced and shipped to markets using whatever route necessary. They see future investment affected only in scenarios where the global price of oil falls below supply costs for an extended period of time. They see current production affected only in scenarios that assume all pipeline transport capacity is frozen and no other transport capacity (such as rail or tanker) is available. They contend that incentives are too great for oil sands producers and the Canadian and Albertan governments to leave the oil in the ground; and that once the oil is extracted, the market would likely respond by adding adequate transport capacity over time. They contend that scaling up transport is logistically and economically feasible, based on past and present evidence in the Powder River Basin and the Bakken, as well as the oil sands region itself. Furthermore, they estimate that GHG emissions intensities for the Canadian oil sands are currently within the range of many other heavy crude oils, and that in the future Canadian oil sands emissions intensities will only decrease (due to efficiency improvement and technological advances), while those of other crudes around the world will likely increase (due to a heavier resource base). They note also that the government of Alberta has implemented policies to help mitigate and reduce the GHG emissions associated with oil sands production. These include (1) a mandatory GHG intensity reduction program for large industrial emitters, (2) a fund for clean energy investment that is capitalized by the reduction program, and (3) dedicated funding for the construction of large-scale carbon capture and sequestration (CCS) facilities. Keystone XL and the Global Carbon Budget Some stakeholders are concerned with the effect that Canadian oil sands development would have on what is referred to as the "global carbon budget." The global carbon budget is a scientifically estimated maximum amount of net worldwide GHG that could be emitted without exceeding a proposed temperature target of 3.6°F above pre-industrial levels (a 2°C target). Some consider that such a temperature target would avoid the worst effects of greenhouse-gas induced climate change, and it has been agreed as a political consideration in international negotiations to address climate change under the United Nations Framework Convention on Climate Change. If this estimation is correct, all countries' emissions (net of any sequestration or "sinks") would have to stay within a given carbon budget to avoid exceeding the 2 o C temperature cap. Based on studies published during the past several years, the International Energy Agency (IEA) and the U.N. Intergovernmental Panel on Climate Change (IPCC), among others, have estimated carbon budget scenarios. The IPCC finds that in order to have at least a 66% chance of limiting global warming to, or below, 2°C above pre-industrial levels, no more than 1 trillion tons of carbon can be released into the atmosphere from the beginning of the industrial era through the end of this century. The report estimates that 531 billion tons of that budget have been emitted as of 2011 and that current global GHG emissions are on track to reach the threshold in 2040. Similarly, the IEA estimates that "no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal." Some have argued that the DOS Final EIS does not properly consider the potential impact of using up the shared global carbon budget, estimating that the capacity of the proposed Keystone XL project is equivalent to the net oil production growth budgeted by the IEA for the entire OECD Americas region. Others have calculated that the GHG emissions from oil sands projects currently producing or under construction would themselves reach the 2°C threshold if all the oil sands resources were consumed. As with the assessment of incremental life-cycle GHG emissions, an understanding of the "incremental carbon budget" that can be attributable to the proposed Keystone XL pipeline would be dependent upon a market analysis that examines whether approval or denial of any one crude oil transport project, including the proposed project, would significantly impact the rate of extraction in the oil sands. For example, if extraction is likely to occur regardless of whether the pipeline is built, then the approval or denial of the pipeline may have little effect on total net carbon emissions. Conversely, if oil sands extraction is dependent on the pipeline, then incremental carbon emissions could be high. There is no political agreement in the United States on a domestic carbon budget, on the appropriateness of the global 2°C target, or on the validity of any target. Some stakeholders may contend that the project is such a large increment of emissions that it should be "the line in the sand" for making a climate-protective decision. Conversely, others may argue that the project's share of incremental emissions is small and therefore not a significant addition of risk. Some policy makers may not be sure of where any lines should be drawn or whether the project is the "right" place to draw one, especially one drawn unilaterally by the United States. Oil Spills A primary environmental concern of any oil pipeline is the risk of a spill. Based on experience with pipelines historically, the Keystone XL pipeline will likely lead to some number of oil spills over the course of its operating life, regardless of design, construction, and safety measures. However, the frequency, volume, and location of spills are unknown. Some contend that oil spill risks are understated; others contend that pipeline risks are overstated. Pipeline integrity concerns—whether real or perceived—were magnified by a 2010 pipeline spill in Michigan and a 2013 pipeline spill in Arkansas, both of which involved oil sands crude oil. A key question for policy makers is whether the Keystone XL would impose a greater or lesser risk of an oil spill than another oil pipeline. In particular, do the properties of oil sands crude oil entail a greater risk of a pipeline spill than other crude oils? If an oil spill occurs, how would an oil sands crude oil spill differ from other crude oil spills? In addition, how do the oil spill risks from a pipeline compare to other modes of oil transportation. These issues and other spill-related topics are discussed below. Oil Sands Crudes and Pipeline Spills Some environmental groups have argued that the pipeline would pose additional oil spill risks due to the material being transported. One vehicle for these arguments was a 2011 report from several environmental groups. In that report, the authors asserted that certain characteristics of DilBit may pose greater risks of a spill than other crude oils. Other organizations, including Canadian agencies, questioned these conclusions. To examine these issues, Congress enacted P.L. 112-90 , which, among other provisions, directed the Secretary of Transportation to: complete a comprehensive review of hazardous liquid pipeline facility regulations to determine whether the regulations are sufficient to regulate pipeline facilities used for the transportation of diluted bitumen. In conducting the review, the Secretary shall conduct an analysis of whether any increase in the risk of a release exists for pipeline facilities transporting diluted bitumen. Pursuant to that act, the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) contracted with the National Academy of Sciences' National Research Council (NRC) to conduct a study. In June 2013, the NRC issued a report (hereinafter, NRC report) that analyzed whether transportation of DilBit by pipelines poses an increased likelihood of release compared to other crude oils. The central findings of the report included the following: The committee does not find any causes of pipeline failure unique to the transportation of diluted bitumen. Furthermore, the committee does not find evidence of chemical or physical properties of diluted bitumen that are outside the range of other crude oils or any other aspect of its transportation by transmission pipeline that would make diluted bitumen more likely than other crude oils to cause releases. The following sections discuss these and related issues in greater detail. Corrosion The 2013 NRC report describes internal pipeline corrosion as an electrochemical process that typically causes damage to the bottom of the pipeline when water is present. Some have argued that DilBit pipelines may be more likely to fail than other crude oil pipelines because the bitumen mixtures they carry are "significantly more corrosive to pipeline systems than conventional crude." Crude oil properties of particular interest are acidity and sulfur content, which are discussed below. Acid ity Crude oil acidity is generally measured by total acid number (TAN). As indicated in Table 1 (above) Canadian DilBit TANs range between 0.92 to 2.49. This range is generally higher than lighter crude oils, but comparable with other heavy oils. It is well-established that the presence of naphthenic acids in high TAN crudes can considerably increase corrosion potential in the parts of refinery distillation units operating at high temperature—above 570"F. However, pipeline transportation of DilBit is expected to occur at much lower temperatures: the operating temperature for Keystone XL is expected to be between 42"F and 135"F. Moreover, DilBit pipeline corrosion rates may not have a direct correlation with TAN values. There is evidence of more than 1,000 napthenic acid varieties with varying corrosivity, which may comprise a single TAN number. TAN values depend upon the specific content and types of compounds in specific crudes—which may vary significantly from crude to crude. Some testing of pipeline steels has shown that Canadian oil sands crudes exhibit "very low corrosion rates" despite high TAN numbers, in part because they contain other "inhibitor" compounds that reduce the corrosivity of the bitumen. Therefore, it is uncertain whether refiners' experiences with corrosion from high TAN crudes can be directly extended to DilBit transmission pipelines. Sulfur Content Sulfur content may be another indicator of crude oil corrosivity. Crude oils sent to U.S. refineries typically contain 0.5% to 2.5% sulfur. As indicated in Table 1 , DilBits have sulfur contents substantially above this range—between 3% and 5%—as do other heavy crude oils. In some sour crudes (> 1% sulfur content), sulfur content may indicate hydrogen sulfide (H 2 S), which acts as a corrosive acid when dissolved in water. However, the NRC report states that most of the sulfur in bitumen is contained in stable compounds, instead of the corrosive H 2 S. Figure 11 provides a comparison of H 2 S content in selected DilBits with other crude oils. The figure indicates that (based on the samples tested) the DilBit samples contained relatively lower concentrations of H 2 S than the other tested crude oils. Erosion In the context of pipeline transport, erosion is a mechanical process in which solid particles in the crude oil damage pipeline walls. Some have raised this process as a particular concern for DilBit pipelines. The 2013 NRC report compared the sediment contents in various DilBit blends with light, medium, and heavy Canadian crude oils. Figure 12 illustrates the results of this comparison. As the figure indicates, the sediment contents in DilBit blends are similar to those in other Canadian crude oils. Moreover, crude oils with high solids content are also generally filtered to meet the quality specifications set by pipelines and refiners. The 2013 NRC report points out that Canadian pipeline regulations require that sediment and water content in crude oil not exceed 0.5% by volume, while U.S. regulations allow ratios up to 1% by volume. Crude oil pipeline imports from Canada would be meeting the more stringent standards of Canada during their transit within the United States. Volatility According to the NRC report, a liquid that has a relatively high fraction of hydrocarbons with high vapor pressure can theoretically increase the potential for a process known as column separation—the transformation of the liquid into a vapor phase. Such an event can create a pressure surge, which can increase the potential for pipeline damage, if a pipeline is already weakened by corrosion, cracking, or deformities from earlier mechanical damage. During the 2011 EIS process, some contended that the "instability of DilBit can render pipelines particularly susceptible to ruptures caused by pressure spikes." However, the NRC report stated that DilBit does not contain a high percentage of light (high vapor pressure) hydrocarbons and thus the potential for column separation "should be indistinguishable from that of other crude oils." Keystone XL Pipeline Operating Parameters Some parties have expressed concern about the Keystone XL pipeline operating parameters, particularly the operating temperature and pipeline pressure. In general, parties contended that the Keystone XL pipeline would be operating at temperatures and pressures well above conventional crude oil pipelines. In the 2014 FEIS, DOS states that the operating temperature is "expected to be approximately between 42°F and 135°F." However, one of the parameters unique to Keystone XL ("Special Condition 15," discussed below) appears to allow for temperatures higher than 150°F, subject to specific testing results and PHMSA approval. Although the FEIS does not discuss whether or not operating temperatures will approach or breach 150°F during the pipeline's operation, Special Condition 15 appears to allow that possibility. As to the operating pressure, DOS states the following: "the design of the proposed Project pipeline system is based on a maximum 1,308 pounds per square inch gauge (psig) discharge pressure at each pump station.... There would be situations where, due to elevation changes, the hydraulic head created would result in a maximum operating pressure of up to and including 1,600 psig." How do the Keystone XL operating parameters compare to other DilBit pipelines? The NRC collected operating parameter data from five Canadian pipeline operators transporting DilBit. The highest reported operating temperature was 122°F and the highest reported operating pressure was 1,440 psig. Thus, both the "expected" maximum temperature (135°F) and the potential maximum operating pressure (1,600 psig) of the Keystone XL pipeline would exceed operating parameter data presented in the NRC report. It is uncertain whether or not these potential temperature and pressure differences are a cause for concern. DOS states that the proposed pipeline would satisfy the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) regulations (49 CFR Part 195) that apply to hazardous liquid pipelines. In addition, Keystone agreed to implement 57 additional measures ("Special Conditions") developed by PHMSA. In consultation with PHMSA, DOS determined that incorporation of those conditions "would result in a degree of safety over any other typically constructed domestic oil pipeline system under current code and a degree of safety along the entire length of the proposed pipeline system, similar to that required in [High Consequence Areas (HCAs)] as defined in 49 Code of Federal Regulations (CFR) 195.450." DOS compares the Special Conditions with existing regulatory requirements in Appendix B to the 2014 FEIS. The degree of safety provided by the additional 57 measures has been a subject of debate. The primary author of the 2011 environmental groups' report argued that only 12 of these conditions actually differ in some way from minimum requirements. Keystone XL Spill Frequency and Volume Estimates Oil spill frequency and volume estimates for the Keystone XL project have been a subject of debate during the permit process. Comparing various estimates is difficult, because the estimates may or may not 1. include different years of underlying data; 2. apply to different pipeline segments (e.g., the 875-mile northern U.S. portion or the entire 1,938-mile pipeline from Canada to the Gulf Coast); 3. apply to different components of the pipeline (e.g., the mainline or the mainline and supporting equipment, such as tanks and valves); and 4. include additional assumptions or adjustments. In the 2014 FEIS, DOS used PHMSA data to analyze crude oil pipeline spill incidents that occurred between 2002 and 2012. DOS stated that "Although the results were not a direct indicator of the nature of possible incidents that could occur in association with the proposed [Keystone XL pipeline], they could be used to provide insight into what could potentially occur with respect to spill volume, incident cause, and incident frequency." Based on the PHMSA data, DOS calculated spill frequency rates and average volumes for crude oil. The PHMSA records do not differentiate between types of crude oil: heavy, light, etc. Table 4 provides the spill frequency and volume estimates for individual components of the pipeline system: mainline pipeline, tanks, mainline valves, and other components, such as pump station equipment. For example, the table indicates that mainline pipelines and tanks have a lower frequency of spills than valves and other components, but a higher average spill volume. Using the frequency rates and average volumes listed in Table 4 , DOS estimated the annual spill frequency (0.46 releases per year) and volume (518 barrels per year) that would result from the entire Keystone XL pipeline project—1,938 miles from its origin in Canada to the Gulf Coast. This estimate only includes the spill frequency and volume estimate for mainline pipelines greater than 16" in diameter. By comparison, Table 4 provides the estimated number of spills and spill volume that would occur along the 875-mile northern segment of the Keystone XL pipeline (the segment under consideration for a Presidential permit). The table lists the individual component estimates as well as an estimate for the entire system. For instance, based on PHMSA data , a spill from the KXL mainline would occur 0.22 times per year (or once about every five years); a spill from any of the components, including the mainline, would occur 1.88 times per year. Some would argue that using the PHMSA data as a guidepost for Keystone XL incidents would overestimate spill frequency, because the data include older pipelines that may have been built to less stringent standards. Moreover, pipeline proponents contend the Special Condition would provide additional protection from incidents. In the 2014 FEIS, DOS states that "the application of the Special Conditions and various studies that indicate more modern pipelines are less likely to leak, it is reasonable to expect a sizable reduction in spills when compared to the historic spill record." On the other hand, the spill frequency for the existing Keystone pipeline, which began transporting approximately 590,000 bpd of oil sands crudes in 2010, has exceeded the historical spill frequency estimate. Based on DOS analysis in the 2014 FEIS, Keystone operators reported 12 incidents during the first year of operation. Although the vast majority of the incidents were minor, one incident resulted in a spill of approximately 400 barrels (16,800 gallons). According to DOS, "11 of the 12 reported incidents resulted in a small spill, eight of which were less than 1 bbl.... all reported first-year incidents for the existing Keystone pipeline system involved discrete elements of the pipeline system (i.e., pumping stations, mainline valves); none involved mainline pipe or tanks." U.S. and Alberta Pipeline Spill Data Some stakeholders have argued that a comparison of oil spill data from Alberta and the United States indicates that internal corrosion has led to substantially more oil spills in the Alberta pipeline system than the U.S. system. They reason that this difference is likely related to high proportion of oil sands crudes, which have been in the Alberta system since the 1980s. In contrast, the first dedicated oil sands crudes pipeline in the United States, the Alberta Clipper, began operating in 2010. Both the NRC report and DOS have pointed out that existing pipeline spill data are limited in their ability to analyze potential risks associated with the transportation of oil sands crude oils compared to other crude oils. The NRC report stated the following: The information contained in the U.S. and Canadian incident records is insufficient to draw definitive conclusions. One reason is that the causal categories in the databases lack the specificity needed to assess the particular ways in which transporting diluted bitumen can affect the susceptibility of pipelines to failure. Another reason is that incident records do not contain information on the types of crude oil transported and the properties of past shipments in the affected pipeline. Because many pipeline releases involve cumulative and time-dependent damage, there is no practical way to trace the transportation history of a damaged pipeline to assess the role played by each type of crude oil and its properties in transport. DOS pointed out that a comparison of U.S. and Alberta oil spill data is problematic for various reasons. In particular, the scopes of the data collected in each nation are different. Canadian data includes smaller spills and spills from certain pipelines not covered by PHMSA regulations. To address these discrepancies in data collection, PHMSA prepared a comparison of pipeline incidents of similar scopes between the two databases for the 2011 FEIS. The comparison indicated that internal corrosion failures (per 1,000 miles of pipeline) were approximately 30% higher in the U.S. system (0.42 vs. 0.32). Regardless, such comparisons are challenging, if not impossible, considering the range of potential factors—pipeline age, enforcement, etc.—that may affect the underlying data. For this reason, the above comparison might be described as preliminary. DOS did not include this table in its 2014 FEIS, but states that "incident statistics from Alberta show that incident frequencies and corrosion-based incidents are similar for pipelines in the United States and Alberta." Impacts of Spills of Oil Sands Crude If an oil spill occurs, its impacts would depend on multiple factors, including the type of oil spilled, the volume of oil spilled, and the location of the spill. Although location is generally considered the most important factor, EPA stated (in comments during the EIS process) that spills of oil sands crude (e.g., DilBit) may result in different impacts than spills of other crude oils. The 2013 NRC report did not examine this particular issue and CRS is not aware of an authoritative study that has assessed this topic. Although parallels may be drawn between the possible behavior of conventional crudes and DilBit, studies are scarce regarding spills of heavy crudes with the specific composition of Canadian heavy crudes. Spill Behavior The behavior of crude oil spills and the fate of crude oil in the subsurface have been studied extensively around the world for a wide range of conventional crudes and other petrochemicals in both experimental settings and actual spills (e.g., Bemidji, MN, in 1979). These include studies of specific chemical components that may be present in DilBit (e.g., benzene). Based on extensive experience with other crudes and DilBit constituents, analysts may claim considerable confidence in models of DilBit behavior around groundwater. For example, the Canadian Energy Resources Conservation Board has stated that "DilBit should behave in much the same manner as other crude oils of similar characteristics." All spilled oil begins to "weather" or separate into different components over time. For a land spill, the heavier and more viscous components (i.e., the asphaltenes) would likely remain trapped in soil pores above the water table. It is also likely that the lighter constituents would partly evaporate and not be transported down through the soil with the heavier components. However, if an oil spill reached the water table, some of the more soluble portions would likely dissolve into the groundwater and be transported in the direction of regional groundwater flow. The ultimate extent, shape, and composition of a groundwater contaminant plume resulting from a DilBit spill would depend on the specific characteristics of the soil, aquifer, and the amount and duration of the accidental release. Cleanup Issues The heavier components of a DilBit spill would be difficult to remove from the soil during cleanup operations, and may require wholesale soil removal instead of other remediation techniques. The 2014 FEIS states DilBit intermixed with sediment and trapped in the river bed and shoreline results in a persistent source of oil and has the potential to present additional response and recovery challenges. These challenges may come at a higher cost. In an oil spill model prepared for EPA, the model estimates that spills of heavy oil will cost nearly twice as much to clean up as comparable spills of conventional crude oil. Recent pipeline oil spills have generated interest among policy makers and stakeholders. For example, a 2010 Enbridge pipeline spill released approximately 850,000 gallons of oil sands crude oil into Talmadge Creek, a waterway that flows into the Kalamazoo River (Michigan). The spill demonstrates particular challenges associated with heavier crude oil spills, like oil sands crude oils. As of the date of this report, response activities continue, because, according to EPA, the oils sands crude "will not appreciably biodegrade." The oil sands crude oil is submerged at the river bottom, mixed with sediment, and EPA has ordered Enbridge to dredge the river to remove the oiled sediment. As a result of this order, Enbridge estimated in December 2013 its response costs would be approximately $1.122 billion. Toxicity Crude oils may contain multiple compounds that present toxicity concerns. DOS stated that "based on the combination of toxicity, solubility, and bioavailability, benzene was determined to dominate toxicity associated with potential crude oil spills." Benzene and other BTEX compounds (benzene, toluene, ethyl benzene, and xylene) are generally in greater proportions in the lighter crude oils and particularly in refined products like gasoline. In its 2011 FEIS, DOS compared the BTEX content of crude oil derived from oil sands (DilBit and DilSynBit) with conventional crude oils from Canada. The BTEX content of oil sands crudes ranged from 5,800 parts per million (ppm) to 9,100 ppm. The BTEX contents of conventional crude oils ranged from 5,800 ppm to 29,100 ppm. Other toxic compounds of concern in crude oils are polycyclic aromatic hydrocarbons (PAHs). Generally, PAHs are more toxic than BTEX and evaporate at a slower rate, but they are less soluble in water. The National Research Council's Oil in the Sea report stated that with weathering/evaporation and the resulting loss of BTEX, PAHs become more important contributors to the remaining oil's toxicity. Unlike BTEX, the 2011 and 2014 FEIS documents do not include a comparison of PAH concentrations across different crude oils. DOS states that PAH concentrations of crude oils that would be transported in the Keystone XL pipeline are unknown, because this information is proprietary. Some commenters, including EPA, took issue with this during the 2011 EIS review process. Heavy metals may also be a concern. A 2011 NRDC report states that DilBit contains quantities of heavy metals, particularly vanadium and nickel, that are "significantly larger" than conventional crude oil. Assuming conventional oil means lighter crudes, this statement is largely correct. However, the heavy metal concentrations in DilBit are similar to some other heavy crude oils, such as Mexican and Venezuela crudes that are processed in Gulf Coast refineries. Most, if not all, of this crude oil arrives in the United States via vessel. Other Modes of Oil Transportation Although pipelines and oil tankers transport the vast majority of oil within the United States, other modes of transportation have increased in recent years ( Figure 13 ). As Figure 13 illustrates, the volume of crude oil carried by rail increased by 423% between 2011 and 2012; the volume moving by barge, on inland waterways as well as along intracoastal routes, increased by 53%; and the volume of crude oil shipped by truck rose 38% between 2011 and 2012. Some portion of these recent increases is likely related to the status of proposed Keystone XL pipeline. Each mode of oil transportation involves some risk, and each has historically resulted in oil spills. Figure 14 illustrates the relative risk of oil spills by mode of transportation, comparing spill volume to the volume/distance transported. Over the period 1996-2007, railroads consistently spilled less crude oil per ton-mile than trucks or pipelines; barges and domestic tanker ships have much lower spillage rates than trains. However, the data in the figure precede the recent dramatic increase in oil by rail transportation. In addition, in its 2014 FEIS the State Department used PHMSA and Coast Guard data to compare oil spill frequency and volume by mode of transportation. Between 2002 and 2009, DOS found that 1. pipeline transport has the highest number of barrels released per ton-mile compared to rail and marine transport; and 2. rail transport has the highest number of reported releases per ton-mile compared to pipeline and marine transport. Oil Sands Extraction Concerns Although local/regional impacts from Canadian oil sands development may not directly affect public health or the environment in the United States, stakeholders often highlight the environmental impacts that pertain to the region in which the oil sands resources are extracted. DOS points out that, pursuant to NEPA or applicable Executive Orders, DOS NEPA analysis need not include the environment or activities outside of the United States (see " Consideration of Environmental Impacts Outside of the United States "). However, DOS included—"as a matter of policy"—a summary of information regarding environmental analyses and regulations related to the Canadian portion of the proposed Keystone XL Project and Canadian oil sands production. This inclusion reflects the level of interest these issues have received in recent years. The scope and degree of the extraction-related impacts is a subject of some debate. A comprehensive assessment of extraction-related concerns is beyond the scope of this report. The following sections include discussions of two selected topics: land disturbance and water resource issues. Land Disturbances Both oil sands mining and in situ operations can disturb the land to varying degrees. For example, land disturbances from mining operations include clearance and excavation of a relatively large surface area, storage of removed overburden (e.g., vegetation soil), and construction of tailings ponds to contain extraction process wastestreams. In contrast, many stakeholders associate in situ operations with "minimal land disturbances." For example, the 2014 FEIS states that "in situ recovery is less disturbing to the land surface than surface mining and does not require tailings ponds." However, some research suggests the comparison between the two processes is more complicated. A 2009 study described the different impacts from the two processes in the following manner: Surface mining and in situ recovery affect the landscape in different ways. Land use of surface mining is comprised largely of polygonal features (mine sites, overburden storage, tailing ponds and end pit lakes); whereas in situ development is mostly defined by linear features that extend across the lease area (networks of seismic lines, access roads, pipelines and well sites). Although the actual extraction site at in situ operations impacts substantially less land than at mining sites, some contend that in situ processes may ultimately create a larger disturbance, because the dispersed nature of in situ operations increases landscape fragmentation. In addition, one study finds that in situ operations disturb more land (per unit of oil) than mining, when natural gas requirements are considered. As noted above, in situ operations require energy (i.e., natural gas) to generate the steam needed to extract the underlying resource. According to the study, the land disturbances from the natural gas development contribute a major portion of in situ's total land disturbance. How does land disturbance from oil sands operations compare to conventional oil development? Almost all forms of energy production disturb the land to some degree. A 2010 study compared land disturbances from Alberta oil sands operations with conventional oil development in Alberta and California. Figure 15 illustrates the results. The figure indicates that in situ oil sands operations have a substantially higher energy yield—energy produced per disturbed land (measured in petajoules per hectare)—than other sources. However, when natural gas use is included in the estimate, in situ operations' energy yield decreases substantially, making its energy yield equivalent to conventional oil development from California, but still greater than oil sands mining operations in Canada. The Alberta Chamber of Resources estimates that in situ production requires approximately four times the quantity of natural gas used for surface mining on a production volume basis. Therefore, the factor of natural gas plays an important role in energy yield estimates. Another factor in land disturbance assessments is the type of land disturbed. The Alberta oil sands are located within Canada's boreal forest, a large ecosystem that supports a wide range of biodiversity and provides key ecological services. For example, the boreal forest has been described as the "world's largest and most important carbon storehouse." The 2010 study that provided data for Figure 15 also estimated the carbon storage in the lands overlying the various resources (e.g., California oil, Alberta oil sands). The study estimated that the soil carbon ratio (tons of carbon per hectare) and biomass carbon ratio was approximately five and four times greater, respectively, in oil sands areas than in California oil sites. A further consideration is the fate of the land after the resources are extracted. In Alberta, an environmental law requires an oil sands development company to demonstrate that it has reclaimed the land to an "equivalent capability." Subsequent regulations have expanded on the meaning of this phrase: "The ability of the land to support various land uses after conservation and reclamation is similar to the ability that existed prior to an activity being conducted on the land, but that the individual land uses will not necessarily be identical." The Alberta reclamation requirement is not unique. The United States has similar requirements that may apply in certain instances. For example, the Bureau of Land Management (BLM) has reclamation regulations that apply to oil and gas operations on federal lands. BLM guidance states: The long-term objective of final reclamation is to set the course for eventual ecosystem restoration, including the restoration of the natural vegetation community, hydrology, and wildlife habitats. In most cases, this means returning the land to a condition approximating or equal to that which existed prior to the disturbance. The operator is generally not responsible for achieving full ecological restoration of the site. A comparison between the U.S. and Canadian reclamation requirements and their applications is beyond the scope of this report. However, data from Alberta indicate that reclamation has not kept pace with land disturbance. Data from 2012 indicate that approximately 7% of the total disturbed area has been permanently reclaimed. Of the permanently reclaimed land, 2% has been certified per Alberta requirements (equating with 0.14% of the total disturbed area). The 2010 Royal Society of Canada report stated, "Because of the very small amount of land certified to date relative to the large area that has been disturbed in the oil sands region, there is major skepticism as to whether reclamation to an equivalent land capability can be achieved in a reasonable time frame." Subsequent to that report, a 2012 study from the Proceedings of the National Academy of Sciences assessed pre- and post-reclamation data at several oil sands mining sites. The study found that lost wetlands were not being replaced, resulting in a "dramatic loss of carbon storage and sequestration potential." Water Resources and Quality Issues While the water resource impacts from oil sands development are generally considered a Canadian domestic issue, other stakeholders view the environmental consequences of oil sands development as part of the global discussion about the long-term implications of unconventional oil and gas. At issue is whether oil sands development may harm the water resources and aquatic ecosystems and species of the northern Alberta and the northern territories. Both oil sands in situ and surface mining techniques have water resource impacts. In situ processes use groundwater that is brought to the surface and heated, then reinjected for the underground steam-based separation of the oil from the sand. Freshwater use in in situ extraction has declined due to increased recycling and use of treated brackish water. Surface mining operations withdraw water from the north-flowing Athabasca River. This water is heated for use in a complex process that separates the oil from the sands. Process waste streams are collected in tailings ponds or lakes, which can cover a substantial area. Following extraction through in situ or surface mining, the bitumen recovered must be treated, typically upgraded to synthetic crude oil. This treatment requires both cooling water and process water. Mining also results in significant land disturbance. As discussed earlier, remediation of the disturbed land is addressed in Alberta statute and regulations. The extent and effectiveness of remediation in terms of long-term restoration and protection of water resources is a subject of on-going debate. Additionally, ongoing mine site maintenance during extraction operations requires capturing and disposing of surface water and groundwater entering the site. The potential wetlands and associated migratory bird impacts from changes in surface water and groundwater regimes that result both from direct water use in-situ and mining operations and indirectly through long-term changes to the landscape also are concerns. On a direct water use per unit of energy basis, the oil sands production and upgrading processes appear to be more water intense than most conventional oil production and oil and gas from shale and tight formations, below the water intensity of U.S. oil shale, and considerably below the (rainfall or irrigation) water intensity of biofuels from corn, sugarcane, soybean, and switchgrass feedstocks. The freshwater intensity of in situ oil sands production is generally lower than oil sands mining; however, while more water efficient, in situ production leaves in place (i.e., unrecovered) a considerable portion of the petroleum resources. The current direct water efficiency of oil sands production may improve as new technologies are employed. Much of the concern with oil sands development (and other types of unconventional oil and gas development) is the concentration of water use and impacts within a limited geographic area. One concern is that water use for oil sands mining reduces river flows, particularly during low flow periods. To manage these concerns, oil sands operators are required to obtain water withdrawal licenses, and a water management framework was developed to protect in-stream flows in the Athabasca River. The framework identifies how water withdrawals are to be reduced during low flow periods. A report by an expert panel of the Royal Society of Canada concluded that "water use at current levels does not threaten viability of the Athabasca River system if the Water Management Framework … is fully implemented and enforced." Another concern is groundwater depletion. The expert panel report found that "there needs to be greater attention directed to regional groundwater resources" which currently are not well characterized, and that there was no evidence of a framework to limit groundwater extraction. In addition, the issue of water quality has generated considerable debate. Results from the Regional Aquatic Monitoring Program (RAMP) are often highlighted as evidence of the minimal impacts to water resources due to oil sands development. RAMP describes itself as "an industry-funded, multi-stakeholder environmental monitoring program" that began in 1997. A 2011 RAMP Technical Report stated that "differences in water quality measured in fall 2011 between all test and one of the upper baseline stations in the Athabasca River were classified as Negligible-Low compared to the regional baseline conditions." However, results from several peer-reviewed studies contradict the RAMP conclusions. For example, a 2012 study found that the oil sands operations "substantially increase[] the loadings of toxic PPE [priority pollutant elements] to the Athabasca River and its tributaries." Moreover, seven PPE—cadmium, copper, lead, mercury, nickel, silver, and zinc—exceeded Canada or Alberta guidelines for aquatic life protection. In addition, another 2012 study concluded that the "lake sediments in the Athabasca oil sands region register a clear PAH legacy with the pace and scale of industrial development of the region's tremendous bitumen [oil sands] deposits." Some of these contradictory findings may be addressed by the Joint Implementation Plan for Oil Sands Monitoring, established by the Canadian and Albertan governments in October 2012. According to the plan, it "builds on a foundation of monitoring that is already in place, and is intended to enhance existing monitoring activities." Among other objectives, the plan seeks to "improve analysis of existing monitoring data to develop a better understanding of historical baselines and changes." Appendix. Additional Information

If constructed, the Keystone XL pipeline would transport crude oil derived from oil sands sites in Alberta, Canada, to U.S. refineries and other destinations. Because the pipeline would cross an international border, it requires a Presidential Permit. Although some groups have opposed previous oil pipelines, opposition to the Keystone XL proposal has generated substantially more interest. Stakeholder concerns vary from local impacts, such as oil spills or extraction impacts in Canada, to potential climate change consequences. Arguments supporting the pipeline's construction cover an analogous range. Proponents of the Keystone XL Pipeline, including high-level Canadian officials and U.S. and Canadian petroleum industry stakeholders, base their arguments supporting the pipeline primarily on increasing the security and diversity of the U.S. petroleum supply and economic benefits, especially jobs. A number of studies have looked into the various environmental impacts of oil sands crude. This report focuses on selected environmental concerns raised in conjunction with the proposed pipeline and the oil sands crude it will transport. Greenhouse Gas Emissions Key studies indicate that the average greenhouse gas (GHG) emissions intensity—metric tons of GHG emissions per units of production (e.g., barrels)—of oil sands crude is higher than many other crude oils. However, industry stakeholders point to analyses indicating that GHG emissions from oil sands crude oil are comparable to other heavy crudes, some of which are produced and/or consumed currently in the United States. Due to oil sands' increased emissions intensity, many stakeholders have voiced concern about potential climate change consequences associated with oil sands development. In June 2013, President Obama stated that an evaluation of the "net effects of the pipeline's impact on our climate" would factor into the Department of State's (DOS's) national interest determination in order to determine if the project would "significantly exacerbate the problem of carbon pollution." Thus, DOS's 2014 Final Environmental Impact Statement (FEIS) has received considerable attention. Among other conclusions, the FEIS estimated that the incremental (i.e., net) life-cycle GHG emissions associated with the pipeline would be 1.3 million to 27.4 million metric tons of carbon dioxide per year (0.02%-0.4% of U.S. annual GHG emissions). In addition, the FEIS stated that the "approval or denial of any one crude oil transport project, including the proposed project, is unlikely to significantly impact the rate of extraction in the oil sands or the continued demand for heavy crude oil at refineries in the United States based on expected oil prices, oil-sands supply costs, transport costs, and supply-demand scenarios." Some stakeholders have questioned these conclusions, arguing (1) that the project may have greater climate change impacts than projected by DOS, and (2) that there is nothing presumed or inevitable about the rate of expansion for the Canadian oil sands. Other stakeholders support the FEIS analysis, arguing that as long as there is strong global demand for petroleum products, resources such as the Canadian oil sands will be produced and shipped to markets using whatever route necessary. Oil Spills and Other Local Impacts Some groups have argued that both the pipeline's operating parameters and the material being transported through it impose an increased spill risk. The National Academy of Sciences National Research Council examined this issue in a 2013 report, stating that it did not "find any causes of pipeline failure unique to the transportation of diluted bitumen [oil sands crude]." However, according to the Environmental Protection Agency (EPA), spills of oil sands crude may result in different impacts than spills of other crude oils. Other environmental concerns pertain to the region in which the oil sands resources are extracted. Potential impacts include, among others, wildlife and ecosystem disturbance and water resource issues. In general, these local/regional impacts from Canadian oil sands development are unlikely to directly affect public health or the environment in the United States. Within the context of a Presidential Permit, the mechanism to consider local Canadian impacts is unclear.

Introduction State governments rely on general sales and use taxes for just under one-third (31.7%) of their total tax revenue—approximately $223 billion in FY2010. Local governments derive 11.0% of their tax revenue—approximately $62 billion in FY2010—from general sales and use taxes. Both state and local sales taxes are usually collected by vendors at the point of transaction and levied as a percentage of a product's retail price. Alternatively, use taxes, levied at the same rate, are often not collected by the vendor if the vendor does not have nexus (loosely defined as a physical presence) in the consumer's state. Consumers are required to remit use taxes to their taxing jurisdiction for the use of the product purchased. Compliance with this requirement, however, is quite low. State and local governments are concerned that the expansion of e-commerce, which was estimated to reach approximately $3.9 trillion in 2012, is gradually eroding their tax base. This concern arises in part because the U.S. Supreme Court ruled out-of-state vendors are not required to collect sales taxes for states in which they (the vendors) do not have nexus. In hopes of stemming the potential loss of tax revenue, several states are participating in an initiative to simplify and coordinate their tax codes—called the Streamlined Sales and Use Tax Agreement (SSUTA). The member states hope that Congress could be persuaded to allow them to require out-of-state vendors to collect taxes from resident customers. Congress has a role in this issue because interstate commerce, in most cases, falls under the Commerce Clause of the Constitution. Congress may be asked to consider taking an active role in the debate. In the 113 th Congress, S. 743 , approved by the Senate on May 6, and S. 336 (Senator Enzi and others) and their House counterpart H.R. 684 (Representative Womack and others) would grant SSUTA member states and non-member states that meet less rigorous simplifications standards the authority to compel out-of-state vendors with greater than $1 million in remote sales to collect sales and use taxes. Previously, in the 112 th Congress, S. 1452 and H.R. 2701 (Senator Durbin and Representative Conyers) would have granted SSUTA member states the authority to compel out-of-state vendors in other member states to collect sales and use taxes. H.R. 3179 (Representative Womack) would have also granted states the authority to compel out-of-state vendors to collect use taxes provided selected simplification efforts were implemented. S. 1832 (Senator Enzi and others including Senator Durbin) would have granted SSUTA member states and non-member states that met less rigorous simplifications standards the authority to compel out-of-state vendors to collect sales and use taxes. A more passive approach by Congress could involve states implementing the SSUTA without congressional approval. State enforcement of remote collection would likely face legal challenges, and the outcome of these legal challenges is uncertain. This report intends to clarify significant issues in the remote sales tax collection debate, beginning with a description of state and local sales and use taxes. The impact of congressional action (or inaction) on the remote collection issue will vary significantly by state. For this reason, the report includes a state-by-state analysis of the sales tax. State and Local Sales and Use Taxes In 1932, Mississippi was the first state to impose a general state sales tax. During the remainder of the 1930s, an era characterized by declining revenue from corporate and individual income taxes, 23 other states followed suit and implemented a general sales tax. At the time, the sales tax was relatively easy to administer and raised a significant amount of revenue despite a relatively low rate. Given the relative success of the sales tax in raising revenue, 45 states and the District of Columbia added the sales tax to their tax infrastructure by the late 1960s. The last of the 45 states to enact a general sales and use tax was Vermont in 1969. Components of the Sales and Use Tax The revenue generated by a sales and use tax, assuming a given level of compliance, depends on the base of the tax and the tax rate. States often have similar consumption items included in their tax base, but they are far from uniform. Tax rates can also vary considerably, depending on the state's reliance on other revenue sources. The SSUTA is intended to provide uniform definitions across states for items included in the base and the applicable tax rates. Following is an analysis of the variation of these components across the states. Tax Base The sales tax is perhaps better identified as a transaction tax on the transfer of tangible personal property, as expenditures on most services are typically excluded from the state sales tax base. In addition, in most states (34) and the District of Columbia, groceries are also exempt from state and local sales taxes or taxed at a lower rate. Table 1 presents the most recently available data on state and local tax revenue and an estimate of each state's sales tax base. The sales tax revenue includes collections from individuals as well as businesses. The separate estimate of the sales tax base as a share of income is a rough approximation of the state sales tax base. A higher percentage likely indicates (1) a greater number of items and services subject to the sales and (2) greater compliance. In the case of Hawaii, where over 100% of personal income is includable in the tax base, the percentage likely measures some degree of pyramiding of the sales tax. Pyramiding occurs when a business pays sales tax on a good then collects more sales tax when the good is sold. Pyramiding is common in many other states, but is difficult to quantify. In total, roughly half of personal income is spent on items subject to the sales taxes. Tax Rate The second component of a sales tax is the tax rate applied to the base. In 34 states, local governments piggy-back a local sales tax (which often varies among localities within the state) on the state sales tax; 11 states and the District of Columbia levy a single rate (see Table 2 ), with no local taxes. Some states in the group of 34 may collect a uniform local tax along with the state tax and send the local revenue share back to the localities. This structure would look like a single rate to the consumer because vendors typically do not differentiate between the state and local share. For example, vendors in Virginia levy a 5.0% sales tax on purchases and remit the entire amount to the state. The state then returns what would have been raised by a 1.0% tax back to the local jurisdiction where the tax was collected. The state of Virginia keeps the remaining 4.0%. As of March 1, 2013, California had the highest state sales tax rate of 7.5%. Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee had state sales tax rate of 7.0%. The state rate is only part of the total rate; as noted earlier, most states also levy a local sales tax. As of January 1, 2012, Arizona had the highest potential combined state and local rate of 13.7%, with Alabama second at 12.0%. Residents in high sales tax rate jurisdictions could benefit more from Internet purchases (and tax evasion) relative to those in low tax rate states. Recognizing this potential revenue loss, many high-rate states have stepped up efforts to inform consumers of their responsibility to pay use taxes on Internet and mail-order catalog purchases. As suggested earlier, states with high rates—and whose residents have a greater incentive to evade taxes—are exposed to greater potential revenue losses from the growth of Internet commerce. Because of the greater potential losses, these states are more likely to support reforms that help maintain their sales and use tax revenue base. The tax base and tax rate determine how much revenue is generated by the sales tax for each jurisdiction. The share lost to non-compliance arising from e-commerce, however, varies considerably by state. Part of the variance can be attributed to the two components of the overall compliance: sales tax collected by vendors and use tax remitted by purchasers. Researchers on e-commerce estimated relatively high vendor compliance though considerably lower purchaser compliance. Table 2 also lists each state's current status with the SSUTA. The "member" states (22) have all enacted laws that fully comply with the SSUTA. A second group of states (2) are considered "associate" states and not full members because relatively small technical changes are needed in state tax laws to be in full compliance with SSUTA. A third group of states (18) are participating in the streamlining effort but have not made the necessary uniformity changes in state sales tax law to be considered for member or associate status. State Reliance on Sales Taxes In addition to a sales tax, most states levy income taxes and almost every local jurisdiction (and some states) also levies a property tax. Table 3 presents the relative reliance of each state and local government combined on the three principal revenue sources: sales taxes, income taxes, and property taxes. Reliance is measured as a percentage of total taxes collected. Other taxes include selective sales taxes such as motor fuels taxes, alcoholic beverages taxes, tobacco product taxes, and corporate income taxes. The U.S. average reliance is greatest for the property tax at 34.8%, and the sales tax and individual income tax accounted for 22.4% and 20.5%, respectively, of tax revenue in FY2010. The top three states in sales tax reliance were Washington, Tennessee, and South Dakota. These three states do not levy a broad based income tax, thus increasing their reliance on sales taxes. Description of the SSUTA The entity that drafted the original Streamline Sales and Use Tax Agreement (SSUTA), the Streamlined Sales and Use Tax Project (SSTP), was created in 2000 by 43 states and the District of Columbia. These states and the District of Columbia wanted to simplify and better synchronize individual state sales and use tax laws. Its stated goal was to create a simplified sales tax system so all types of vendors—from traditional retailers to those conducting trade over the Internet—could easily collect and remit sales taxes. The member states believe that a simplified, relatively uniform tax code across states would make it easier for remote vendors to collect sales taxes on goods sold to out-of-state customers. The SSTP was dissolved once the SSUTA became effective on October 1, 2005. The latest amendments to the SSUTA were approved May 24, 2012. The SSUTA agreement explicitly identifies 10 points of focus. Uniformity and simplification are the primary themes with state level administration of the sales and use tax a critical element in achieving the "streamlining" goal. The 10 points of focus can be condensed into four general requirements for simplification: (1) state level administration, (2) uniform tax base, (3) simplified tax rates, and (4) uniform sales sourcing rules. Each is discussed in more detail in the following sections. State Level Administration Administration of the sales tax for multistate businesses is complicated because state sales tax laws are not uniform. Currently, multistate businesses file sales tax returns for each jurisdiction in which they are required to remit sales taxes. These state sales and use tax compliance rules are far from uniform, which increases compliance costs and the accompanying economic inefficiencies. Single Tax Agency Filing Under SSUTA, sales taxes would be remitted to a single state agency and businesses will no longer file tax returns with each state (and sometimes local jurisdiction) where they conduct business. States would bear some of the administrative cost of the technology employed to implement the new system. Vendor Compensation States also would incur some additional administrative costs through vendor collection incentives. Many state and local governments currently compensate vendors for collection under a variety of rules and rates. Sixteen states and the District of Columbia, however, do not offer vendor compensation, and several others have caps on the total amount of compensation. Total vendor compensation would be somewhat standardized under SSUTA, establishing three uniform brackets with rates set by each member state. SSUTA would require that rates decline as a business's tax collection volume increases. Total compensation for vendors in member states that require tax reporting by local jurisdiction is at least 0.75% of state and local sales and use tax collections. Total compensation for vendors in member states that do not require tax reporting by local jurisdiction is a minimum of 0.5% of sales and use tax collections. As of this writing, 20 states were in full compliance with the terms of the SSUTA and are identified as "members." Another four states are "associate members." Only the member states will have taxes collected by remote vendors. Table 2 lists the status of SSUTA adoption in each state. Uniform Tax Base As noted earlier, each state has established rules for what to include in the sales tax base, and definitions of these items are not uniform across states. The SSUTA includes a section requiring that within each state, all jurisdictions use the same tax base. Thus, if the state excludes groceries from the sales tax, all local governments within the state must also exclude groceries. This seemingly straightforward requirement can become complicated. For example, as noted above, groceries are exempt from taxation in most states, whereas candy is taxable in several states. A common definition of candy (or food) must be agreed upon to implement a streamlined sales tax regime. Under SSUTA, "Candy" means a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. "Candy" shall not include any preparation containing flour and shall require no refrigeration. Each state would retain the choice over whether the item is taxable (in the base) and the rate that applies to the product. Simplified Tax Rates In many states, local jurisdictions tax goods at different rates. This complication is mostly remedied under the SSUTA, as each state would be permitted only one state tax rate (with an exception for a second state rate on food and drugs). Each state can add one additional local jurisdiction rate, based on ZIP code. The member state must maintain a catalogue of rates for all ZIP codes. For ZIP codes with multiple rates, an average rate for that ZIP code would apply. Standard Rate Sourcing Rules for Cross-Jurisdictional Sales For sales within a member state between local jurisdictions, the vendor would collect the sales tax at the rate applicable for the vendor location. This is identified as "origin" sourcing. For sales into a member state from an out-of-state vendor, the vendor levies a tax at the agreed upon statewide rate applicable in the destination state. This is identified as "destination" sourcing and is the general rule under the SSUTA. There is some debate about the "sourcing" aspect of the SSUTA. The single statewide rate, which is set by each member state, would be a combined state and local rate. If the combined statewide rate is the state rate plus an average of local rates, it is possible that some consumers will pay a higher combined tax rate than is required. It has been proposed that the member states would be required to include a provision in the implementing legislation that would allow consumers that "overpay" to receive a credit for overpayments. SSUTA Stakeholders The SSUTA enjoys the support of the National Governors Association (NGA). The NGA has endorsed the SSUTA with hopes that the agreement will address the Supreme Court's concerns about the burden on interstate commerce of collecting remote taxes. The association believes that requiring remote vendors to collect sales and use taxes under a new, simplified system will survive legal challenges. The official statement of the NGA position on the efforts to streamline state and local taxes begins with the following: The National Governors Association supports state efforts to pursue, through negotiations, the courts, and federal legislation, provisions that would require remote, out-of-state vendors to collect sales and use taxes from their customers. Such action is necessary to restore fairness between local retail store purchases and remote sellers and to provide a means for the states to collect taxes that are owed under existing law. The rapid growth of the Internet and electronic commerce underscores the importance of maintaining equitable treatment among all sellers. The NGA support is shared by other state and local government organizations, including the National Conference of State Legislatures (NCSL), the Federation of Tax Administrators (FTA), and the Multistate Tax Commission (MTC). Support also comes from large retailers who must collect sales taxes and believe the current system provides an unfair advantage to Internet retailers who do not collect such taxes. Many large brick-and-mortar companies with a strong Internet presence generally comply with guidelines like those under SSUTA and generally collect taxes on remote sales. Several retailers, however, are taking the middle ground in this debate. They understand the states' desire to more efficiently collect sales tax revenue in a fair manner, but they ask for greater simplification and increased vendor compensation from the states for collecting state sales taxes. Opponents of SSUTA legislation include state and local governments who feel the administrative obstacles to streamlined sales taxes are too costly to overcome and may actually exceed the potential revenue gain. These governments suggest that increased compliance with use tax laws may better be achieved through elevated consumer awareness and more enforcement activities. In addition, some business groups maintain that the collection requirement, even with streamlining, would still be too burdensome. Also opposing SSUTA legislation are several anti-tax groups who see the SSUTA as a new tax burden rather than a simplification of the current tax system. Anti-tax groups also argue that states compete to attract businesses and customers through lower tax rates and that this competition is good for consumers. Congressional and State Legislative Activity Remote seller collection legislation at the federal level includes bills requiring SSUTA adoption and bills that are not conditioned on SSUTA approval. State efforts have taken two tracks: adopting SSUTA type simplification and/or implementing so-called Amazon laws. Following is a brief discussion of this activity. Legislation in the 113th Congress In the 113 th Congress, S. 336 , S. 743 , and their House counterpart, H.R. 684 , would grant states the authority to require remote vendors to collect sales and use taxes if the state were members of SSUTA or if they adopted minimum simplification requirements. In addition to U.S. states and the District of Columbia, the legislation provides that "states" include the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and any other territory or possession of the United States." The legislation would require that non-SSUTA-compliant states would need to meet the following simplification standards: specify the tax or taxes to which the simplification applies; specify the products and services otherwise subject to the tax that would be exempt; provide a single entity in the state responsible for all state and local tax administration, return processing, and remote audits sourced to the state; provide a single audit and tax return for all state and local taxing jurisdictions; provide a uniform sales and use tax base for all state and local taxing jurisdictions within a state; provide a taxability "matrix" of all goods and services along with any exemptions; and provide free software to remote vendors that files returns and is automatically updated. The legislation includes a small seller exception that would exempt firms with less than $1 million in annual "remote" sales from the collection requirement. Vendors in states without a sales tax would still be responsible for collection of sales and use taxes on shipments to customers in states with a sales tax. This component of the legislation has been a point of contention for the five states without a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Businesses above the $1 million threshold in annual remote sales would be responsible for the collection and remittance of sales and use taxes. However, for larger retailers with over $1 million in remote sales, it would seem likely that many have filed returns in states in which they have a physical presence. Legislation in the 112th Congress In the 112 th Congress, S. 1452 and H.R. 2701 would have granted SSUTA member states the authority to compel out-of-state vendors in member states to collect sales and use taxes. The legislation would have responded to the Supreme Court's recommendation in Quill Corporation v. North Dakota that Congress act, under the Commerce Clause, to clarify state sales tax collection rules. More specifically, the legislation would have allowed states that have fully adopted the SSUTA to collect sales taxes from sufficiently large businesses, even if those businesses do not have a nexus in the state. A "sufficiently large business" was left to the governing board of the SSUTA to define. Under S. 1452 , Congress would have granted authority to states to compel out-of-state vendors to collect sales taxes, on the condition that 10 states comprising at least 20% of the total population of all states imposing a sales tax have implemented the SSUTA. The legislation also included additional requirements for administering the new sales tax system after the SSUTA adoption threshold has been achieved. The requirements included, but were not limited to, a centralized, one-stop multi-state registration system; uniform definitions of products and product-based exemptions; single tax rate per taxing jurisdiction with a single additional rate for food and drugs; single, state-level administration of sales and use taxes; uniform rules for sourcing (i.e., the tax rate imposed is based on the origin or destination of the product); uniform procedures for certification of tax information service providers; uniform rules for filing returns and performing audits; and reasonable compensation for sellers collecting and remitting taxes. The SSUTA generally includes these provisions, though some modifications to the SSUTA or the legislation would have been necessary for enactment. Under the SSUTA, member states request that remote sellers voluntarily collect sales taxes on items purchased by customers outside their home state. Vendors in participating states who voluntarily collect the sales tax would be offered amnesty for previously uncollected taxes. Participating states have agreed to share the administrative burden of collecting taxes to ease tax collection for sellers. The states' obligations under the SSUTA include the following requirements. Business-to-business transactions are often exempt from the retail sales tax, particularly in cases where the purchaser is using the good as an input to production. These transactions are exempt because including the transactions could lead to the "pyramiding" of the sales tax. For example, if a coffee shop were to pay a retail sales tax on the purchase of coffee, and then impose a retail sales tax on coffee brewed for the final consumer, the total sales tax paid for the cup of coffee would likely exceed the statutory rate. Products that a business purchases for resale are typically not assessed a retail sales tax for a similar reason. If a coffee shop buys beans only for resale, levying a sales tax on the wholesale purchase of the beans and then on the retail sale would more than double the statutory rate. The tax treatment of business purchases is not uniform across states. According to some estimates, approximately 18% of business purchases are taxable depending on the state. Many individuals and organizations are also exempt from state sales taxes. Entities wishing to claim the sales tax exemption are often issued a certificate indicating their tax-free status and are required to present this certification at the point of transaction. Non-profit organizations, such as those whose mission is religious, charitable, educational, or promoting public health, often hold sales tax-exempt status. The SSUTA would establish a system in which states would use common definitions for goods and services. Once a uniform definition is established, states would then indicate whether the good or service is taxable. In addition, states would identify which entities would be exempt from paying sales taxes (e.g., non-profit or religious organizations). H.R. 3179 , the Market Place Equity Act of 2011, introduced by Representative Womack, and S. 1832 (Senator Enzi) would have attempted to achieve the same policy objective without a formal multistate compact like SSUTA. Instead, H.R. 3179 would have authorized states to compel out-of-state vendors to collect sales and use taxes if the following requirements were satisfied: the state creates a remote seller sales and use tax return and requires filing no more frequently than in-state vendors; the state maintains a uniform tax base across the state; and the state uses one of three structures for remote sales tax collection: (1) a single state and local "blended" rate, (2) a single maximum state rate exclusive of any additional local rates, or (3) the destination rate which would be the actual rate of the customer's jurisdiction. In addition, a final condition required that the rates determined in (1) and (2) above cannot exceed the average rate applicable to in-state vendors. For purposes of (3), the state must provide vendors access to a tax rate database for all jurisdictions. Remote vendors with total United States remote sales under $1 million or remote vendors with less than $100,000 in a given state, are exempt from collection responsibility. Like H.R. 3179 , S. 1832 would have allowed remote collection authority for non-SSUTA states if minimum simplification requirements are achieved. Following is a brief summary of key simplification requirements for Congress to grant collection authority under S. 1832 : provide a single state-level agency to administer and audit sales tax returns; provide a single sales and use tax return for vendors; provide a uniform sales tax base for all jurisdictions within the state; set tax rates at the combined state and local sales tax rate where the goods or taxable services are delivered (the destination rate); and provide remote vendors with "adequate" software for determining the appropriate destination rate. S. 1832 would have established a small seller exception for vendors with less than $500,000 in U.S. Internet sales. The legislation also included a provision to limit the collections authority to just sales tax and not the imposition or application of other taxes such as franchise, income, and occupation taxes. Amazon Laws16 Some states have begun to enact what are called "Amazon Laws." The "Amazon" modifier refers to the large Internet retailer that is located in Washington State. Amazon collects sales taxes only in the states where they claim their presence legally requires collection. In addition to Washington State, Amazon reportedly collects sales taxes in these additional states: Kansas, Kentucky, New York, and North Dakota. At issue are affiliate agreements between Amazon and retailers that provide an Internet portal to Amazon. Typically, the affiliates are compensated for transactions that result from the so-called "click through" to Amazon. New York State, the first to enact a so-called Amazon Law in 2008, claimed that the affiliate relationship constituted physical presence for Amazon. Along with the physical presence established by the affiliate relationship came responsibility for collecting sales taxes on products sold to New York residents by Amazon. Several legal challenges to these so-called Amazon laws have been presented; a thorough legal analysis of these challenges extends beyond the scope of this report. Some proponents of the SSUTA see the growth of Amazon Laws as possibly complicating simplification efforts. Recently, Amazon has indicated support for congressionally approved collection authority as provided for in the legislation described in this report, with some modifications. Economic Issues During the debate about so-called "streamlining" legislation, there are several economic issues Congress may consider: (1) How will the SSUTA influence the economic efficiency and equity of state tax systems? (2) What will be the impact of changes in the treatment of Internet transactions on states that are more reliant on the sales tax? (3) What will the potential revenue loss be, absent changes in the treatment of Internet transactions? A summary of these issues follows. Efficiency A commonly held view among economists is that a "good" tax (or more precisely, an efficient tax) minimizes distortions in consumer behavior. Broadly speaking, economists maintain that individuals should make the same choices before and after a tax is imposed. The greater the distortions in behavior caused by a tax, the greater the economic welfare loss. A sales tax levied on all consumer expenditures equally would satisfy this definition of efficiency. As noted earlier, however, under the current state sales tax system, all consumption expenditures are not treated equally. The growth of tax-free Internet transactions, both business-to-business and business-to-consumer, will likely amplify the efficiency losses from altered consumer behavior. An alternative theory concerning economic efficiency in sales taxation is referred to as "optimal commodity taxation." Under an optimal commodity tax, the tax rate is based on (or determined by) what is termed the price elasticity of demand for the product (sometimes called the "Ramsey Rule"). Products that are price inelastic, meaning quantity demanded is unresponsive to changes in price, should be levied a higher rate of tax. In contrast, products that are price elastic should have a lower rate of tax. If products purchased over the Internet are relatively more price elastic, then the lower tax rate created by effectively tax-free Internet transactions may improve economic efficiency as behavioral changes are reduced. However, the price elasticity of products available over the Internet is difficult to measure, and the efficiency gain, if any, is suspected to be small. An additional economic inefficiency arises if vendors change location to avoid collecting sales taxes. The location change would likely result in higher transportation costs. In the long run, it is conceivable that the higher transportation costs would erode the advantage of evading the sales tax. For example, consider a Virginia consumer who wants to buy a set of woodworking chisels. The local Virginia hardware store sells the set for $50 (including profit). An Internet-savvy hardware store in Georgia is willing to sell the same chisel set for $52 inclusive of profit and shipping costs. So, before taxes, the local retailer could offer the chisels at a lower price. The marginal customer, who is indifferent between the two retailers before taxes (even though the Internet is more expensive, it is more convenient), is therefore just as likely to buy from the Internet retailer as from the local retailer. Virginia imposes a state and local sales tax of 5.0%, thus yielding a final sales price to the consumer of $52.50. Given the higher relative price inclusive of the tax, the marginal consumer, along with many other consumers, would likely switch to buying chisels from the Georgia-based Internet retailer (assuming these consumers do not feel compelled to pay the required Virginia use tax on the Internet purchase). The diversion from retail to the Internet in response to the non-collection of the use tax represents a loss in economic efficiency. The additional $2 in production costs ($52 less $50) represents the efficiency loss to society from evading the use tax. Note that in the absence of sales and use taxes, the Internet vendor in the above example may yield to market forces and close up shop. However, if the Internet vendor continues to operate even without the tax advantage, it could be the case that consumers are willing to pay higher prices for the convenience of Internet shopping. If this were true, then the higher "production costs" for Internet vendors would not necessarily result in an efficiency loss. Equity The sales tax is often criticized as a regressive tax—a tax that disproportionately burdens the poor. Assuming Internet shoppers are relatively better off and do not remit use taxes as prescribed by state law, they can avoid paying tax on a larger portion of their consumption expenditures than those without Internet access at home or work. Consumers without ready Internet access are not afforded the same opportunity to "evade" the sales and use tax. In this way, electronic commerce may arguably exacerbate the regressiveness of the sales tax, at least in the short run. As computers and access to the Internet become more readily available, the potential inequity arising from this aspect of the "digital divide" could diminish. Equity issues also arise with respect to businesses. Currently, local retailers are required to collect sales taxes for the state at the point of sale. Internet retailers, in contrast, are not faced with that administrative burden. Thus, two otherwise equal retailers face different state and local tax burdens. In relatively high tax rate states, this disparity may be significant. As noted earlier, consumers in these high tax rate states have a greater incentive to purchase from out-of-state vendors, exacerbating the tax burden differential. Differential Effect Among States The growth of Internet-based commerce will have the greatest effect on the states most reliant on the sales and use tax. In addition to having more revenue at risk, high reliance states also face greater efficiency losses because of their generally higher state tax rates. As noted above, higher rates drive a larger wedge between the retail price inclusive of the sales tax and the Internet price and thus exacerbate the efficiency loss from the sales tax. States with low rates (and less reliance) would tend to have a smaller wedge between the two modes of transaction. States with both a high rate and high reliance would tend to recognize the greatest revenue loss from a ban on the taxation of Internet transactions. Revenue Loss Estimates Researchers estimated in April 2009 that total state and local revenue loss from "new e-commerce" in 2012 would be approximately $11.4 billion. "New e-commerce" is the lost revenue from states not collecting the use tax on remote Internet transactions. This estimate excluded purchases made over the telephone or through catalogs that would have occurred anyway. California was projected to lose $1.9 billion; Texas, $870.4 million; and New York, $865.5 million.

The United States Bureau of the Census estimated that $4.1 trillion worth of retail and wholesale transactions were conducted over the Internet in 2010. That amount was 16.1% of all U.S. shipments and sales in that year. Other estimates, based on different data, projected the 2012 so-called e-commerce volume at approximately $3.9 trillion. The volume, roughly $4 trillion, of e-commerce is expected to increase, and state and local governments are concerned because collection of sales taxes on these transactions is difficult to enforce. Under current law, states cannot reach beyond their borders and compel out-of-state Internet vendors (those without nexus in the buyer's state) to collect the use tax owed by state residents and businesses. The Supreme Court ruled in 1967 that requiring remote vendors to collect the use tax would pose an undue burden on interstate commerce. Estimates put this lost state tax revenue at approximately $11.4 billion in 2012. Congress is involved because interstate commerce typically falls under the Commerce Clause of the Constitution. Opponents of remote vendor sales and use tax collection cite the complexity of the myriad state and local sales tax systems and the difficulty vendors would have in collecting and remitting use taxes. Proponents would like Congress to change the law and allow states to require out-of-state vendors without nexus to collect state use taxes. These proponents acknowledge that simplification and harmonization of state tax systems are likely prerequisites for Congress to consider approval of increased collection authority for states. A number of states have been working together to harmonize sales tax collection and have created the Streamlined Sales and Use Tax Agreement (SSUTA). The SSUTA member states hope that Congress can be persuaded to allow them to require out-of-state vendors to collect taxes from customers in SSUTA member states. In the 112th Congress, S. 1452 and H.R. 2701 would have granted SSUTA member states the authority to compel out-of-state vendors in other member states to collect sales and use taxes. H.R. 3179 would have also granted states the authority to compel out-of-state vendors to collect use taxes provided selected simplification efforts were implemented. S. 1832 would have granted SSUTA member states and non-member states that met less rigorous simplifications standards the authority to compel out-of-state vendors to collect sales and use taxes. For a constitutional analysis of the legislation, see CRS Report R42629, "Amazon Laws" and Taxation of Internet Sales: Constitutional Analysis, by [author name scrubbed] and [author name scrubbed]. In the 113th Congress, S. 743, which was approved in the Senate on May 6; S. 336; and their House counterpart, H.R. 684, would grant SSUTA member states and non-member states that meet less rigorous simplifications standards the authority to compel out-of-state vendors with greater than $1 million in remote sales to collect sales and use taxes. A related issue is the "Internet Tax Moratorium." The relatively narrow moratorium prohibits new taxes on Internet access services and multiple or discriminatory taxes on Internet commerce. Congress has extended the "Moratorium" twice. The most recent extension expires November 1, 2014. An analysis of the Internet tax moratorium is beyond the scope of this report. This report will be updated as legislative events warrant.

Children and Social Security Unlike welfare programs, in which eligibility is determined on the basis of limited income, Social Security is a work-related entitlement, in which benefits are determined on the basis of workers' employment and earnings history, without respect to current income. Children may be eligible for Social Security benefits when a parent who is a covered worker dies, becomes disabled, or retires. For children of disabled or retired workers, the child's benefit is generally equal to 50% of the parent's primary insurance amount (PIA) before adjustments. (The PIA is based on the parent's Social Security earnings record.) Children of deceased workers are generally entitled to benefits equal to 75% of the deceased parent's PIA before adjustments. A maximum family benefit applies, varying from 150% to 188% of the PIA of the retired, disabled, or deceased parent. The family maximum cannot be exceeded regardless of the number of recipients entitled to benefits under the deceased or retired worker's earnings record. Child benefits generally apply to all biological children of a worker (assuming that paternity/maternity has been established) and to legally adopted children. Stepchildren may be eligible in some cases, as may some legally adopted grandchildren, with their benefits being determined on the basis of their grandparents' earnings record. Children may receive benefits until they reach age 18, and if in high school, through age 19. Disabled children may receive benefits indefinitely as long as the disability was incurred before reaching age 22. In addition to receiving Social Security benefits in their own right, children may economically benefit from Social Security by living with other family members who receive benefits. Social Security Administrative Data: Child Beneficiaries As noted above, children may qualify for Social Security benefits by being a child of a retired or disabled worker receiving Social Security or a survivor of a deceased worker who met the program's insured status requirements. Social Security Administration (SSA) data indicate that in December 2012, 3.3 million Social Security beneficiaries (5.7% of all beneficiaries) were children under the age of 18. (See Table 1 .) Among child beneficiaries, 1.2 million (37.2% of all child beneficiaries) were children of deceased workers, 1.7 million (52.9% of all child beneficiaries) were children of disabled workers, and about 322,000 (8.9% of all child beneficiaries) were dependent children of retired workers. The average monthly benefit among child beneficiaries in December 2012 was $525. Average monthly benefits of children of disabled workers were lowest, about $323 in December 2012, compared to about $601 for children of retired workers, and about $793 for children of deceased workers (i.e., children receiving survivor's benefits). In total, aggregate Social Security benefits paid on behalf of children in December 2012 amounted to about $1.712 billion, or about $20.5 billion on an annualized basis, based on SSA administrative data. Social Security benefits paid on behalf of children exceed federal dollars spent on cash welfare to families with children under the Temporary Assistance for Needy Families (TANF) program. In FY2013, combined federal and state TANF expenditures, in the form of cash aid to families, amounted to an estimated $8.7 billion, of which approximately $4.3 billion (49%) was from federal funds. Survey of Income and Program Participation Data: Children in Families Receiving Social Security While SSA administrative data provide a broad overview of the numbers of individuals receiving Social Security benefits and the type and amount of benefits received, they provide little information about the characteristics of individuals receiving benefits or the importance of Social Security to individual and family economic well-being. In order to address questions relating to the income and poverty status of families in which children live, and the impact of Social Security benefits on income and poverty status of families with children, other data sources must be used. For this analysis, U.S. Census Bureau Survey of Income and Program Participation (SIPP) data are used in this report. The most recent SIPP data are from the 2008 panel, which is designed to interview a representative sample of families every four months over a 64-month period, from September 2008 through December 2013. The SIPP collects detailed information on family composition, labor force participation, income, and program participation among families and their members in each of the 64 months they are included in the survey. The analysis presented in this report relies on SIPP data for April 2013, the latest month in common from data released for the full SIPP sample. An Appendix further describes the methodology used in this report. CRS analysis of SIPP data for April 2013 indicates that among an estimated 73.0 million children under age 18, an estimated 8.5 million (11.6%) lived in families in which one or more family members received Social Security—over two and one-half times the number of children estimated to receive Social Security benefits based on the administrative data discussed above from four months earlier (3.3 million in December 2012). As discussed in greater detail in the Appendix , which describes the methodology used in this report, it is not possible to precisely identify the Social Security beneficiary status of children on the SIPP. Among the estimated 8.5 million children living in families that received Social Security in April 2013 based on SIPP data, an estimated 3.2 million (37%) were in families in which Social Security was reported as having been received on behalf of at least one of the children in the family—a number quite close to the 3.3 million child recipients reported by administrative data, four months earlier. (See Figure 1 .) As noted in the Appendix , most, but not all, of these 3.2 million children from the SIPP are probably child beneficiaries. Another 1.9 million (22%) lived in families where a parent or guardian reported receiving Social Security benefits, though not directly on behalf of a child. These 5.1 million children are grouped together in analyses that follow as child beneficiaries and children of parents or guardians that receive Social Security. The remaining 3.4 million children (40%) lived in families where Social Security was received by someone other than a child or the children's parent(s) or guardian(s); in such cases Social Security benefits may have been received by an extended family member (e.g., grandparent, aunt or uncle, cousin, niece or nephew) or an older adult sibling. For this latter group, children may incidently be affected by Social Security, but not directly as a matter of policy aimed at them. Children's Poverty Status by Family Social Security Receipt At first appearance, there is little difference in the overall poverty status of children living in families that receive Social Security and those living in families that do not. However, differences become more apparent between children living in families in which Social Security is received on behalf of children and/or parents/guardians, and those living in families in which Social Security is received only by extended or other family members. Also, the after-the-fact comparison of poverty status by family Social Security receipt doesn't take into account the effect that Social Security itself has in reducing poverty. For such purposes, poverty status of children must be estimated both before and after counting families' income from Social Security. Figure 2 shows the poverty status of children based on total family income as multiples of U.S. Census Bureau poverty income thresholds. The figure shows, for example, that 23.5% of all children were poor in April 2013. Children living in families who received Social Security were about equally as likely to be poor in April 2013 as children living in families who didn't—24.8% compared to 23.3% (the third and second bars, respectively). However, among child beneficiaries and children of a parent or guardian who received Social Security (the 5.1 million children in the two combined pie slices shown in Figure 1 ), 27.2% were poor, compared to 21.3% where Social Security was received by extended or other family members (other than children, parents, or guardians). Antipoverty Effectiveness of Social Security Among Children One way to gauge the effect of Social Security on children's poverty status is to estimate poverty by excluding Social Security from family income and comparing the result to the extent of poverty when Social Security is added back into family income. Figure 3 , Figure 4 , and Figure 5 depict children's "pre- and post-transfer poverty status" for children in families that receive Social Security compared to children in families that don't. Figure 3 , for example, compares all children, whereas Figure 4 compares only children who are child beneficiaries or live in families where the parent(s) or guardian(s) received Social Security. Figure 5 compares children who are in families where only extended or other family members (other than children, parents, or guardians) reported receiving Social Security with children in families where no Social Security was reported. The comparison of "pre-transfer poverty status," based on a measure of family income that excludes the amount families received from Social Security, to "post-transfer poverty status," which includes the Social Security benefits families received, provides one indication of Social Security's effect on reducing child poverty. Figure 3 shows, for example, that 47.8% of children living in families that received Social Security would have been considered poor based on their families' incomes from sources other than Social Security. When Social Security is added back into these families' incomes, child poverty is cut by nearly half, to 24.8%—a level about equal to that of children living in families that do not receive Social Security (23.3%). On this basis, Social Security lifted nearly 2.0 million children (1.952 million) above the poverty line in April 2013. (See Table 2 .) It should be noted that this effect is limited to just the 8.5 million children that are in families that received Social Security, which noted earlier, amounts to just about 11.6% of all children. If one examines the relative effect of Social Security on the poverty status of all 73.0 million children in the U.S., overall, the effect appears much more modest. (See Table 2 .) In all, 19.082 million children were estimated as being poor in April 2013, on a pre-transfer basis, or 26.2% of all children. The 1.952 million reduction in the number of poor children as a result of counting Social Security benefits reduces the total number of poor children to about 17.130 million, resulting in 23.5% of all children being considered poor—a 2.7 percentage point, or 10.2% decline. While Social Security benefits received by families with children have the effect of reducing the incidence of child poverty to nearly the same level as that of children in families that don't receive benefits, their equalizing effect is attenuated at somewhat higher income levels. Among children in families that receive Social Security, 34.4% have family income below 125% of the poverty line , compared to 29.8% of children in families that don't receive benefits. Among children in families that receive Social Security, 43.7% have family incomes below 150% of the poverty line , compared to 36.4% of children in families that do not receive Social Security. (See Figure 3 .) Figure 4 focuses on just the 5.1 million children who are classified as either child beneficiaries and/or children whose parent(s) or guardian(s) received Social Security, whereas Figure 5 shows the other 3.4 million children who are in families in which Social Security is received only by extended family members other than a parent or guardian. Comparing the two groups, the former group ( Figure 4 ) has a much higher pre-transfer poverty rate (54.2%) than does the latter group ( Figure 5 ) (38.4%). In families where Social Security benefits are received on behalf of children or by parents or guardians, Social Security reduces their poverty rate from 54.2% to 27.2%, a rate that is still significantly higher than that of children in families that don't receive Social Security (23.3%). In contrast, for children living in families where Social Security is received only by extended or other family members, Social Security reduces their poverty rate from 38.4% to 21.3%—slightly below that of children in families that don't receive Social Security (23.2%). Figure 6 shows the relative share of estimated aggregate dollars going to children's families, based on their families' pre-transfer poverty status (i.e., poverty based on total income, excluding Social Security income that the family reports receiving). The figure shows, for example, that based on SIPP data, families with children reported receiving about $6.053 billion in Social Security benefits in April 2013, or about $72.635 billion on an annualized basis. Of these benefits, an estimated 44.1% (about $2.671 billion, or about $32.050 billion on an annualized basis) went to families who were poor based on their total cash income, excluding any Social Security benefits they received . (See Table 3 .) Thus, over two-fifths of Social Security dollars paid to families with children goes to children who would otherwise be counted as poor. Among families with child beneficiaries, about $3.847 billion in Social Security benefits were reported in April 2013 (about $46.167 billion on an annualized basis). Of this amount, nearly half (49.2% , $1.892 billion, or $22.702 billion on an annualized basis), went to families that had total incomes, excluding Social Security , below the poverty line, which is more than five times the estimated $4.485 billion in federal cash welfare spending under the Temporary Assistance for Needy Families (TANF) program in FY2013. Whereas TANF may be considered "target efficient," in terms of targeting the poor, in that nearly all TANF dollars go to families that are poor on a pre-transfer (pre-TANF) basis, Social Security plays a much greater role in reducing poverty among children than does TANF. Limitations The estimates presented in this report are based on survey data and are subject to respondent misreporting. Additionally, the SIPP data do not provide the comprehensive detail to precisely identify child beneficiaries. It should also be noted that estimates of the pre-transfer poverty status of children (i.e., poverty status excluding Social Security from total income) provide one measure of the relative importance of Social Security in combating poverty. The pre-transfer poverty estimates should not be confused with the full effects on poverty of eliminating the Social Security program, as some individuals would alter their behavior in absence of the program. Appendix. Methodology Identifying Child Social Security Beneficiaries on the SIPP It is not possible to precisely identify the Social Security beneficiary status of children on the SIPP. The SIPP collects information on Social Security receipt and the reasons for receipt for persons age 15 and over. Additionally, it collects information about whether an adult (defined as a person age 15 and over) collects Social Security on behalf of children under age 21. In such cases, however, it does not identify the specific children in the family for whom Social Security benefits are received, nor the specific reason(s) benefits are received on children's behalf. In such cases it is uncertain whether all or only some children under 21 in the family are direct beneficiaries. Moreover, some adults may include the child's portion of their Social Security benefit as their own, without explicitly indicating that they received Social Security on behalf of a child. In total, about 8.5 million children under age 18 were identified on the SIPP in April 2013 as living in families in which Social Security benefits were reported, either on their own behalf, or on behalf of another family member. In this analysis, all children of a parent (or guardian) who are under the age of 18 are identified as Social Security child beneficiaries if the child's parent or guardian reported that he/she received Social Security on behalf of a child under age 21 in the family. To some extent, this method will overstate the number of children under age 18 who received Social Security, as potentially some, but not all, children of the parent may be beneficiaries in their own right. In April 2013, an estimated 3.148 million children under age 18 on the SIPP were identified as Social Security child beneficiaries on the basis of a parent or guardian indicating that they had received Social Security benefits on behalf of a child. Another 27,000 children ages 15 to 17 reported directly receiving Social Security on the SIPP in April 2013. Thus, an estimated 3.175 million children were identified on the SIPP as potential Social Security child beneficiaries. An additional 1.893 million children lived with a parent or guardian who reported receiving Social Security on the SIPP in April 2013, but who did not indicate that benefits were received on behalf of a child. In some cases the benefits received by these parents or guardians may contain an allowance for beneficiary children that is not separately identified. Because of issues in identifying child beneficiaries on the SIPP and the avenues by which they receive Social Security (e.g., child survivor, dependent of a retiree or disabled worker), the two groups mentioned above are combined for purposes of analysis as "child beneficiaries and children of parents or guardians that receive Social Security." These 5.068 million children are differentiated from the remaining 3.430 million children who live in families in which Social Security was received only by extended family (e.g, grandparents, aunts, uncles, nieces or nephews) or other family members (adult sibling). For the former group, Social Security's effect on child poverty is more directly related to Social Security policy, whereas for the latter group, Social Security's effect on child poverty is incidental, being more directly related to children's incidental family living arrangements.

Social Security plays an important role in reducing poverty, not only among the aged but among children as well. Children may be eligible for Social Security benefits when a parent who is a covered worker dies, becomes disabled, or retires. In addition to receiving Social Security in their own right, children may economically benefit from Social Security by living with other family members receiving benefits. Based on a Congressional Research Service (CRS) analysis of U.S. Census Bureau Survey of Income and Program Participation (SIPP) data, in April 2013, an estimated 8.5 million children lived in families in which one or more family members received Social Security—11.6% of all children. Of this number, an estimated 5.1 million were either child beneficiaries in their own right, or lived with a parent or guardian who reported receiving Social Security. The remaining 3.4 million children lived in families in which Social Security was received only by extended family members (e.g, grandparents, aunts, uncles, nieces or nephews) or other family members (adult siblings). For the former group, Social Security's effect on child poverty is more directly related to Social Security policy, whereas for the latter group, Social Security's effect on child poverty is more directly related to children's incidental family living arrangements. Children living in families who received Social Security were about equally as likely to be poor (24.4%) in April 2013 as children living in families who didn't (23.3%). Children estimated to have received Social Security benefits on their own behalf and/or to live with a parent or guardian who received Social Security were more likely to be poor (27.2%) than children who incidently were living in families in which Social Security is received only by extended family members (e.g., grandparent, aunt, uncle) or adult sibling (21.3%). Social Security benefits lifted an estimated 1.952 million children above the official poverty line in April 2013. Among children in families that received Social Security, an estimated 47.8% (4.062 million) would have been considered poor based on family income other than Social Security. The addition of Social Security to family income reduces the incidence of poverty among these children to 24.8% (2.110 million). In April 2013, it's estimated that over two-fifths of Social Security dollars paid to families with children helped children who otherwise would be counted as poor. Social Security benefits paid on behalf of children and/or their parents or guardians amounted to nearly an estimated $3.847 billion in April 2013, or $46.167 billion on an annualized basis. Of this amount, nearly half (49.2%), $22.072 billion on an annualized basis, went to families who would have been considered poor based on their pre-transfer income (i.e., excluding Social Security), about two and one-half times the estimated $8.738 billion in combined federal and state cash welfare spending under the Temporary Assistance for Needy Families (TANF) program in FY2013, and five times the federal (only) share of $4.485 billion.

Legislative History of Drug Regulation The regulation of drugs by the federal government began with the Pure Food and Drug Act of 1906, which prohibited the interstate commerce of adulterated and misbranded drugs. The law did not require drug manufacturers to demonstrate safety or effectiveness prior to marketing. Over the next half-century, Congress and the President enacted two major pieces of legislation expanding FDA's authority. The Federal Food, Drug, and Cosmetic Act (FFDCA) was enacted in 1938, requiring that drugs be proven safe before manufacturers may sell them in interstate commerce. Then, in 1962, in the wake of deaths and birth defects from the tranquilizer thalidomide marketed in Europe, the Kefauver-Harris Drug Amendments to the FFDCA was enacted, increasing safety provisions and requiring that manufacturers show drugs to be effective as well. The FFDCA has been amended many times, leading to FDA's current mission of assuring Americans that the medicines they use do no harm and actually work—that they are, in other words, safe and effective . In recent decades Congress and the President have enacted additional laws to boost pharmaceutical research and development and to speed the approval of new medicines. (See Table 1 for examples.) The history of FDA law, regulation, and practice reflects the tension between making drugs available to the public and ensuring that those drugs be safe and effective. Advocates of industry, public health, consumers, and patients with specific diseases urge FDA (and Congress) to act—sometimes to speed up and sometimes to slow down the approval process. As science evolves and public values change, finding an appropriate balance between access and safety and effectiveness is an ongoing challenge. Since the 1992 Prescription Drug User Fee Act (PDUFA), the budget for FDA's human drugs program has had two funding streams: budget authority (annual discretionary appropriations from the General Fund of the Treasury) and user fees. The user fee supplementation of the program's budget initially went to a narrowly defined set of activities to eliminate the backlog of new drug applications pending FDA review and to maintain an increased staff effort on incoming applications. With each five-year reauthorization, Congress and the President have expanded the range of activities the fees may cover. The 2012 reauthorization added similar fee collection authority for the review of generic drug applications. While not the focus of this report, FDA also regulates products other than drugs—for example, biological products, medical devices, dietary supplements, foods, cosmetics, animal drugs, and tobacco products. Sometimes the agency addresses issues that straddle two or more product types that the law treats differently. How FDA Approves New Drugs To market a prescription drug in the United States, a manufacturer needs FDA approval. To get that approval, the manufacturer must demonstrate the drug's safety and effectiveness according to criteria specified in law and agency regulations, ensure that its manufacturing plant passes FDA inspection, and obtain FDA approval for the drug's labeling—a term that covers all written material about the drug, including, for example, packaging, prescribing information for physicians, and patient brochures. The drug development process begins before the law requires FDA involvement. Figure 1 illustrates a product's timeline both before and during FDA involvement. The research and development process for a finished drug usually begins in the laboratory—often with basic research conducted or funded by the federal government. When basic research yields an idea that someone identifies as a possible drug component, government or private research groups focus attention on a prototype design. At some point, private industry (either a large, established company or a newer, smaller, start-up company) continues to develop the idea, eventually testing the drug in animals. When the drug is ready for testing in humans, the FDA must get involved. The Standard Process of Drug Approval This section outlines key activities leading to FDA's approval of a new drug for marketing in the United States. The law also provides for an abbreviated process for a generic drug —one chemically and therapeutically identical to an already approved drug. Investigational New Drug (IND) Application Except under very limited circumstances, FDA requires data from clinical trials—formally designed, conducted, and analyzed studies of human subjects—to provide evidence of a drug's safety and effectiveness. Before testing in humans—called clinical testing —the drug's sponsor (usually its manufacturer) must file an investigational new drug (IND) application with FDA. The IND application includes information about the proposed clinical study design, completed animal test data, and the lead investigator's qualifications. It must also include the written approval of an Institutional Review Board, which has determined that the study participants will be made aware of the drug's investigative status and that any risk of harm will be necessary, explained, and minimized. The application must include an "Indication for Use" section that describes what the drug does and the clinical condition and population for which the manufacturer intends its use. Trial subjects should be representative of that population. The FDA has 30 days to review an IND application. Unless FDA objects, a manufacturer may then begin clinical testing. Clinical Trials With IND status, researchers test in a small number of human volunteers the safety they had demonstrated in animals. These trials, called Phase I clinical trials , attempt, in FDA's words, "to determine dosing, document how a drug is metabolized and excreted, and identify acute side effects." If the sponsor considers the product still worthy of investment, it continues with Phase II and Phase III clinical trials . Those trials gather evidence of the drug's efficacy and effectiveness in larger groups of individuals with the particular characteristic, condition, or disease of interest, while continuing to monitor safety. New Drug Application (NDA) Once a manufacturer completes clinical trials, it submits a new drug application (NDA) to FDA's Center for Drug Evaluation and Research (CDER). In addition to the clinical trial results, the NDA contains information about the manufacturing process and facilities, including quality control and assurance procedures. Other mandatory information: a product description (chemical formula, specifications, pharmacodynamics, and pharmacokinetics) ; the indication (specifying one or more diseases or conditions for which the drug would be used and the population who would use it); labeling; and a proposed Risk Evaluation and Mitigation Strategy (REMS), if appropriate. There are generally two types of NDAs that a manufacturer may submit, named for their locations in the FFDCA A 505(b)(1) NDA is an application that contains full reports of investigations of safety and effectiveness conducted by or for the applicant or for which the applicant has a right of reference or use. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use (e.g., published literature, FDA's finding of safety and/or effectiveness for a listed drug). During the NDA review, CDER officials evaluate the drug's safety and effectiveness data, analyze samples, inspect the facilities where the finished product will be made, and check the proposed labeling for accuracy. FDA Review FDA considers three overall questions in its review of an NDA Whether the drug is safe and effective in its proposed use, and whether the benefits of the drug outweigh the risks. Whether the drug's proposed labeling (package insert) is appropriate, and what it should contain. Whether the methods used to manufacture the drug and the controls used to maintain the drug's quality are adequate to preserve the drug's identity, strength, quality, and purity. FDA scientific and regulatory personnel consider the NDA and prepare written assessments in several categories, including Medical, Chemistry, Pharmacology, Statistical, Clinical, Pharmacology, Biopharmaceutics, Risk Assessment and Risk Mitigation, Proprietary Name, and Label and Labeling. The FFDCA requires "substantial evidence" of drug safety and effectiveness. FDA has interpreted this term to mean that the manufacturer must provide at least two adequate and well-controlled Phase III clinical studies, each providing convincing evidence of effectiveness. The agency, however, exercises flexibility in what it requires as evidence. As its regulations describe in detail, FDA can assess safety and effectiveness in a variety of ways, relying on combinations of studies by the manufacturer and reports of other studies in the medical literature. For some NDAs, FDA convenes advisory panels of outside experts to review the clinical data. While not bound by their recommendations regarding approval, FDA usually follows advisory panel recommendations. FDA approves an NDA based on its review of the clinical and nonclinical research evidence of safety and effectiveness, manufacturing controls and facility inspection, and labeling. An approval may include specific conditions, such as required postapproval studies (or postapproval clinical trials, sometimes referred to as Phase IV clinical trials ) that the sponsor must conduct after marketing begins. An approval may also include restrictions on distribution, required labeling disclosures, or other elements of REMS, which are described below in the section titled "How FDA Regulates Approved Drugs." The statute requires FDA to approve an NDA within 180 days after the filing of an application, or an additional period agreed upon by FDA and the applicant. In 1992, pursuant to PDUFA, FDA agreed to specific goals and created a two-tiered system of review times: Standard Review and Priority Review. Compared with the amount of time standard review generally takes (approximately 10 months), a Priority Review designation means FDA's goal is to take action on an application within 6 months. If FDA finds deficiencies, such as missing information, the clock stops until the manufacturer submits the additional information. If the manufacturer cannot respond to FDA's request (e.g., if it has not done a required study, making it impossible to evaluate safety or effectiveness), the manufacturer may voluntarily withdraw the application. If and when the manufacturer can provide the information, the clock resumes and FDA continues the review. When FDA makes a final determination to approve an NDA, the agency sends the applicant an approval letter or a tentative approval letter if the NDA meets requirements for approval but cannot be approved due to a patent or exclusivity period for the listed drug. If FDA determines that an NDA does not meet the requirements for approval, the agency sends a "complete response letter" describing the specific deficiencies the agency identified and recommending ways to make the application viable. An unsuccessful applicant may request a hearing. Regulations identify the reasons for which FDA can reject an NDA, which include problems with clinical evidence of safety and effectiveness for its proposed use, manufacturing facilities and controls, labeling, access to facilities or testing samples, human subject protections, and patent information. Supplemental NDA. In order to make a change to an approved NDA—for example, to change the labeling, manufacturing process, or dosing, or to add a new indication (i.e., new use)—the manufacturer must submit a supplement (also referred to as a supplemental NDA). Agency regulations describe the required contents of those applications. Regarding clinical data, the applicant must submit descriptions and analysis of controlled and uncontrolled clinical studies, as well as "a description and analysis of any other data or information relevant to an evaluation of the safety and effectiveness of the drug product obtained or otherwise received by the applicant from any source, foreign or domestic, including information derived from clinical investigations, including controlled and uncontrolled studies of uses of the drug other than those proposed in the application, commercial marketing experience, reports in the scientific literature, and unpublished scientific papers." The 21 st Century Cures Act amended these requirements to allow reliance upon qualified data summaries to support approval of a supplemental application for a qualified use of a drug. Data summaries may be used only if existing safety data are available and acceptable to FDA, and all data used to develop the qualified data summaries are submitted as part of the supplemental application. The 21 st Century Cures Act also required the establishment of a program at FDA to evaluate the potential use of real world evidence (RWE) to support a new indication for an approved drug. The law defines RWE to mean "data regarding the usage, or the potential benefits or risks, of a drug derived from sources other than randomized clinical trials." Abbreviated New Drug Application (ANDA) The Drug Price Competition and Patent Term Restoration Act of 1984 ("Hatch-Waxman Act," P.L. 98-417 ) established an abbreviated approval pathway for generic drugs, allowing a manufacturer to submit to FDA an abbreviated NDA (ANDA), rather than a full NDA, demonstrating that the generic product is the same as the brand drug (i.e., the reference listed drug [RLD]). Rather than replicate and submit data from animal, clinical, and bioavailability studies, the generic drug applicant relies on FDA's previous findings of safety and effectiveness of the approved brand drug. To obtain premarket approval of the generic, the sponsor submits an ANDA demonstrating that the generic product is pharmaceutically equivalent (e.g., has the same active ingredient[s], strength, dosage form, route of administration) and bioequivalent to the brand-name product. It also must meet other requirements (e.g., reviews of chemistry, manufacturing, controls, labeling, and testing). The generic and brand drugs may differ in certain characteristics (e.g., shape, excipients, packaging). Special Mechanisms to Expedite the Development and Review Process Not all reviews and applications follow the standard procedures. For drugs that address unmet needs or serious conditions, have potential to offer better outcomes or fewer side effects, or meet other criteria associated with improved public health, FDA uses several formal mechanisms to expedite the development or review processes Fast track and breakthrough product designations affect the administrative processes for the development of a drug and review of an application, for example, by providing for more frequent drug development-related meetings and interactions between the sponsor and FDA. Such designation does not alter the types of evidence required to demonstrate safety and effectiveness. Accelerated approval and animal efficacy approval change what is needed in an application. For accelerated approval, rather than requiring evidence of effectiveness on the final clinical endpoint, approval may be based on effectiveness on a surrogate or intermediate clinical outcome. Under the Animal Rule, when human efficacy trials are not ethical or feasible, approval may be based on adequate and well-controlled animal efficacy studies. Priority review designation affects the timing of the review, not the process (neither content nor timing) leading to submission of an application. Table 2 compares these mechanisms across several development and review characteristics. In addition to the five mechanisms described above, various laws have provided FDA with other tools aimed at bringing products to the public. Through statutory authorities and regulatory actions, FDA provides incentives to those who would develop certain categories of drugs. The main set of incentives is the granting of market exclusivity, while a newer incentive is providing priority review vouchers. The FFDCA has provisions to grant regulatory exclusivity for statutorily defined time periods (in months or years) to the holder of the NDA for a product that is, for example, the first generic version of a drug to come to market, a drug used in the treatment of a rare disease or condition, certain pediatric uses of approved drugs, and new qualified infectious disease products. During the period of exclusivity, FDA does not grant marketing approval to another manufacturer's product. FDA may award a priority review voucher (shortening the time from an application's submission to FDA's approval decision) to the manufacturer with a successful NDA for a drug used for certain tropical diseases, rare pediatric diseases, or agents that present national security threats. The manufacturer may use the voucher (or sell it to another manufacturer) to get priority review of a subsequent NDA. Other options fit limited situations and support shorter times from idea to approved public use. For example, the Project BioShield Act of 2004 and the Pandemic and All-Hazards Preparedness Reauthorization Act of 2013 (PAHPRA) allow the HHS Secretary to authorize in certain circumstances the emergency use of products or uses that do not yet have FDA approval. How FDA Regulates Approved Drugs FDA's role in making sure a drug is safe and effective continues after the drug is approved and it appears on the market. FDA acts through its postmarket regulatory procedures after a manufacturer has sufficiently demonstrated a drug's safety and effectiveness for a defined population and specified conditions and the drug is FDA-approved . Manufacturers must report all serious and unexpected adverse reactions to FDA, and clinicians and patients may do so. FDA oversees surveillance, studies, labeling changes, and information dissemination, among other tasks, as long as the drug is sold. FDA Entities Responsible for Drug Postapproval Regulation Offices throughout FDA, mostly in the Center for Drug Evaluation and Research, address the safety of the drug supply. The primary focus of activity is the Office of Surveillance and Epidemiology (OSE). OSE uses reports of adverse events that consumers, clinicians, or manufacturers believe might be drug-related to "identify drug safety concerns and recommend actions to improve product safety and protect the public health." FDA activities regarding drug safety once a drug is on the market (postmarket or postapproval period) are diverse. FDA staff look for "signals" of safety problems of marketed drugs by reviewing adverse event reports through the MedWatch program; review studies conducted by manufacturers when required as a condition of approval; monitor relevant published literature; conduct studies using computerized databases; review errors related to similarly named drugs; conduct communication research on how to provide balanced benefit and risk information to clinicians and consumers; and remain in contact with international regulatory bodies. Other CDER units evaluating safety issues include the Office of Prescription Drug Promotion; the Division of Drug Information; and the Office of Compliance, which has offices addressing drug security, manufacturing quality, and unapproved drugs and labeling. Outside of CDER, the Office of Regulatory Affairs (ORA) performs field activities, including domestic and foreign inspections. The FDA human drugs program budget includes funding for CDER and the CDER-related activities of ORA. Among the many advisory groups that work with FDA, two focus specifically on drug safety. The Drug Safety and Risk Management Advisory Committee met for the first time with this name in July 2002. Members, appointed by the commissioner, are nonfederal and represent areas of expertise in science, risk communication, and risk management. One member may be designated to represent consumer concerns; one nonvoting member may represent industry concerns. The group "advises the Commissioner or designee in discharging responsibilities as they relate to helping to ensure safe and effective drugs for human use." FDA created the Drug Safety Oversight Board as part of its 2005 Drug Safety Initiative and later required by FDAAA in 2007. Its members include both FDA personnel and representatives of the Agency for Healthcare Research and Quality, the Centers for Disease Control and Prevention, the Department of Defense, the Indian Health Service, the National Institutes of Health, and the Department of Veterans Affairs. Its roles are to advise the CDER director "on the handling and communicating of important and often emerging drug safety issues" and to provide "a forum for discussion and input about how to address potential drug safety issues." FDA Drug-Regulation Activities FDA postmarket drug safety and effectiveness activities address aspects of drug production, distribution, and use. This section highlights nine activities that have traditionally interested Congress in relation to drug safety and effectiveness: product integrity, labeling, reporting, surveillance, drug studies, risk management, information dissemination, off-label use, and direct-to-consumer advertising. Product Integrity Ensuring product integrity was the key task of FDA's predecessors in the early 1900s. Protecting the supply chain from counterfeit, diverted, subpotent, substandard, adulterated, misbranded, or expired drugs remains an essential concern of the agency. But as drug production has shifted to a global supply chain, FDA has broadened the scope of the way it monitors manufacturers, processers, packagers, importers, and distributors. The FFDCA dictates requirements that manufacturers must meet, and it allows FDA to regulate manufacturing facilities, warehouses, and transportation plans. For example, among many other requirements, the FFDCA requires (1) annual registration, including a unique facility identifier, of any domestic or foreign establishment "engaged in the manufacture, preparation, propagation, compounding, or processing of a drug or drugs" or their excipients (such as fillers, preservatives, or flavors) for U.S. distribution; (2) registration of importers; (3) submission of lists of products, including ingredients and labeling; (4) adherence to current good manufacturing practice (cGMP); (5) various inspection requirements including risk-based facility inspections, inspection of drug lots for packaging and labeling control, and "sampling and testing of in-process materials and drug products;" and (6) numerous reporting requirements, among other actions. FDA monitors product integrity beyond the drug's initial manufacture. It continues as the drug moves throughout the supply chain from its manufacturer to one or more wholesale distributors to the entity that dispenses it to the patient. Title II of the Drug Quality and Security Act of 2013 (DQSA; P.L. 113-54 ), the Drug Supply Chain Security Act, established track-and-trace requirements for prescription drugs, to be implemented over a period of 10 years. Among other things, the law requires manufacturers and repackagers to a put a product identifier, including a standardized numerical identifier, on each package and homogenous case. With certain exceptions, exchange of transaction information, histories, and statements is required when a manufacturer, repackager, wholesale distributor, or dispenser transfers or accepts a drug. The law also requires a system of verification and notification when FDA or a trading partner within the supply chain suspects that a product may be suspect or illegitimate, and for the Secretary to establish national standards for the licensing of wholesale distributors and third-party logistics providers. One area of federal and state interest is the practice of drug compounding. While FDA regulates drug manufacturers, the regulation of pharmacies and pharmacists has generally resided with state boards of pharmacy. The regulation of compounding pharmacies—where a pharmacist compounds (mixes) ingredients to create a product that differs from an FDA-approved drug based on a prescription for a specific patient—is a state function. However, in past years, some businesses licensed as pharmacies have engaged in compounding large amounts of a drug without corresponding patient-specific prescriptions and then selling the drug out of state. In 2012, long-term concern about the practice came to the forefront with an epidemic of fungal meningitis that CDC and FDA have traced back to a compounding business. The following year, Title I of the DQSA, the Compounding Quality Act, created a new category of drug compounders called outsourcing facilities , a term that describes entities that compound sterile drugs in circumstances that go beyond what the FFDCA allows pharmacies to do under state regulation (e.g., an outsourcing facility might compound drugs in bulk for use in hospitals and other facilities). Unlike traditional compounding pharmacies, outsourcing facilities are required to register with FDA and are subject to CGMPs, in addition to other requirements. Reporting and Surveillance One way FDA monitors the safety of approved drugs involves gathering information about possible adverse reactions to the products it has approved for U.S. use. Manufacturers must report all serious and unexpected adverse events (AEs) to the FDA Adverse Event Reporting System (FAERS) within 15 days of becoming aware of them. Health professionals and patients may report adverse events to FDA's reporting system at any time. According to the July 2017 report from the Institute for Safe Medication Practices (ISMP), in CY2016, FDA received 1.2 million new reports of adverse events for prescription and over-the-counter drugs. The agency collects AE reports through MedWatch and uses the FAERS database to store and analyze them. Not all AEs may be actual drug reactions. Using large surveillance data sets such as FAERS and with an understanding of the pharmacologic and pharmacokinetic functioning of various drugs, FDA scientists review the reported AEs to assess which ones may indicate a drug problem. They then use information gleaned from the surveillance data to determine a course of action. FDA might recommend a change in drug labeling to alert users to a potential problem or, perhaps, require the manufacturer to study the observed association between the drug and the adverse event. Unlike planned studies with hypotheses to support or refute, for which researchers gather information, most surveillance activities are characterized as passive , in that the information is submitted by others. The agency only learns of an adverse event when someone reports it. There are limitations to that approach. The reported event may signal a problem with the drug or be unrelated but have occurred coincident with the dosing. Other actual drug effects may be unrecognized as such and consequently not be reported. In addition, it is difficult to interpret the extent of a problem without knowing how many people took a specific drug. In 2008, FDA began work on its Sentinel Initiative, both recognizing these limitations and responding to a requirement in FDAAA to create and maintain a Postmarket Risk Identification and Analysis System. With Sentinel, FDA began moving from its predominantly passive surveillance system to an active one. Building on surveillance activities already in place (e.g., MedWatch and FAERS) and using evolving computer technology, Sentinel uses data from public and private sources such as electronic health records and insurance claims and registries to expand its information base while protecting patient confidentiality. In 2016, Sentinel moved out of its pilot phase and began operating on a larger scale. An FDAAA-required independent, third-party interim assessment in 2015 noted that Sentinel had already formed partnerships with 19 data organizations covering 178 million lives, allowing more precise estimates of usage and possible adverse events. The analyses had informed FDA decisions to both take and not take actions. However, a 2017 article presented more mixed opinions. It described several researchers' disappointment in Sentinel's utility, noting "little measureable impact" despite the resources already committed. Other researchers, noting the difficulties in data surveillance, pointed to the value of Sentinel's continued efforts. Drug Studies After a drug is on the market, FDA can recommend and ask product sponsors to conduct studies. As described below, the law authorizes FDA to require studies in the postapproval period. Two sets of situations—distinguished by when the requirement is set—involve required postapproval studies: when a requirement is attached to the initial approval of the drug and when FDA informs the sponsor of a required study once a drug is on the market. Postmarket Studies Required upon Drug Approval Accelerated Approval. When FDA grants accelerated approval, it attaches a postmarket study requirement to that approval. FDA regulations state, "Approval under this section will be subject to the requirement that the applicant study the drug further, to verify and describe its clinical benefit, where there is uncertainty as to the relation of the surrogate endpoint to clinical benefit, or of the observed clinical benefit to ultimate outcome." Animal Efficacy. When FDA grants approval based on its animal efficacy rule, it attaches a postmarket study requirement to that approval. The Animal Efficacy Rule allows manufacturers to submit effectiveness data from animal studies as evidence to support applications of certain new products "when adequate and well-controlled clinical studies in humans cannot be ethically conducted and field efficacy studies are not feasible." The regulations state, The applicant must conduct postmarketing studies, such as field studies, to verify and describe the drug's clinical benefit and to assess its safety when used as indicated when such studies are feasible and ethical. Such postmarketing studies would not be feasible until an exigency arises.… Applicants must include as part of their application a plan or approach to postmarketing study commitments in the event such studies become ethical and feasible. Pediatric Assessments . When FDA approves a drug for which it has deferred the required pediatric assessment, it attaches a postmarket pediatric assessment requirement to that approval. The Pediatric Research Equity Act (PREA, first authorized in P.L. 108-155 ) required that manufacturers submit a pediatric assessment with each submission of an application to market a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration. The law specified situations in which the Secretary might defer or waive the pediatric assessment requirement. For a deferral, an applicant must include a timeline for completion of studies. The Secretary must review each approved deferral annually, for which the applicant must submit evidence of documentation of study progress. When Otherwise Required by the Secretary. The FDA Amendments Act of 2007 ( P.L. 110-85 ) added another opportunity for a postmarket requirement at the time of approval. The Secretary may include in a drug's approval the requirement for specific postapproval studies or clinical trials. Postmarket Studies Required After Drug Approval Pediatric Assessmen t. In addition to the pediatric assessment required as part of a drug's approval, PREA allows the Secretary, in certain circumstances, to require a pediatric assessment of a drug already on the market. Based on New Information Available to Secretary. The Secretary, under specified conditions after a drug is on the market, may require a study or a clinical trial. The Secretary may determine the need for such a study or trial based on newly acquired information. To require a postapproval study or trial, the Secretary must determine that (1) other reports or surveillance would not be adequate and (2) the study or trial would assess a known serious risk or signals of serious risk, or identify a serious risk. The law directs the Secretary regarding dispute resolution procedures. Risk Management With authority under the FFDCA or by its own practices, FDA has long implemented various tools in its attempt to ensure that the drugs it has approved for marketing in the United States are safe and effective for their intended and approved uses. In addition to the actions the agency requires of the manufacturers of all approved drugs, it may deem additional actions appropriate for specific drugs or specific circumstances surrounding a drug's use. Some of those additional actions are risk-management processes to identify and minimize risk to patients. The FDA Manual of Policies and Procedures notes that risk management attempts to "minimize [a drug's] risks while preserving its benefits." In that 2005 document, FDA described its approach to risk management as "an iterative process" that includes both risk assessment and risk minimization. The FDAAA named the risk-management process risk evaluation and mitigation strategies (REMS) and expanded the risk-management authority of FDA. FDA practice had long included most of the elements that a REMS may include, but FDAAA gave FDA, through the REMS process, the authority for structured follow-through, dispute resolution, and enforcement. FDA may require a REMS under specified conditions—including if it determines such a strategy is necessary to ensure that the benefits of a drug outweigh its risks. It may make the requirement when a manufacturer submits a new drug application, after initial approval or licensing, when a manufacturer presents a new indication or other change, or when the agency becomes aware of new information and determines a REMS is necessary. As part of a REMS, the Secretary may require instructions to patients and clinicians, and restrictions on distribution or use (and a system to monitor their implementation). A REMS may include the following components: Patient information. The manufacturer must develop material "for distribution to each patient when the drug is dispensed." This could be a Medication Guide, "as provided for under part 208 of title 21, Code of Federal Regulations (or any successor regulations)," or a patient package insert. Health care provider information. The manufacturer must create a communication plan, which could include sending letters to health care providers; disseminate information to providers about REMS elements to encourage implementation or explain safety protocols; disseminate information through professional societies about any serious risks of the drug and any protocol to assure safe use; or disseminate to health care providers information about drug formulations or properties, including the limitations of those properties and how they may be related to serious adverse events. Elements to assure safe use (ETASU). An ETASU is a restriction on distribution or use that is intended to (1) allow access to those who could benefit from the drug while minimizing their risk of adverse events and (2) block access to those for whom the potential harm would outweigh potential benefit. By including these restrictions, FDA can approve a drug that it otherwise would have to keep off the market because of the risk it would pose. FFDCA Section 505-1(f)(3) lists the types of restrictions FDA could require as health care providers who prescribe must have particular training or experience, or be specially certified; pharmacies, practitioners, or health care settings that dispense must be specially certified; the drug must be dispensed to patients only in certain health care settings, such as hospitals; the drug must be dispensed to patients with evidence or other documentation of safe-use conditions, such as laboratory test results; each patient using the drug must be subject to certain monitoring; and each patient using the drug must be enrolled in a registry. Any approved REMS must include a timetable of when the manufacturer will provide reports to allow FDA to assess the effectiveness of the REMS components. Information Dissemination FDA maintains several communications channels through which it distributes information on drug safety and effectiveness to clinicians, consumers, pharmacists, and the general public. An FDA web page titled "Postmarket Drug Safety Information for Patients and Providers" includes links to drug-specific information, potential signals of serious risks and summary statistics from FAERS, Drug Safety Communications , and FDA Drug Safety Podcasts . Other channels include FDA Drug Info Rounds and FDA Drug Information on Twitter . FDA has been required by law to take various actions regarding how it informs the public, expert committees, and others about agency actions and plans and information the agency has developed or gathered about drug safety and effectiveness. Examples include directing FDA to establish advisory committees (e.g., an Advisory Committee on Risk Communication to "advise the Commissioner on methods to effectively communicate risks associated with" FDA-regulated products); to report certain information to Congress (e.g., annual fiscal and performance reports related to user fees); to hold public meetings with stakeholders (e.g., public meeting with patients, health care providers, and others to discuss clinical trial inclusion and exclusion criteria); and to make certain information available on the agency's website (e.g., publication of action packages for product approval or licensure, including certain reviews). Labeling What Is Labeling? A drug's labeling is more than the sticker the pharmacy places on the amber vial it dispenses to a customer. FFDCA Section 201(m) defines labeling to include "... all labels and other written, printed, or graphic matter ... accompanying" the drug. FDA regulations on labeling dictate the material the labeling must provide along with required formatting. FDA included the following description when it issued its 2006 final rule on labeling: A prescription drug product's FDA approved labeling (also known as "professional labeling," "package insert," "direction circular," or "package circular") is a compilation of information about the product, approved by FDA, based on the agency's thorough analysis of the new drug application (NDA) or biologics license application (BLA) submitted by the applicant. This labeling contains information necessary for safe and effective use. It is written for the health care practitioner audience, because prescription drugs require "professional supervision of a practitioner licensed by law to administer such drug" (section 503(b) of the act (21 U.S.C. 353(b))). FDA regulations on prescription drug advertising refer to examples of labeling: Brochures, booklets, mailing pieces, detailing pieces, file cards, bulletins, calendars, price lists, catalogs, house organs, letters, motion picture films, film strips, lantern slides, sound recordings, exhibits, literature, and reprints and similar pieces of printed, audio or visual matter descriptive of a drug and references published (for example, the Physician's Desk Reference) for use by medical practitioners, pharmacists, or nurses, containing drug information supplied by the manufacturer, packer, or distributor of the drug and which are disseminated by or on behalf of its manufacturer, packer, or distributor are hereby determined to be labeling as defined in section 201(m) of the FD&C Act. FDA requires that labeling begin with a highlights section that includes, if appropriate, black-box warnings, so called because they are bordered in black to signify their importance. The regulations list the required elements of labeling: indications and usage, dosage and administration, dosage forms and strengths, contraindications, warnings and precautions, adverse reactions, drug interactions, use in specific populations, drug abuse and dependence, overdosage, clinical pharmacology, nonclinical toxicology, clinical studies, references, how supplied/storage and handling, and patient counseling information. How Is Labeling Used? Labeling plays a major role in the presentation of safety and effectiveness information. It is a primary source of prescribing information used by clinicians. The manufacturer submits labeling for publication in the widely used Physician's Desk Reference and is the basis of several patient-focused information sheets that manufacturers, pharmacy vendors, and many Web-based drug information sites produce. When FDA determines that additional information is necessary for safe use, it may require the manufacturer to produce a Medication Guide. The agency, through its Office of Prescription Drug Promotion (OPDP), conducts and supports research on risk and benefit communication to both professionals and consumers. OPDP looks for ways to present information to consumers that is accessible, accurate, and up-to-date. FDA-approved labeling is relevant to discussions of insurance or benefits coverage, market exclusivity periods, and liability. When and How May Labeling Be Changed? Adverse events sometimes warrant regulatory actions such as labeling changes, letters to health professionals, or, once in a great while, a drug's withdrawal from the market. The regulations refer to required labeling revisions as soon as there is reasonable evidence—not proof—of a causal association with a clinically significant hazard. FDA can request labeling changes based on information it gathers from mandatory industry reports to FAERS, manufacturer-submitted postmarket studies, and voluntary adverse event reports from clinicians and patients. The agency may, upon learning of new relevant safety information, require a labeling change. When a manufacturer of an innovator (brand-name) drug believes data from original or published studies support a new use for a drug, a manufacturer itself can initiate a label change to support a new marketing claim. The manufacturer can submit to FDA the new data in a supplement to the original NDA and request that FDA allow it to modify the labeling. In addition, if a manufacturer of an innovator drug submits a supplement to strengthen warning labeling, regulations describe when the change can be made prior to FDA approval. The FFDCA requires that a generic drug have the same labeling as the innovator drug on which its application draws, with some exceptions. For example, a generic drug may omit from its labeling certain patent- and exclusivity-protected information concerning the pediatric use of the brand-name drug, and may be required to include a disclaimer with respect to the omitted information. This sameness requirement has implications when an injured party seeks to sue the generic manufacturer, and when new safety information becomes available when only generic products remain on the market. In November 2013, FDA issued a proposed rule to allow ANDA holders to voluntarily update drug labeling to reflect certain types of newly acquired information related to drug safety even if that labeling differs from that of the brand reference drug. Specifically, the ANDA holder would be allowed to distribute the revised product labeling with respect to the safety-related change, on a temporary basis, upon submission to FDA of a ''changes being effected'' supplement. The safety-related change(s) proposed in the supplement would be made publicly available to prescribers and the public on the agency's website while FDA reviews the supplement. The ANDA supplement for that safety-related labeling change would be approved upon approval of the same labeling change for the RLD (i.e., the brand-name or innovator drug). This proposed change has been met with some opposition, including from the generic drug industry, which has claimed that the rule would expose generic companies to new legal liability. A final rule has not been promulgated. Off-Label Use As described earlier, FDA approves a drug for U.S. sale based on its manufacturer's new drug application, which contains evidence of safety and effectiveness in its intended use, manufacturing requirements, and labeling. Despite the indications for use in the approved labeling, a licensed physician may—except in highly regulated circumstances —prescribe the approved drug without restriction. A prescription to an individual whose demographic or medical characteristics differ from those indicated in a drug's FDA-approved labeling is called off-label use and is accepted medical practice. The FFDCA prohibits a manufacturer from selling a misbranded product, and deems a drug to be misbranded if its labeling is false or misleading. FDA has interpreted the FFDCA, therefore, to prohibit a manufacturer from promoting or advertising a drug for any use not listed in the FDA-approved labeling, which contains those claims for which FDA has reviewed safety and effectiveness evidence. However, FDA's interpretation has been challenged and is in dispute. Off-label use presents an evaluation problem to FDA safety reviewers. Using drugs in new ways for which researchers have not yet demonstrated safety and effectiveness can create problems that premarket studies did not address. Manufacturers rarely design studies to establish the safety and effectiveness of their drugs in off-label uses, and individuals and groups wanting to conduct such studies face difficulties finding funding. Drug and device companies have argued that current regulations prevent them from distributing important information to physicians about unapproved, off-label uses of their products. In November 2016, FDA held a two-day public meeting to obtain input from various groups regarding off-label uses of approved or cleared medical products. In January 2017, FDA issued draft guidance explaining the agency's policy about medical product communications that include data and information that are not contained in FDA-approved labeling, but that concern the approved uses of their products. The draft guidance is in a question and answer format and addresses frequently asked questions. Among other things, the draft guidance provides examples of the kinds of information that the agency considers consistent with FDA-required labeling for a product (e.g., information that provides additional context about adverse reactions associated with a drug's approved use[s] as reflected in the FDA-required labeling), as well as the kinds of information that are not consistent with FDA-required labeling for a product (e.g., if a drug is approved for treatment of only one disease, and the company's communication provides information about using the product to treat a different disease). Direct-to-Consumer (DTC) Advertising FDA regulates the advertising of prescription drugs. Although the Federal Trade Commission regulates nonprescription drug advertising, the FDA regulates the product labeling that the nonprescription drug ads must reflect. While the law generally prohibits FDA from requiring preapproval of an ad, manufacturers are required to submit their ads to the agency upon release. FDAAA expanded and strengthened FDA's enforcement tools regarding advertising, including by authorizing the agency to require submission of a television advertisement for review not later than 45 days before its dissemination. In conducting a review of a television advertisement, the Secretary may make recommendations with respect to information included in the label of the drug on (1) changes that are necessary to protect the consumer good and well-being, or that are consistent with prescribing information for the product under review, and (2) "statements for inclusion in the advertisement to address the specific efficacy of the drug as it relates to specific population groups, including elderly populations, children, and racial and ethnic minorities," if appropriate and if such information exists. The law allows the agency to recommend, but not require, changes in the ad. The law also allows FDA to require that an ad include certain disclosures without which it determines that the ad would be false or misleading. These disclosures could include the date of drug's approval, as well as information about a serious risk listed in a drug's labeling. In 2012, FDA issued draft guidance addressing for which categories of TV ads the agency generally intends to enforce the pre-dissemination review requirement. This guidance has not been finalized. Television and radio ads must present the required information on side effects and contraindications in a "clear, conspicuous, and neutral manner." Civil penalties are authorized for the dissemination of a false or misleading DTC advertisement. Any published DTC advertisement must include the following statement printed in conspicuous text: "You are encouraged to report negative side effects of prescription drugs to the FDA. Visit http://www.fda.gov/medwatch , or call 1-800-FDA-1088." Appendix. Abbreviations and Acronyms

The Food and Drug Administration (FDA), a regulatory agency within the Department of Health and Human Services, regulates the safety and effectiveness of drugs sold in the United States. FDA divides that responsibility into two phases. In the preapproval (premarket) phase, FDA reviews manufacturers' applications to market drugs in the United States; a drug may not be sold unless it has FDA approval. Once a drug is on the market, FDA continues its oversight of drug safety and effectiveness. That postapproval (postmarket) phase lasts as long as the drug is on the market. Beginning with the Food and Drugs Act of 1906, Congress and the President have incrementally refined and expanded FDA's responsibilities regarding drug approval and regulation. The progression to drug approval begins before FDA involvement. First, basic scientists work in the laboratory and with animals; second, a drug or biotechnology company develops a prototype drug. That company must seek and receive FDA approval, by way of an investigational new drug (IND) application, to test the product with human subjects. It carries out those tests, called clinical trials, sequentially in Phase I, II, and III studies, which involve increasing numbers of subjects. The manufacturer then compiles the resulting data and analysis in a new drug application (NDA). At that point, FDA reviews the NDA with three major concerns: (1) safety and effectiveness in the drug's proposed use; (2) appropriateness of the proposed labeling; and (3) adequacy of manufacturing methods to assure the drug's identity, strength, quality, and purity. The Federal Food, Drug, and Cosmetic Act (FFDCA) and associated regulations detail the requirements for each step. FDA uses a few special mechanisms to expedite drug development and the review process when a drug might address an unmet need or a serious disease or condition. Those mechanisms include accelerated approval, animal efficacy approval, fast track designation, breakthrough therapy designation, and priority review. Once FDA has approved an NDA, the drug may enter the U.S. market, but FDA continues to address drug production, distribution, and use. Its activities, based on ensuring drug safety and effectiveness, address product integrity, labeling, reporting of research and adverse events, surveillance, drug studies, risk management, information dissemination, off-label use, and direct-to-consumer advertising, all topics in which Congress has traditionally been interested. FDA seeks to ensure product integrity through product and facility registration; inspections; chain-of-custody documentation; and technologies to protect against counterfeit, diverted, subpotent, adulterated, misbranded, and expired drugs. FDA's approval of an NDA includes the drug's labeling; the agency may require changes once a drug is on the market based on new information. It also prohibits manufacturer promotion of uses that are not specified in the labeling. The FFDCA requires that manufacturers report to FDA adverse events related to its drugs; clinicians and other members of the public may report adverse events to FDA. The agency's surveillance of drug-related problems, which had primarily focused on analyses of various adverse-event databases, is now expanding to more active uses of evolving computer technology and links to other public and private information sources. The FFDCA allows FDA to require a manufacturer to conduct postapproval studies of drugs. The law specifies when FDA must attach that requirement to the NDA approval and when FDA may issue the requirement after a drug is on the market. To manage exceptional risks of drugs, FDA may also require patient or clinician guides and restrictions on distribution. The agency publicly disseminates information about drug safety and effectiveness; and regulates the industry promotion of products to clinicians and the public.

Introduction Congress established the Advanced Technology Vehicles Manufacturing (ATVM) program in 2007 as a way to help raise U.S. fuel economy standards for vehicles and to encourage domestic production of more fuel-efficient cars and light trucks. The legislation establishing the program, the Energy Independence and Security Act of 2007 (EISA), was enacted as the domestic auto industry was experiencing declining sales in a weakening economy. According to a Government Accountability Office (GAO) report, The Detroit 3 faced more difficulty in achieving substantial improvements in fuel economy than most foreign-based manufacturers, which historically had produced and sold more fuel-efficient vehicles. When proposing new, more stringent CAFE standards [in 2007], NHTSA estimated that the Detroit 3 would face significantly higher costs to meet revised standards than the major Japanese automakers. The ATVM program is neither unique nor without precedent. The federal government has supported a wide range of research, development, and production incentives for new domestic energy sources for several decades, as part of an overall commitment to reduce petroleum imports and, in the case of automobiles, raise fuel-efficiency levels. Efforts to spur energy innovation in vehicles go back at least to the Ford Administration, when the first efforts to promote research and development of electric vehicles were enacted. Since those initial efforts in the 1970s, the Department of Energy (DOE) has continuously supported research initiatives on new types of electric batteries, fuel cells, and other vehicles and technologies as possible alternatives to vehicles fueled by petroleum. During these years, federal support has also extended to various interagency initiatives such as the Partnership for a New Generation of Vehicles (PNGV) and the Freedom Cooperative Automotive Research (FreedomCAR) Initiative. In 2005, Congress enacted tax credits for the purchase of certain alternative fuel and advanced technology vehicles as a step to encourage buyers to purchase new types of cars and light trucks. U.S. Motor Vehicle Industry and ATVM Concerns over the longer-term competitive decline of the Detroit 3—General Motors (GM), Ford, and Chrysler —provide the background to the ATVM program. As shown in Figure 1 , the Detroit 3 saw the 66% market share they held in 2000 erode steadily, as American consumers turned increasingly to imports and vehicles produced by German, Japanese, and South Korean companies at plants located in the United States. Since a low point of 44% market share in 2009 during the recession, the Detroit 3 have gained some ground, as their sales accounted for nearly 47% of all U.S. sales in 2011 and about 45% each year since 2012. Recession Adversely Affects the U.S. Motor Vehicle Industry At the time the ATVM program was enacted in late 2007, it was apparent that the U.S. economy and the domestic motor vehicle industry were slowing. Rising gasoline prices were one factor; by the summer of 2008, gasoline would reach a nationwide average price of $4.17 per gallon. The U.S. unemployment rate doubled, from 4.6% in 2007 to 9.3% in 2009, causing consumers to pull back even more from major purchases like vehicles. Collapsing world credit markets and a slowing global economy combined to create the worst market in decades for production and sale of motor vehicles in the United States and other industrial countries. U.S. light vehicle production fell by more than 34% in 2009 compared to 2008 levels. A similar pattern was reflected in U.S. light vehicle sales , which fell from just over 16.5 million vehicles in 2007 to 13.5 million in 2008 and then to 10.6 million vehicles in 2009. The production and sales slides were serious business challenges for all automakers, and they rippled through the large and interconnected motor vehicle industry supply chain, touching suppliers, auto dealers, and the communities where auto-making is a major industry. GM and Chrysler were in especially precarious financial positions. The immediate crisis that brought these two companies to bankruptcy was a loss of financial liquidity as the banking system's credit sources froze and neither company had enough internal reserves to weather the economic storm. As a result, they turned to the U.S. government for assistance in November 2008. During this time, ATVM resurfaced as a possible source of federal bridge loans for GM and Chrysler. While Congress had passed the $700 billion Emergency Economic Stabilization Act (EESA) in the fall of 2008 to shore up the U.S. financial system, the George W. Bush Administration initially indicated it would not use these funds for anything other than the rescue of financial institutions. Instead, it encouraged Congress to amend the already funded ATVM program so it could provide bridge loans to keep GM and Chrysler afloat. In light of the worsening economy and possible failure of both automakers, the House passed legislation that would have allowed ATVM funds to be used as bridge loans for GM and Chrysler, but the Senate did not bring it up for a vote. In light of congressional inaction on the reprogramming of ATVM funding, late in December 2008 and in the first days of 2009 the Bush Administration reversed course and provided Troubled Asset Relief Program (TARP) assistance to both automakers and two auto-financing companies. The incoming Obama Administration built on this commitment. That funding enabled GM and Chrysler to begin restructuring their operations, a process that was ultimately completed in bankruptcy court. The ATVM program remained unchanged from its original purpose. Recent Developments in the U.S. Motor Vehicle Industry Since 2010, U.S. light vehicle sales have grown by 42%, and domestic production has grown by 50%. There has been a significant improvement in the financial strength of the Detroit 3: General Motors Corporation went through a dramatic restructuring and bankruptcy. The federal government owned as much as a 61% share of a successor company, General Motors Company, which was established through the bankruptcy process in 2009. By the end of 2013, the U.S. Treasury had sold off its holdings of the new company. General Motors Company is now owned by private investors. It generated $3.8 billion in net income on $155 billion in revenue in 2013. Chrysler, which was also restructured and went through bankruptcy in 2009, is owned and managed by Fiat, and the merged company is now known as Fiat Chrysler Automobiles. It repaid its loan to the U.S. Treasury in 2011. In 2013, prior to its merger with Fiat, Chrysler had net income of $2.8 billion on revenue of $72 billion. Ford is the only one of the Detroit 3 that did not receive TARP funds, and it did not file for bankruptcy. It accrued $30 billion in losses from 2006 to 2008, but has been profitable since the summer of 2009. In 2013, Ford recorded $7.2 billion in net income on $147 billion of revenue. It was in the context of the unprecedented turmoil and change in the motor vehicle industry in the first decade of the 2000s that the ATVM program was established and funded. Legislative History of the ATVM Program The ATVM program was established in 2007 and funded in 2009. In the fall of 2011, it was discussed in Congress in the context of using a reduction in the program as an offset to proposed increased funding for disaster relief in the FY2012 Continuing Resolution. Ultimately, Congress did not reduce ATVM funding and the program remains as originally authorized and funded, although two recent reports have called for the unused funds to be rescinded. The Energy Independence and Security Act of 2007 EISA raises fuel economy standards to new highs and provides incentives for the domestic production of fuel-efficient cars and light trucks. It requires the National Highway Traffic Safety Administration (NHTSA) to increase federal Corporate Average Fuel Economy (CAFE) standards so that the combined new passenger car and light truck fuel efficiency will reach at least 35 miles per gallon (mpg) by model year (MY) 2020, up from approximately 24 mpg in MY2007. Before the enactment of EISA, passenger car CAFE standards were held constant by statute at 27.5 mpg for nearly two decades. Some Members of Congress reasoned that automakers should be given an incentive to apply new technologies that would speed the development of more fuel-efficient vehicles and thereby help achieve the new CAFE goals. Thus, along with the increase in CAFE standards, Section 136 of EISA established an incentive program of loans and grants to promote the domestic manufacture of fuel-efficient passenger vehicles and components. As enacted, the program authorized up to $25 billion in direct loans to manufacturing facilities in the United States. The loans and grants were authorized for (1) reequipping, expanding, or establishing a manufacturing facility in the United States to produce— (A) qualifying advanced technology vehicles; or (B) qualifying components; and (2) engineering integration performed in the United States for qualifying vehicles and qualifying components. One of the key requirements for a qualifying vehicle or component is that it achieves at least 25% higher fuel economy than a comparable MY2005 vehicle. EISA authorized but did not provide appropriations for the loan and grant programs. The FY2009 Continuing Resolution Because EISA did not fund the ATVM program, automakers in 2008 lobbied Congress not only to fund it, but also to double the authorization to $50 billion. Despite the efforts to increase the size of the program, Congress left it unchanged. In September 2008, however, Congress enacted the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act. Among other provisions, the act appropriated $7.5 billion to cover the risk of default on up to $25 billion in loans, and $10 million was appropriated for administrative expenses. During floor debate on this legislation, several Senators spoke about the original purpose of the ATVM program and the reasons for funding it in the fall of 2008. Senator Jeff Bingaman said, As we conferred on the [ATVM] program almost a year ago, it was clear there were credit problems for both the large manufacturers and the small start-ups and component suppliers, particularly as it related to getting financing for the most cutting edge technologies such as batteries for electric-drive vehicles. Now that credit markets have tightened further, the need is even more acute. During debate on the same continuing resolution, Senator Carl Levin noted, "Most of these technologies were invented by our companies here in the United States, and we need to keep manufacturing them here and continue to lead the world in automotive innovation. These loans will help our companies stay competitive in the global marketplace." FY2010 Energy and Water Development and Related Agencies Appropriations Act In October 2009, Congress enacted the Energy and Water Development and Related Appropriations Act of 2010. Section 312 amended the EISA definition of "advanced technology vehicle" to include "ultra efficient vehicles," which achieve fuel economy (or gasoline-equivalent electricity consumption) of 75 mpg or higher. An ultra-efficient vehicle must have a "fully closed compartment" and be "designed to carry at least 2 adult passengers." However, the emissions standards applicable to advanced technology vehicles do not apply to ultra-efficient vehicles. This statutory change was made after DOE issued its interim final rule on the program, and the regulations have not been updated to reflect this change. The FY2012 Continuing Resolution In September 2011, the ATVM program was involved in the debate over legislation that funded the federal government through November 18, 2011. Among other provisions, the continuing resolution that was brought to the House floor contained $1 billion in emergency FY2011 funding for the Federal Emergency Management Agency (FEMA). The House Appropriations Committee had proposed an offset for the FY2011 FEMA funding by cutting $1 billion from the ATVM program and applying it to FEMA's disaster relief program. The chairman of the House Appropriations Committee noted in a statement that the ATVM program "has more than $4 billion in unspent funds in the pipeline." A majority of the House did not agree to the legislation, in part because of opposition to the ATVM reduction. Two days later the House voted again, passing the legislation with minor changes including the ATVM reduction. The Senate in turn added another amendment, deleting supplemental FY2011 FEMA funding and the ATVM offset. This bill was agreed to by the House of Representatives on October 4, 2011, and signed by the President the next day. The ATVM program thus remained intact. Recommendations to Rescind Unused ATVM Appropriations Two reports in April 2014 called for the rescission of unobligated balances in the ATVM program. The House budget resolution for FY2015 recommended rescinding the unobligated balance because "funds have largely been unused, as production has not met current demand." Also in April 2014, GAO issued its annual report on improving the efficiency and effectiveness of government programs. In that report, GAO recommended that Congress may want to rescind all or part of the remaining ATVM credit subsidy appropriations "unless the Department of Energy (DOE) can demonstrate demand for new ATVM loans and viable applications." GAO reported that "most applicants and manufacturers we had spoken to indicated that the costs of participating outweigh the benefits to their companies and that problems with other DOE programs have tarnished the ATVM loan program, which may have led to a deficit of applicants." Other Recent Legislation Regarding the ATVM Program Several bills to expand or eliminate the ATVM program have been introduced recently, including the following: On July 9, 2013, Representative Broun offered a floor amendment ( H.Amdt. 274 ) to H.R. 2609 (Energy and Water Development and Related Agencies Appropriations Act, 2014) to eliminate the remaining ATVM funding and apply the $6 million in savings (for ATVM administration) to spending reduction. The amendment failed 165-252. The Alternative Fueled Vehicles Competitiveness and Energy Security Act ( S. 1001 , 112 th Congress), by Senators Wyden and Stabenow, would have allowed manufacturers of heavy truck, bus, and rail vehicles and components to qualify for ATVM loans; permitted DOE to lower the minimum target for efficiency gains; and eliminated the cap of $25 billion in total loan authority. The bill was reported out of the Senate Committee on Energy and Natural Resources in September 2011, but no action was taken in the Senate. The bill was reintroduced in 2013 ( S. 1230 , 113 th Congress). In September 2013, Senator Thune filed amendment 1887 to S. 1392 , the Energy Savings and Industrial Competitiveness Act of 2013, to eliminate the ATVM program. The amendment was not voted on. The Senate has not completed action on S. 1392 . A new version of the bill, S. 2074 , was introduced in February 2014. Representative Patrick Murphy introduced H.R. 1999 , the Savings, Accountability, Value, and Efficiency Act, in May 2013. Section 201 would rescind unobligated budget authority for the ATVM program, effectively ending the program. Structure of the ATVM Program The ATVM program has three goals: 1. increase the fuel economy of U.S. passenger vehicles, 2. improve the use of advanced technologies in cars and components manufactured in the United States, and 3. protect the U.S. government's financial stake in these auto companies. EISA Requirements Direct Loan Program Section 136 of EISA required DOE to establish a $25 billion loan program and to set the specific standards for eligibility for ATVM loans. The subsection sets forth rules for labor compensation on construction projects, financial viability of loan recipients, and repayment periods. It stipulates that initial repayment of a loan may be deferred up to five years after a project begins operation. Facilities, equipment, and "engineering integration" covered by these loans must be completed and placed in service no later than the end of 2020. Priority for Older Plants and Definition of an Eligible Facility EISA orders DOE to give "priority to those facilities that are oldest or have been in existence for at least 20 years. Such facilities can currently be sitting idle." This provision had been criticized as an indirect way of requiring that loans be reserved for union-organized U.S.-based automakers. Subsequent loan awards show that DOE did not interpret this provision in that way, however, due to other qualifications in EISA. First, subsection (g) applies only to DOE "in making awards or loans to those manufacturers that have existing facilities.... " This is an important qualification, because in subsection (b) (1), eligible activities are defined as including "reequipping, expanding, or establishing [emphasis added] a manufacturing facility.... " A facility being established cannot, by definition, be 20 years old. Furthermore, subsection (g) establishes only a priority for factories at least 20 years old, and does not prohibit loans to newer facilities. In any event, several foreign-based automakers have U.S. plants that are more than 20 years old. One ATVM loan, to Ford Motor Company, has been made to a company with unionized plants. Defining Advanced Technology Vehicles and Components Vehicles eligible for a loan under the ATVM program must meet the definition of "advanced technology vehicle" set in EISA. The definition does not reference a particular technology (e.g., electric motors) or fuel (e.g., natural gas). Rather, it places limitations on vehicle emissions and fuel consumption. First, unless the vehicle is an ultra-efficient vehicle (75 mpg or higher), a qualifying vehicle must meet current Clean Air Act Tier 2 emissions standards and must also meet any additional fine particulate matter standards established under the Clean Air Act. Second, a vehicle must achieve 25% higher fuel economy than the average "base year combined fuel economy for vehicles with substantially similar attributes." EISA did not define the base year, but in subsequent regulations DOE has defined the base year as MY2005. DOE's Implementation of the Program Financial Viability One of the key statutory provisions in EISA is that loan recipients must be "financially viable without the receipt of additional Federal funding associated with the proposed project." In DOE's interim final rule implementing the loan program, The Department interprets the term ''financially viable'' to mean that an applicant must demonstrate a reasonable prospect that the Applicant will be able to make payments of principal and interest on the loan as and when such payments become due under the terms of the loan documents, and that the applicant has a net present value which is positive, taking all costs, existing and future, into account. The stipulation that companies be financially viable and have a positive net present value led to some loans not being approved, especially during the low point of the crisis in the auto industry. Vehicle Classifications Another key provision in EISA is that qualifying vehicles must achieve at least 25% higher fuel economy than "vehicles with substantially similar attributes." However, it was left to DOE to determine which vehicles are substantially similar. In the interim final rule, DOE chose to group vehicles of similar size and performance, ultimately settling on 13 classes of passenger cars (e.g., two-seater, subcompact performance sedan, small wagon) and four classes of light trucks (e.g., minivan, sport utility vehicle). For each class, DOE determined the MY2005 fuel economy average and thus the benchmark fuel economy for vehicles of that class under the ATVM program. Loan Terms EISA and DOE's interim final rule spells out many of the terms of loans under the program. These include the duration of the loans—the life of the project or 25 years, whichever is shorter; the interest rate—the cost of funds to the Department of the Treasury for obligations of comparable maturity on the date of the loan; whether repayment may be deferred—principal payments (but not interest) may be deferred up to five years; and the lender is the Federal Financing Bank (FFB). See adjacent box for further information on the FFB. Selection Criteria In evaluating applications for ATVM loans, DOE has set out several selection criteria: the technical merit of the project, including fuel savings above those required for eligibility, potential improvements to the fuel economy of the U.S. vehicle fleet, likely reductions in U.S. petroleum consumption, and promotion of advanced fuels; program factors including economic development, geographic location, and technological diversity; adequate provisions to protect the government; and priority for facilities that are 20 years old or older. Loan Authority vs. Subsidy Cost Appropriations for the program do not cover the entire value of the loans, but instead cover the "subsidy cost" (i.e., the risk of default). For the original appropriation, Congress assumed a subsidy rate of 30%, meaning that $7.5 billion would be sufficient to fund $25 billion in total loan value. GAO estimates that a total of $3.3 billion in subsidy costs has been obligated to date, leaving approximately $4.2 billion of the appropriation unobligated. To date, five vehicle manufacturers have been awarded loans under the ATVM program (see Figure 2 ). No component manufacturer has received an ATVM loan. DOE's 2014 Revisions To spur new interest, Secretary of Energy Ernest Moniz announced a number of changes in the ATVM program on April 2, 2014. In a letter to the Motor and Equipment Manufacturers Association, he said the program was being revised because of "capacity constraints and demand for expansion capital" in the auto sector. He noted that the new federal requirement to raise auto fuel economy to over 50 miles per gallon in 2025 establishes a "need for suppliers to accelerate investment in the manufacture of key fuel efficiency technologies." The letter emphasizes that ATVM loans are available for component manufacturers as well as vehicle assemblers; all loan recipients to date have been assemblers. Since there have been no ATVM applications approved since 2011, it is not clear if these revisions will result in new loans for advanced technology vehicle production. While DOE's website indicates an active loan solicitation is under way, no new loans were announced in 2014. An April 2014 GAO report questioned the effectiveness of DOE's revisions, noting, Since our March 2013 report, DOE has received one application seeking approximately $200 million.... DOE recently stated that it has begun new outreach efforts to potential applicants that will increase awareness and interest in the program and lead to additional applications in 2014. DOE has not further demonstrated a demand for ATVM loans, such as new applications that meet all the program eligibility requirements and involve amounts sufficient to justify retaining the remaining credit subsidy appropriations, nor has it explained how it plans to address challenges cited by previous applicants including a burdensome review process. Determining whether program funds will be used is important, particularly in a constrained fiscal environment, as unused appropriations could be rescinded or directed toward other government priorities. Currently Funded ATVM Projects As of January 8, 2015, DOE had approved ATVM loans to five companies totaling $8.4 billion. The last ATVM loan was made in 2011. The five companies, the loan amounts, and a short description of the covered projects are shown in Table 1 , listed chronologically. Approved projects include parts production and assembly for all-electric and plug-in hybrid vehicles, assembly of natural gas vehicles, and production and installation of advanced components for conventional vehicles. All of the loans are to original equipment manufacturers (OEMs), which assemble vehicles, although some of the projects will develop components, most notably plug-in vehicle batteries. Current Issues and Critiques of the ATVM Program ATVM and Fuel Efficiency DOE estimated at the time of the loan announcements that, in aggregate, the vehicles produced from these projects would displace 282 million gallons of gasoline (roughly 18,000 barrels per day, or about 0.2% of U.S. consumption) and avoid 2.4 million tons of carbon dioxide emissions annually (about 0.04% of total U.S. emissions), compared to similar MY2005 vehicles. However, DOE's current performance measures estimate the savings relative to benchmark MY2005 vehicles, as opposed to estimating the additional effect of the vehicles attributable to the loan program given rapidly increasing CAFE standards (see Figure 3 ) that will raise the fuel economy of all new vehicles relative to MY2005. According to GAO, "ATVM borrowers might have acted to increase fuel economy and reduce the petroleum use of their vehicles in order to meet the more stringent CAFE standards—even without the ATVM funds. Without knowing the actions these companies might have taken in the absence of ATVM funding, the program will not be able to measure the extent to which the improvements in fuel economy and reductions in petroleum used by ATVM-funded vehicles resulted directly from the program." Thus DOE's estimates of avoided gasoline consumption and carbon dioxide emissions may overstate the benefits of the program. \s DOE and GAO estimate that vehicles produced under the program will exceed CAFE targets. However, it is unclear whether these improvements will lead to fleet averages that exceed the CAFE standards, or whether automakers will use these vehicles to balance out other vehicles that fall below their CAFE targets. Although a broad range of technologies can be applied to increase the fuel economy of cars and trucks, the bulk of ATVM lending to date, in the form of the loan to Ford, has gone toward vehicles with gasoline-powered internal-combustion engines. Ford's share of projected gasoline savings from all approved loans is 81%. The ATVM program has also made loans for natural gas, hybrid, and all-electric vehicles, but those loans account for only 30% of total loan originations. Job Creation and Preservation DOE originally estimated that these loans will save or create about 38,700 jobs in the motor vehicle industry. See the Appendix for a breakdown of projected job savings/creation and summary of the business lines of the loan recipients. According to DOE, nearly all of the 38,700 saved or created jobs shown in its database would be at the loan recipients' facilities. These estimates reflect employment changes that in some cases could account for nearly half of the recipient's workforce, and in other cases, a doubling or tripling of their current employment base. If other jobs are expected to be created or saved among recipients' parts suppliers, the DOE data do not show it. According to DOE, only in one case are the jobs cited in DOE calculations also at supplier firms. Of the more than 900 saved/created jobs at the Vehicle Production Group (VPG), 49 jobs were to have been at VPG, 613 at companies supplying parts and doing final assembly, and 267 at dealers and service organizations. Issues with ATVM Lending Neither GM nor Chrysler is in the current list of loan recipients. Chrysler had a loan request of $3.5 billion pending with DOE, but withdrew it in 2012. General Motors applied for three ATVM loans totaling $10.3 billion in July 2009, when it was operating under bankruptcy court protection, but according to a GM filing, DOE determined that the company did not meet the viability requirements for Section 136 loans. Several months later, the company submitted an application for $14.4 billion of loans. DOE did not make a decision, and on January 27, 2011, GM withdrew its application. At that time, GM's then CFO Chris Liddell said, "withdrawing our DOE loan application is consistent with our goal to carry minimal debt on our balance sheet." Other applicants reportedly complained about the slow pace of consideration of loan applications, indicating that a lack of DOE action was undercutting their ability to compete with rivals in Asia and Europe. Others opted to use the commercial loan market for support with their business plans, as the costs of the current program may outweigh the benefits to their companies (according to a 2013 GAO report). In its 2011 report, GAO found that the ATVM program could better meet its objectives if it would apply greater use of independent engineering analysis to improve program evaluation. Before additional loan disbursements are made, ATVM procedures require that its staff will ensure that borrowers have made significant technical progress. GAO's review of the program found that DOE's ATVM staff did not have sufficient engineering skills to effectively evaluate such progress. GAO noted that without such independent evaluations of the manufacturing processes, ATVM "cannot be adequately assured that the borrowers are delivering the vehicle and component projects as required by the loan agreements." GAO cited instances in which borrowers had not spent funds as required and had spent loan funds outside the United States. In addition, GAO said that four ATVM projects (those of Nissan, Ford, Fisker, and Tesla) had reached critical stages where "heightened technical monitoring" was appropriate to avoid the "risk of not identifying critical deficiencies." GAO also called upon DOE to use additional performance measures so it could better assess whether loan recipients were meeting the program goals. They noted that DOE has performance measures that will indicate how well ATVM-funded vehicles improve specific fuel efficiency, but it did not have measures showing whether DOE has "accomplished its overall goal of improving the fuel economy of all passenger vehicles used in the United States." Specifically, DOE may not be able to determine what automakers would have done in the absence of ATVM to meet new CAFE standards. GAO also faulted DOE's inability to assess how its ATVM-supported technologies are being applied in the marketplace and its lack of performance standards to gauge the ongoing financial condition of the loan recipients. Profile of ATVM Loan Recipients

The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program is a Department of Energy (DOE) program designed to reduce petroleum use in vehicles and promote domestic manufacturing. It was established in 2007, when the Detroit 3 automakers—General Motors, Ford, and Chrysler—faced declining sales in a weakening economy at the same time that U.S. fuel economy standards were raised. It provides direct loans to automakers and parts suppliers to construct new U.S. factories or retrofit existing factories to produce vehicles that achieve at least 25% higher fuel economy than model year 2005 vehicles of similar size and performance. The ATVM program is authorized to award up to $25 billion in loans; there is no deadline for completing such loan commitments. Congress funded the program in 2009, when it appropriated $7.5 billion to cover the subsidy cost for the $25 billion in loans, as well as $10 million for program implementation. Since the start of the program, DOE has awarded $8.4 billion in loans to five companies (Fisker, Ford, Nissan, Tesla, and the Vehicle Production Group). As of January 2015, ATVM has $16.6 billion in remaining loan authority. No new loans have been made since 2011. Two companies—Fisker and the Vehicle Production Group—were unable to make payments on their loans, and DOE auctioned the loans off in the fall of 2013. Tesla paid off all of its loan in 2013, nine years ahead of schedule. Of the final loan agreements, DOE has estimated that the projects would create or save 38,700 jobs at facilities in nine states. DOE estimated that annually the projects would displace 282 million gallons of gasoline (roughly 18,000 barrels per day, or about 0.2% of U.S. consumption) and would avoid about 2.4 million tons of carbon dioxide emissions (about 0.04% of total U.S. emissions). In April 2014, DOE announced a number of changes that appear designed to refocus the program to assist vehicle component manufacturers, rather than the vehicle assemblers that have received prior ATVM loans. As of January 8, 2015, however, no new loans have been made. Appropriations for the program do not cover the entire value of the loans but instead cover the "subsidy cost" (i.e., the risk of default). For the original appropriation, Congress assumed a subsidy rate of 30%, meaning that $7.5 billion would be sufficient to fund $25 billion in total loan value. A report by the Government Accountability Office (GAO) estimates that a total of $3.3 billion in subsidy costs has been paid to date, with approximately $4.2 billion unobligated. The unobligated funds remaining for the program have been a point of contention in recent appropriations debates. The House has voted several times to transfer some of the unused appropriation for the ATVM subsidy costs to other purposes. None of these transfers were enacted. Other legislators have sought to expand the program. Two recent federal reports call for rescinding the program's unobligated balance: the FY2015 budget resolution reported by the House Budget Committee calls for outright rescission, and an April 2014 GAO report recommends Congress consider taking the same step unless DOE can generate new demand for the program.

Current Budget Process and Structure Authority for congressional review and approval of the District's budget is derived from the Constitution and the District of Columbia Self-Government and Government Reorganization Act of 1973 (Home Rule Act, P.L. 93-198 , 87 Stat. 774). The Constitution gives Congress the power to "exercise exclusive Legislation in all Cases whatsoever" pertaining to the District of Columbia. In 1973, Congress granted the city limited home rule powers and empowered citizens of the District to elect a mayor and city council. At the same time, however, Congress retained the power to review and approve all District laws including the District's annual budget. Under the District's home rule charter, the mayor must submit operating and capital budgets to the city council for review and adoption by a date specified by the council. The charter also mandates that the proposed budget submitted by the mayor must assume that expenditures will not exceed resources, and requires that certain elements be a part of the mayor's budget submission. In addition, the charter requires that the proposed budget include a four-year financial management plan outlining the projected long-term impact of current spending. When appropriate, the mayor may prepare, at his discretion or at the direction of the council, a supplemental or deficiency budget to address the need for additional expenditures and must identify the potential sources of revenues that will be used to address the deficiency. The council must act on the budget and any supplemental appropriations, including the reprogramming of funds, which must be offset by reductions, within 56 calendar days of receiving the budget from the mayor. The approved budget must then be transmitted to the President, who forwards it to Congress for review, modification, and approval. Both the President, through his annual budget submission, and Congress may propose financial assistance to the District in the form of special federal payments in support of specific activities or priorities. Congress must approve the District's budget as one of the appropriations bills. District of Columbia appropriations acts typically consist of three titles or parts. Title I includes special federal payments or contributions for specific activities or priorities. These are additional sums granted to the District, outside of the normal federal grant process, to address specific congressional priorities. Most recently, these special federal payments have included, but have not been limited to: funding of court operations and defender services; emergency planning and security; and education initiatives, including college tuition assistance, support for public schools, school choice scholarships (vouchers), and public charter schools. Title II of District appropriations acts consists of the District's operating and capital budgets, including enterprise funds. The operating budget is supported by revenues from local taxes, fees, charges, and federal assistance available to all eligible state and local governments. The capital budget is sustained through bond sales and annual appropriations. Title III consists of general provisions governing various aspects of the operations and functions of District government. The general provisions included in recent District of Columbia appropriations acts can be grouped into six categories that: address fiscal and budgetary matters related to deficit spending, limits on the reprogramming of funds, prohibitions of the use of sole-source contracts, and requirements for emergency and contingency reserve funds; impose administrative controls; facilitate congressional oversight and reporting; limit use of appropriated funds for advocacy of District statehood or congressional voting representation; address educational issues related to the payment of attorney fees in Individuals with Disabilities Education Act (IDEA) actions; and impose limits, restrictions, and prohibitions on the use of federal or local funding to carry out specific social policies such as abortion services, needle exchange, and medical marijuana. On occasion, Congress has used the District's appropriations act to authorize specific initiatives including school vouchers, the Chief Financial Officer act, and charter schools under a fourth title. Once forwarded by the President to Congress, typically during the first weeks of June, the District's budget moves through the congressional appropriations process. This includes subcommittee hearings, which may take place before the actual budget submission to Congress, subcommittee and committee markups in both houses, committee reports and votes, floor action, reconciliations and conference report consideration, and final passage. All of this is supposed to happen within approximately 120 calendar days before the beginning of the District's fiscal year on October 1. City leaders have consistently expressed concern that Congress has repeatedly delayed passage of the appropriations act for the District (in which Congress approves the city's budgets) well beyond the start of its fiscal year. The city's elected leaders contend that delay in Congress's approval of its budget hinders their ability to manage the District's financial affairs and negatively impacts the delivery of public services. During the past decade the approval of the District's annual budget has been delayed by complications in the congressional appropriations process. Rather than being enacted on its own, the District of Columbia appropriations act has often been folded into omnibus or consolidated appropriations acts, and continuing resolutions. As documented in Table 1 , FY1997 was the only year out of the past 12 years for which the D.C. appropriations act was enacted before the start of the fiscal year (on October 1 of the prior-numbered year). Summary and Analysis of Provisions of H.R. 733 The District of Columbia Budget Autonomy Act of 2007, H.R. 733 , 110 th Congress, introduced on January 20, 2007, by Congresswoman Eleanor Holmes Norton, is the latest in a series of bills dating back to 1981 that would provide budget autonomy for the District of Columbia. (See the Appendix .) The bill was introduced by D.C. Delegate Eleanor Holmes Norton and co-sponsored by Representative Tom Davis. When the District of Columbia Government Reorganization and Self-Government Improvement Act (Home Rule Act, P.L. 93-198 , 87 Stat. 774) was enacted in 1973, granting the city limited self-governing authority, it retained congressional authority to review and approve the District's annual budget as part of the congressional appropriations process. The Home Rule Act includes several prescriptive provisions governing budget submission, financial management, and borrowing authority. Several of these provisions were put in place in response to the fiscal crisis the city faced during the 1990s. H.R. 733 would allow the District to forego congressional review and approval of its operating and capital budgets financed with local revenues. The bill would also remove several budget submission and financial management reporting requirements and restrictions on the city's borrowing authority. Proponents of increased budget autonomy can point to the Bush Administration's budget for FY2004, which included a statement in support of budget autonomy for the District of Columbia, and the fact that the District has produced 10 consecutive balanced budgets (six of them without the supervision of the Financial Control Board). Budget Submission Requirements Summary of Proposed Changes H.R. 733 would eliminate substantive elements of the District's home rule charter governing the budget submission process. Specifically, the bill would remove language that establishes different fiscal year starting points for the District of Columbia general government (October 1 to September 30); public education institutions, including public schools, charter schools, and the University of the District of Columbia (July 1 to June 30); and the Armory Board (January 1 to December 31). The bill would also eliminate provisions that: prescribe the content and timing of the mayor's proposed budget submission to the council, such as the inclusion of a multi-year budget plan for all agencies, multi-year capital budgets, and annual program performance reports; dictate the timetable for council consideration of the proposed budget (currently 56 days); restrict the mayor's and council's ability to alter the budget submissions of specific independent agencies; and require a 30 legislative-day congressional review period for District budget acts (instead of allowing such acts to take effect on the date stated in the act). Policy Implications of Proposed Changes H.R. 733 renders inapplicable large portions of the Home Rule Act, notably the requirements for congressional review. Section 2(b) of H.R. 733 states that "the process by which the District of Columbia develops and enacts the budget for the District government for a fiscal year, and the activities of the District government for a fiscal year, shall be established under such laws as may be enacted by the District." Those portions of the D.C. Code that dictate the timing and content of the budget process would remain in effect during a control year. For non-control years, the policy implications of H.R. 733 are highly dependent upon the nature of the laws that would eventually be enacted by the District. Should Congress approve H.R. 733 , the District would have the power to change its fiscal year or otherwise alter its budget processes to better serve its constituents without having to go through Congress. A change in the fiscal year may more closely reflect the needs of the District. Decoupling the District general budget from the appropriations process could result in a shorter budget cycle, allowing for more accurate revenue and expenditure estimates. The current budget approval process involves the mayor, the council, the congressionally created Chief Financial Officer (CFO), the President, the Office of Management and Budget, the Appropriation Committees of the House and Senate, and the full Congress. The process requires at least 15 months to complete; typically, the process has exceeded 15 months. Enactment of H.R. 733 would not prevent Congress from intervening in District budgetary matters. Even if autonomy were granted for the part of the District's budget financed by locally raised revenues, Congress would still need to appropriate federal funds for certain functions that are carried out by the District but financed by the federal government as special federal payments. This includes, for example, corrections; courts and defender services; security and emergency planning; and selected education initiatives, such as the college access program, school choice scholarships, and public charter schools. Furthermore, H.R. 733 may not prevent Congress from adopting future proposals, including so-called "social policy" provisions, that would limit the District's ability to spend its own funds (as well as federal funds) on certain goods or services. Congress could always pass freestanding legislation restricting the use of the District's own source revenues, or include such restrictions or prohibitions as general provisions in a District appropriations bill. Such actions would run counter to the intent of H.R. 733 and the principles of home rule. Moreover, the rules of both chambers bar the inclusion of legislation in appropriation bills. Any attempt to include "social riders" or other legislative provisions in District appropriation bills could be challenged on a point of order. However, the House or Senate could adopt procedural rules governing federal appropriations for the District that would allow for the inclusion of legislative provisions that would impose restrictions on the use of District funds or authorize new programs. For instance, during consideration of the District of Columbia Appropriations Act for FY2004, H.R. 2765 , the House approved a rule ( H.Res. 334 ), which allowed the consideration of an amendment ( H.Amdt. 368 ) authorizing a school choice program. Without the rule, a point of order could have been raised challenging the amendment as legislation in an appropriations measure. Financial Management Requirements Summary of Proposed Changes The bill would remove certain provisions and financial management reporting requirements included in the home rule charter. Specifically, the bill would strike provisions that: limit the city's ability to increase spending based on an increase in revenues after Congress has approved a fiscal year appropriation; require the mayor to submit a complete financial report to the council by February 1 of each year; require the city to maintain an emergency reserve fund equal to 2% of operating expenditures as identified in the Comprehensive Annual Financial Report (CAFR) submitted by the CFO and dictate the uses of such fund; and require the city to maintain a contingency reserve fund of not less than 4% of operating expenditures as identified in the CAFR submitted by the CFO and dictate the use of such fund; establish the position of the District of Columbia Auditor; require the mayor annually to develop and submit to the House and Senate oversight and appropriations committees, and the Government Accountability Office (GAO), a performance accountability plan for all departments, agencies, and programs of the government of the District of Columbia for the next fiscal year; require the mayor to develop and submit to the House and Senate oversight and appropriations committees, and the Government Accountability Office (GAO), a performance accountability report for all departments, agencies, and programs of the government of the District of Columbia for the previous fiscal year; require the CFO to develop and submit to the House and Senate oversight and appropriations committees, and the Government Accountability Office (GAO), not later than March 1 of each year, a five-year financial plan for the government of the District of Columbia that contains a description of the steps the government will take to eliminate any differences between expenditures from, and revenues attributable to, each fund of the District of Columbia during the five years beginning after the submission of the plan. require the CFO to submit a financial compliance report to the House and Senate oversight and appropriations committees on the progress made in executing the plan, and to have the report evaluated by GAO and OMB, which must report their findings to the House and Senate oversight and appropriations committees not later than April 15 th of each year; and require the CFO to submit quarterly financial and budgetary status reports to the House and Senate oversight committees and appropriations subcommittees. Policy Implications of Proposed Changes The bill would render moot certain provisions and financial reporting requirements put in place to ensure that congressional committees of jurisdiction have sufficient information from which to exercise informed oversight and appropriations responsibilities. On the one hand, eliminating congressional review of the District's budget and financial management process is consistent with promoting self-government and local autonomy, and does not necessarily imply the elimination of performance and financial plans and reports. On the other hand, the absence of any formal congressional review and oversight process may hinder Congress's ability to guard against waste fraud and abuse, and to ensure that the nation's capital is financially solvent. Another implication is that the District would be less of a federal city; Members would have less say on District financial matters. Borrowing Restrictions Summary of Proposed Changes The bill proposes to allow the District to enact laws that establish the "the process and rules" that the District would follow in borrowing funds, rather than the congressionally approved structure currently included under the city's home rule charter. The home rule charter currently contains limitations on the amount of borrowing the District may undertake: "No general obligation bonds or Treasury capital project loans shall be issued during any fiscal year in an amount which would cause the amount of principal and interest required to be paid ... to exceed 17% of the District revenues...." (D.C. Code § 1-206.03b). Additionally, revenue anticipation bonds can be issued, but "The total amount ... shall not exceed 20% of the total anticipated revenue of the District for such fiscal year...." (D.C. Code § 1-204.72b). The D.C. Code also establishes the manner in which bonds may be issued. It requires that certain provisions appear in the act that authorizes the issuance of bonds. It places constraints on the payment schedule for issued bonds (e.g. annual payments "beginning not more than 3 years after the date of such bonds and ending not more than 30 years after such date"). It institutes a special annual tax to cover the principal and interest due on such bonds. It also establishes that all District bonds are backed by the full faith and credit of the District of Columbia, and not that of the United States. It contains a number of other provisions that establish other protocols relating to the roles played by the mayor and the council in the issuance and payment of bonds. Except in the case of a control year, H.R. 733 would make almost all of the current language related to District borrowing non-binding. Important exceptions to this general theme are stated in the bill. H.R. 733 would retain: the full faith and credit of the District; the nonapplicability of the full faith and credit of the United States; and federal and District tax exemption for District-issued bonds and notes. Policy Implications of Proposed Changes While much of the existing language would become non-binding, a significant provision in H.R. 733 is that "... the process and rules by which the District of Columbia issues bonds or otherwise borrows money shall be established under such laws as may be enacted by the District." As a result of this provision, it is unclear what rules or laws would be established to regulate issuance of bonds by the District. If H.R. 733 were enacted, it is possible that the District would maintain the protocols and procedures set forth by Congress in the Home Rule Act. An important past example of District policy in the wake of a repealed congressional mandate may be that of the budget reserve fund. The budget reserve fund was at one time, but is no longer, congressionally mandated. Despite the repeal of the congressional mandate, the District continues to maintain a budget reserve fund at the level originally mandated by Congress ($50 million). However, the legislative changes that the District would actually undertake are unknown. It cannot be stated with certainty what impact the current limitations and regulations on borrowing has on the District's financial health or its ability to govern. The proposed changes would allow the District to establish its own laws governing the borrowing process. Some benefits of this might include the ability of the District government to respond to particular circumstances quickly by raising the borrowing cap or by allowing special issuances of bonds not currently outlined in the D.C. Code. Another implication of borrowing autonomy for the District is that, given the power to borrow according to its own laws and rules, the District government can be held accountable by its constituents in the event of poor decisions surrounding the management of its borrowing authority. The District would need to set up financial institutions, including borrowing regulations and limitations, that would serve its constituents' needs efficiently and maintain financial stability. While considering H.R. 733 , Congress may want to inquire of the District what laws it intends to pass and what procedures it intends to maintain, repeal, or establish in order to ensure good borrowing practices in the future. These changes would likely take some time to establish. In the interim, it may make sense for Congress to require that the District establish certain temporary institutions, or to propose a time-line for the creation of relevant District laws, while granting the District the power to alter such institutions or laws at some future time. Arguments For and Against District Budget Autonomy Arguments for and against budget autonomy for the District may be grouped into three general categories: constitutional and philosophical; accountability and governance; and best practices and economic impact. Arguments in Favor of Budget Autonomy Constitutional and Philosophical Arguments The citizens of the District of Columbia have a democratic right to elect representatives with the authority to make decisions over the expenditure of their constituents' tax dollars without needing federal approval. Accountability and Governance Arguments Without its own authority to enact an annual budget and with congressional constraints that make the process cumbersome, District government cannot be held singularly accountable since responsibility for final passage is shared between the District and the federal governments. Best Practices and Economic Impact Arguments Involving the District in the congressional appropriations process extends the District's budget process by six months or more. As a result, spending and revenue estimates are often based on incomplete or dated information. This makes the budget less reliable and incurs economic costs. In theory, it is more efficient to have a single body in charge of budgetary matters rather than splitting financial decision making between two bodies with vastly different objectives and priorities. Arguments Against Budget Autonomy Constitutional and Philosophical Arguments Congress has a constitutional obligation to maintain oversight over the affairs of the District. It cannot surrender that obligation except through constitutional amendment. The District of Columbia is the seat of the federal government and, as such, the policies and practices of the District should represent not only the interests of the citizens living in it, but also the interests of the entire nation. Maintaining congressional oversight helps to ensure that this is the case. Accountability and Governance Arguments Without congressional oversight, there is no guarantee that the District will not once again fall into financial trouble. Line-item approval of the District's budget is an important safeguard against future financial trouble. Should the District government perform poorly under budget autonomy, it could trigger another takeover by the financial control board serving as an agent of the federal government. Best Practices and Economic Impact Arguments Other cities have state governments which, to some degree, oversee the activities of local governments to ensure that they comply with state and federal regulations. If the District government acts as both city and state, it will lack a counter-balance that is present in other cities. Policy Questions Should H.R. 733 become law, what changes might be enacted by District officials regarding: The budget process? The fiscal year? Revenue estimation? Financial management safeguards? Contingency and emergency reserve funds? Borrowing limits? Protocol for issuance of general obligation bonds? If Congress does not grant the District full budget autonomy, which specific provisions currently in place are regarded as particularly burdensome and of high priority for removal by District officials? Some examples might include the power to change the fiscal year dates or relax requirements for the reserve fund. If full budget autonomy is not approved, what would be an appropriate compromise? What prevents the District from passing needed changes to the Home Rule Act through Congress under the prevailing legislative structure, including improvements in the budget process and the fiscal year? How have delays in congressional approval of the District's budget harmed the operation of the District government? Appendix. A History of D.C. Budget Autonomy Legislation The proposed District of Columbia Budget Autonomy Act of 2007, H.R. 733 , 110 th Congress, is the latest in a series of bills dating back to 1981 and the 97 th Congress that have sought to provide budget autonomy for the District of Columbia. In 1973, with the passage of the District of Columbia Self-Government and Governmental Reorganization Act, commonly known as the District of Columbia Home Rule Act, Congress acted to "... grant to the inhabitants of the District of Columbia powers of local self-government; ... and, to the greatest extent possible, consistent with the constitutional mandate, relieve Congress of the burden of legislating upon essentially local District matters." During consideration of the Home Rule Act, budget autonomy for the District was a feature of the original House bill, but was abandoned as Congress adopted the substitute Senate resolution. In the intervening 34 years, the issue has repeatedly been brought before Congress. This appendix contains an accounting of previous bills that proposed budget autonomy for the District of Columbia, including the main provisions of the bills, the relevant context surrounding their introduction, and important actions of Congress with regard to such bills. Summary District of Columbia Budget Autonomy Act of 2007, H.R. 733 , is the latest in a series of bills dating back to 1981 and the 97 th Congress that have sought to provide budget autonomy for the District of Columbia. None have become law. Briefly, bills seeking budget autonomy for D.C. may be grouped into five categories: District of Columbia Budget Autonomy Acts: 97 th - 99 th Congresses. These bills sought to grant the District of Columbia autonomy over the expenditure of own-source revenues. They would also have provided the District with the authority to hire employees. Budgetary and Legislative Acts: 101 st - 103 rd , 105 th Congresses. In addition to eliminating the requirement that the District budget be approved by an act of Congress prior to becoming effective, these bills sought to provide the District with the authority to hire employees and to allow the District Council to override a mayoral disapproval of a budget with a two-thirds majority. The bills also sought to waive the period of congressional review required before District acts took effect. Fiscal Protection Act, 104 th Congress. This bill would have provided the District with the authority to spend own-source revenue to continue District operations. It required written notification from the District of Columbia Chief Financial Officer (CFO) to interested parties, including both the President and the Appropriations Committees in the House and Senate. Fiscal Integrity Act, 107 th Congress, and the District of Columbia Budget Autonomy Acts, 108 th , 109 th Congresses. These bills sought to allow enactment of the District's budget without congressional approval, as well as the hiring of employees. They also sought to alter the role of the CFO by repealing sections of the Home Rule Act pertaining to the CFO and providing for the enactment of the Independence of the Chief Financial Officer Establishment Act. In the 108 th Congress, the Senate passed the District of Columbia Budget Autonomy Act of 2003, but the legislation was not considered by the House. District of Columbia Budget Autonomy Acts (House versions): 105 th , 106 th , 108 th - 110 th Congresses. This series of bills represented a return to similar bills in the 97 th - 99 th Congresses. These bills, in common with the current bill under consideration, H.R. 733 , sought to amend the Home Rule Act to eliminate congressional review, allowing the District budget to take effect upon its approval by the city council and the mayor. H.R. 733 would also eliminate previous federal mandates governing the District budget, financial management, and borrowing. It would allow the District to operate under its own laws provided that the fiscal year is not a "control year." The Home Rule Act and Early Budget Autonomy Bills Some of the first discussions on budget autonomy for the District of Columbia occurred in consideration of the passage of the District of Columbia Home Rule Act in 1973. There was enough political support for self-government for the District to pass the Home Rule Act, but the prospect of budget autonomy was ultimately rejected. The bill that became law contained provisions requiring that the District of Columbia transmit its budget to Congress, and that Congress approve the budget before the budget could take effect. Although the Home Rule Act became law in 1973, it took several years before the District was governed under its own rule, with elections of a Mayor and the Council in 1974 and the establishment of other institutions in the following years. Congress proposed the Voting Rights Amendment, seeking to give the District voting representation in Congress in 1978, but the amendment was not ratified by the states. In 1980, voters called for the creation of a state constitution. One of the earliest bills seeking to provide budget autonomy to the District was the District of Columbia Budget Autonomy Act ( H.R. 1254 , 97 th Congress), introduced by the District's Delegate to Congress, Walter Fauntroy, in January 1981. The bill sought to amend the Home Rule Act to grant autonomy to the District over expenditures of own-source revenues. It also set forth procedures by which the Council could exercise control over its budget processes. It was introduced without cosponsors and referred to committee, where it received no action. Over the next two Congresses, virtually identical bills were introduced by Delegate Fauntroy, also without cosponsors, but never made it out of committee. In 1989, Delegate Fauntroy was a cosponsor of the District of Columbia Budgetary and Legislative Efficiency Act of 1989 ( H.R. 52 , 101 st Congress), the first in a series of bills that sought not only to provide budgetary autonomy, but also to eliminate the congressional review period required before laws passed by the District Council take effect. The bill died in committee. In 1991, Representative Ronald Dellums introduced H.R. 3581 , in the 102 nd Congress, the District of Columbia Legislative and Budget Autonomy Act of 1991. In 1992, Congress passed an act that included the portion of H.R. 3581 that waived the period of congressional review for certain legislation enacted by the District of Columbia. As the House prepared to vote in favor of the bill, Delegate Eleanor Holmes Norton urged her colleagues to pass H.R. 3581 as well. The bill was reported out of committee in February 1992, and placed on the Union Calendar, but never made it to the floor. A similar bill in the 103 rd Congress died in committee. The D.C. Financial Control Board and the Government Shutdown of 1995 In 1990, the Rivlin Commission Report warned of continuing operating deficits over the following five years. In June 1994, a federal audit made it clear that the District was in financial distress, running out of cash on hand. These and other problems for the District government contributed substantially to Mayor Sharon Pratt Kelly's defeat in the 1994 Democratic primary. Former Mayor Marion Barry was returned to office in the subsequent general election. In April 1995, Congress passed the District of Columbia Financial Responsibility and Management Assistance Act of 1995, establishing what came to be known as the Control Board, and defining a "control period" as any period where the District failed to service its debt, defaulted on any loan, had a large cash deficit, or requisitioned funds from the U.S. Treasury. In the bills introduced after the establishment of the Control Board, provisions relating to budget autonomy—in particular, the ability of the District to expend own-source revenues without prior congressional approval—were conditioned on the fiscal year in question not being a control year. In debates and discussions over District budget autonomy since 1995, the need for and establishment of the Control Board has been a regular feature of opposition to District autonomy. On November 14, 1995, both the federal and the District of Columbia governments shut down when Congress failed to approve an appropriations bill in time to service the national debt. Three days later, on November 17, 1995, Congresswoman Norton introduced H.R. 2661 , the District of Columbia Fiscal Protection Act of 1995. The shutdown ended on November 19, 1995, and over the next several months, Congresswoman Norton regularly addressed Congress, advocating passage of a resolution allowing the District to spend its own-source revenues during the federal government shutdown. On December 14, 1995, it became clear that the federal government would be entering another period of shutdown. Representative Tom Davis published an editorial in The Washington Post endorsing H.R. 2661 , and the House Committee on Government Reform and Oversight filed a late report by midnight. On December 22, 1995, a continuing resolution was introduced and passed by both the House and the Senate and signed into law, allowing the District to operate until January 3, 1996. Another continuing resolution was introduced on January 3, 1996, and passed the following day, providing the District with appropriations until January 25, 1996. The budget autonomy bill, H.R. 2661 , was placed on the Union Calendar on December 14, 1995, but never made it to the floor for a vote. Budget Autonomy Bills of the Last Decade In 1998, the first of the latest series of budget autonomy bills ( H.R. 4054 , 105 th Congress) was introduced but never made it out of committee. The following year, an identical bill ( H.R. 1197 , 106 th Congress) was introduced and also never made it out of committee. In the 107 th Congress, a bill entitled "District of Columbia Fiscal Integrity Act of 2001" was introduced in the House by Representative Constance Morella, with a related bill introduced in the Senate the following year by Senator Mary Landrieu ( H.R. 2995 and S. 2316 , 107 th Congress). These bills were more ambitious than other bills introduced in the last decade, not only seeking budget autonomy for the District but also expanding the authority of the District's CFO, with the stated intent of the bill "To make technical and conforming changes to provide for the enactment of the Independence of the Chief Financial Officer Establishment Act of 2001." The House and Senate versions of the D.C. Fiscal Integrity Act died in committee. In the 108 th Congress, Representative Davis and Senator Susan Collins introduced H.R. 2472 and S. 1267 , respectively, both titled the "District of Columbia Budget Autonomy Act of 2003." The House version of the bill returned to the more modest wording of the 105 th and 106 th Congresses. The Senate version contained Title II: District of Columbia Independence of the Chief Financial Officer Act of 2003, which again sought to expand the authority of the District's CFO. The bill passed in the Senate on September 9, 2003, and was sent to the House, where it was not reported out of committee. In the 109 th Congress, the District of Columbia Budget Autonomy Act of 2005 was introduced in both the House and the Senate. Both bills were very similar to their counterparts in the previous Congress. Neither bill made it out of committee. Finally, in the 110 th Congress, H.R. 733 seeks to amend the District of Columbia Home Rule Act by making large portions of the act inapplicable so long as the District in not in a "control period" as defined by the criteria established by the District of Columbia Financial Responsibility and Management Assistance Act of 1995 ( P.L. 104-91 ). The bill's stated intent is "To amend the District of Columbia Home Rule Act to eliminate all federally imposed mandates over the local budget process and financial management of the District of Columbia and the borrowing of money by the District of Columbia." References CRS Report 97-213, Appropriations for FY1998: District of Columbia , by [author name scrubbed] (pdf). CRS Report 98-213, Appropriations for FY1999: District of Columbia , by [author name scrubbed]. CRS Report RL30213, Appropriations for FY2000: District of Columbia , by [author name scrubbed]. CRS Report RL30513, Appropriations for FY2001: District of Columbia , by [author name scrubbed]. CRS Report RL31013, Appropriations for FY2002: District of Columbia , by [author name scrubbed] and [author name scrubbed]. CRS Report RL31313, Appropriations for FY2003: District of Columbia , by [author name scrubbed]. CRS Report RL31813, Appropriations for FY2004: District of Columbia , by [author name scrubbed]. CRS Report RL32313, Appropriations for FY2005: District of Columbia , by [author name scrubbed] and [author name scrubbed]. CRS Report RL32994, District of Columbia: FY2006 Appropriations , coordinated by [author name scrubbed]. CRS Report RL33563, District of Columbia: Appropriations for 2007 , by [author name scrubbed] and [author name scrubbed].

The District of Columbia Budget Autonomy Act of 2007, H.R. 733, 110th Congress, introduced on January 20, 2007, by Congresswoman Eleanor Holmes Norton, is the latest in a series of legislative proposals dating back to 1981 and the 97th Congress that have sought to provide budget autonomy for the District of Columbia. When Congress passed the District of Columbia Government Reorganization and Self-Government Improvement Act (the Home Rule Act, P.L. 93-198, 87 Stat. 774), in 1973, granting the city limited home rule authority, it included provisions retaining its constitutional authority to exercise exclusive legislative control over the District's affairs, including the budget process. The Home Rule Act requires congressional approval of the District's annual budget as part of the congressional appropriations process, and includes prescriptive provisions governing budget submission, financial management, and borrowing authority. H.R. 733 would allow the District to forego congressional review and approval of that portion of its operating and capital budgets financed with local revenues. The bill would also lift several budget content and financial management reporting requirements and restrictions on the city's borrowing authority. City leaders have consistently contended that Congress has repeatedly delayed passage of the appropriations act for the District (in which Congress approves the city's budgets) well beyond the October 1 start of its fiscal year. The city's elected leaders contend that the delay in Congress's approval of the city's budget hinders their ability to manage the District's financial affairs and negatively affects the delivery of public services. Proponents of increased budget autonomy can point to the Bush Administration's budget for FY2004, which included a statement in support of budget autonomy for the District of Columbia, and the fact that the District has produced 10 consecutive balanced budgets, six of them without the supervision of the Financial Control Board. An argument against granting the city budget autonomy is that it could be viewed as an abdication of Congress's constitutional responsibility to exercise legislative control over and oversight of the Nation's capital, "the seat of the Government." Such a lack of oversight of the city's financial affairs could result in the city slipping back into a fiscal crisis of the magnitude that led Congress to create the Financial Control Board in 1995. This report will be updated as events warrant.

Introduction The International Criminal Court ("ICC" or "Court") is the first permanent international court with jurisdiction to prosecute individuals for "the most serious crimes of concern to the international community." It sits at The Hague in the Netherlands but may hold proceedings anywhere in the world. It is funded primarily by States Parties. The Statute of the International Criminal Court (the "Rome Statute" or "Statute"), which created the ICC, established ICC jurisdiction over persons who, following the Statute's entry into force on July 1, 2002, commit certain offenses. One hundred and ten countries, not including the United States, are States Parties to the ICC. Since its inception, the ICC has received referrals for investigations from three States Parties and one referral from the United Nations Security Council. After receiving referrals, the Chief Prosecutor carries out a preliminary analysis to determine whether to initiate an investigation. The Chief Prosecutor opened investigations into all four of these referred cases. Additionally, in November 2009, the Prosecutor of the ICC requested authorization to investigate alleged post-election crimes in Kenya without a referral. This marked the first time that the ICC Prosecutor has sought to open an investigation on his own initiative instead of by referral. To date, the Court has issued 12 arrest warrants, four of which have resulted in actual arrests. The ICC currently has nine cases before it, although some of the defendants in these cases remain at large. The ICC Prosecutor has also announced preliminary, but not formal, investigations into situations in Palestine and Afghanistan, both of which were ongoing at the date of this report's publication. The Court may impose a period of imprisonment on persons convicted under the Rome Statute as well as a fine and forfeiture of proceeds, property, and other assets derived from the crime. This report focuses first on the process by which the Office of the Prosecutor investigates allegations of war crimes and second on U.S policy toward the ICC. In particular, this report seeks to address the concern that the ICC might assert jurisdiction over U.S. nationals by providing insight into (1) how the ICC and Prosecutor determine whether the ICC has jurisdiction over the situations under preliminary investigation; (2) how the Prosecutor and ICC determine whether a situation would be admissible as a case before the ICC; (3) the basis for concerns that the ICC has the authority to request the surrender of a U.S. national; and (4) steps taken by the United States to prevent or deter the ICC from exercising jurisdiction over U.S. nationals. The History of U.S. Policy Toward the ICC While the U.S. executive branch initially supported the idea of creating an international criminal court and was a major participant at the United Nations Conference of Plenipotentiaries on the Establishment of an International Criminal Court ("Rome Conference"), which produced the Statute, the United States ultimately voted against the Statute. President Clinton signed the treaty at the close of 2000 but declared that it contained "significant flaws" and would not be submitted to the Senate for ratification "until our fundamental concerns are satisfied." The United States stated that its primary objection to the treaty is the potential for the ICC to assert jurisdiction over both U.S. civilian policymakers and U.S. soldiers charged with "war crimes" even if the United States does not ratify the Rome Statute. Following the Rome Statute's entry into force in 2002, both President George W. Bush's Administration and the U.S. Congress took several steps to weaken the ICC's potential effect on U.S. citizens. First, the Bush Administration "unsigned" the Rome Statute by informing the United Nations that the United States did not intend to become a party to the Rome Statute. This action released the United States from its treaty obligation to refrain from undermining the Rome Statute and enabled both Congress and the executive branch to take actions that could be perceived as undercutting the Rome Statute. Additionally, the United States secured a U.N. Security Council resolution deferring any potential ICC prosecution of U.S. personnel involved in international peacekeeping missions; concluded bilateral immunity agreements to prevent the ICC from being able to exercise jurisdiction over U.S. nationals; and enacted the American Servicemembers' Protection Act. A detailed explanation of each action is provided below. U.S. Diplomatic Actions Affecting the ICC Concerned that U.S. participation in international peacekeeping would be imperiled if U.S. soldiers and employees were subject to ICC jurisdiction, the United States reportedly threatened to veto a draft U.N. Security Council resolution to extend the peacekeeping mission in Bosnia and Herzegovina unless U.S. personnel were granted full immunity from the jurisdiction of the ICC. Ultimately, the Security Council and the U.S. delegation compromised, adopting a resolution asking the ICC to defer, for an initial period of one year, any prosecution of persons who are both (1) participants in U.N.-established or authorized operations and (2) nationals of States not party to the Rome Statute. The resulting resolution did not provide permanent immunity for U.S. soldiers and officials from prosecution by the ICC, but, in conjunction with Article 16 of the Rome Statute, it deferred potential prosecutions of U.S. soldiers and officials for one year. Some criticized the resolution as a misapplication of Article 16, arguing that Article 16 was meant to apply only to specific cases , not to permit a blanket waiver for citizens of specific countr ies . Nevertheless, in a resolution adopted in 2003, the U.N. Security Council extended the deferral to July 1, 2004. By 2005, however, sufficient opposition to the resolution had developed to deter the Bush Administration from seeking another extension. Consequently, the resolution expired, and the Security Council has not taken any action since to defer potential ICC prosecutions of American soldiers engaged in U.N. established or authorized operations. In the wake of "unsigning" of the Rome Statute, the United States also began concluding bilateral immunity agreements (BIAs), which contain promises by one or both parties that no surrender of citizens of the other signatory would be made to the ICC absent both parties' consent. These agreements are intended to fall within the provisions of Article 98 of the Rome Statute, which serve to limit the duty to surrender individuals to the ICC under circumstances where such surrender would force a country to violate its obligations under (1) international law concerning diplomatic immunity or (2) certain international agreements with another country. These BIAs provide that a contracting country may not surrender U.S. military personnel, as well as a number of other types of U.S. persons (including in many cases all U.S. nationals), to the ICC. The provisions are intended to create an obligation under an international agreement that would supersede the non-U.S. party's obligations under the Rome Statute to hand over suspects to the ICC, pursuant to Article 98. The United States has occasionally used sanctions to induce countries to enter these BIAs. The American Servicemembers' Protection Act of 2002 On August 2, 2002, President George W. Bush signed the American Servicemembers' Protection Act of 2002 (ASPA) into law (Title II of P.L. 107-206 ; 22 U.S.C. §§ 7421-7433). This act was designed to provide protections for members of the U.S. armed forces and certain other persons from ICC prosecution and detention or imprisonment arising therefrom. It generally prohibits U.S. government cooperation with the ICC by (1) restricting the use of appropriated funds to assist the ICC; (2) restricting U.S. participation in certain U.N. peacekeeping operations due to possible ICC prosecution; and (3) authorizing the President to free members of the U.S. armed forces and other individuals detained or imprisoned by or on behalf of the ICC. Section 2015 of the act (22 U.S.C. § 7433) created an exception from the prohibition on assisting the ICC for assistance to bring to justice foreign nationals accused of genocide, war crimes, or crimes against humanity. Until it was repealed under P.L. 110-181 , Section 2007 of ASPA prohibited providing U.S. military assistance to ICC States Parties. Provisions enacted in the 2005, 2006, and 2008 Foreign Operations Appropriations bills (so-called "Nethercutt Amendment" provisions) contained similar funding prohibitions for Economic Support Fund (ESF) assistance to ICC States Parties. Current Attitudes Despite its early objections to the Rome State, the Bush Administration in its second term took actions that seemed to show acceptance of some ICC activities. The Obama Administration seems to have continued this approach and has started engaging directly with the ICC. Similarly, recent actions by Congress have eliminated sanctions provisions affecting U.S. assistance for countries that are ICC members. The International Criminal Court's Jurisdiction Article 12: Preconditions to the Exercise of Jurisdiction The ICC is a treaty-based court, which means countries can decide whether to become a party to the Rome Statute. As a result, the Court does not have universal jurisdiction. Instead, the ICC can only exercise jurisdiction over crimes that were either (1) committed on the territory of a country that has accepted the ICC's jurisdiction; (2) committed by nationals of a country that has accepted jurisdiction; or (3) referred to the ICC by the United Nations Security Council. The only exception to this rule permits ICC jurisdiction over situations when both (1) a non-State Party has accepted the exercise of jurisdiction by the ICC with respect to the crime in question; and (2) the alleged crime either took place in the consenting country's territory or was committed by a national of that country. To obtain the Court's ad hoc jurisdiction, the country seeking it must lodge a declaration with the ICC Registrar and cooperate with the Court accordingly. Article 17: Issues of Admissibility Even if the ICC has jurisdiction over a case, it may be precluded from hearing it if the case is inadmissible under Article 17, which states: the Court shall determine that a case is inadmissible where: (a) The case is being investigated or prosecuted by a State which has jurisdiction over it, unless the State is unwilling or unable genuinely to carry out the investigation or prosecution; (b) The case has been investigated by a State which has jurisdiction over it and the State has decided not to prosecute the person concerned, unless the decision resulted from the unwillingness or inability of the State genuinely to prosecute; (c) The person concerned has already been tried for conduct which is the subject of the complaint, and a trial by the Court is not permitted under article 20, paragraph 3; (d) The case is not of sufficient gravity to justify further action by the Court. Once the jurisdiction of the Court is triggered, the Court's interpretation of the applicability of Article 17 to a given case is considered dispositive, at least so far as States Parties are concerned. Under Article 17, a case is inadmissible if it concerns conduct that is the subject of genuine legal proceedings brought by a country with jurisdiction. The ICC's subordination to the criminal proceedings of sovereign nations is premised upon the principle of complementarity, which enables the ICC to maintain its role as the court of last resort and thereby support State justice systems. In determining whether complementarity prevents a case from being admitted to the ICC, the Court considers (1) the willingness of the investigating country to pursue "genuine" proceedings, and (2) the ability of that country to effectively investigate and prosecute the suspects. If the ICC feels that the country is either unwilling or unable to investigate, the principle of complementarity does not apply and the case may proceed at the ICC. To assess a State Party's willingness to investigate and prosecute an alleged crime, the Court conducts a three-part analysis, asking whether (1) the proceedings are being undertaken for the purpose of shielding the person concerned from criminal responsibility for crimes within the jurisdiction of the Court; (2) there has been an unjustified delay in the proceedings which is inconsistent with an intent to bring the person concerned to justice; and (3) the proceedings are being conducted independently or impartially rather than in a manner that is inconsistent with an intent to bring the person concerned to justice. It appears from the case law that the key to this analysis is whether the country acts with good faith in investigating and prosecuting suspected war criminals. This intent can be proved by reference to a country's express statement or, alternatively, it can be "inferred from unambiguous facts." As for the second factor in complementarity, whether a country has the ability to investigate and prosecute in a particular situation, the Court employs an arguably simpler standard: whether, due to a total or substantial collapse or unavailability of its national judicial system, the country is unable to apprehend the accused, obtain the necessary evidence or testimony, or otherwise carry out its proceedings. The Office of the Prosecutor of the ICC The ICC Office of the Prosecutor (the Office), which is headed by Prosecutor Luis Moreno-Ocampo, is composed of three divisions: the Prosecutions Division, the Jurisdiction Complementarity and Cooperation Division, and the Investigations Division. The Prosecutor is elected by secret ballot by an absolute majority of the members of the Assembly of States Parties. The Prosecutor must have "high moral character," competence and extensive practical experience in prosecuting or trying criminal cases, and fluency in one of the six working languages of the Court (Arabic, Chinese, English, French, Russian, and Spanish). The Prosecutor holds office for a term of nine years and is not eligible for re-election. The Office of the Prosecutor is required to act as an independent and separate organ of the Court. It is responsible for (1) receiving referrals about alleged war crimes and any substantiated information on crimes within the jurisdiction of the Court; (2) examining these referrals and conducting investigations; and (3) conducting prosecutions before the Court. The Prosecutor must not participate in any matter in which his impartiality might reasonably be doubted, and he is disqualified from a case if he has previously been involved either in that case before the Court or in a case at the national level involving the person being investigated or prosecuted. Article 98: Extradition to the ICC If the ICC Prosecutor decides to prosecute someone, Article 89 of the Rome Statute permits the Court to request the arrest and surrender of that person from any country where that person may be found. However, a country that is not a party to the Rome Statute is not mandated to comply with such a request. In addition, Article 98 precludes the ICC from making a request for the surrender of a person when doing so would require the requested country to act inconsistently with its obligations under international law or international agreements. Relying on this language in Article 98, the United States has frequently entered into international agreements, often referred to as bilateral immunity agreements (BIAs) or Article 98 Agreements, with States Parties that create obligations designed to prevent the ICC from proceeding with a request to those States Parties for the surrender of a U.S. citizen. The proliferation of Article 98 Agreements has triggered a vigorous international debate over when and whether Article 98 prevents the ICC from requesting that a State Party arrest and surrender a person in its territory. This section of the report seeks to frame and explain that debate. The Vienna Convention on the Law of Treaties ("VCLT" or "Vienna Convention") states that a treaty should be interpreted in accordance with the "ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." However, the debate over the meaning of Article 98 in the context of BIAs suggests that there are conflicting interpretations of the "ordinary terms" of Article 98, and, more specifically, whether Article 98 permits ICC States Parties to enter agreements that protect the citizens of a particular country from being surrendered to the ICC. According to some, the primary intention behind Article 98, and particularly its second paragraph, which explicitly discusses international agreements, was to preserve certain prototypical provisions of Status of Forces Agreements (SOFAs). SOFAs traditionally contain a guarantee that a nation deploying military forces on foreign soil retains primary criminal jurisdiction over its soldiers unless it consents to local prosecution. Advancing that line of thought, the European Union (EU) has argued that Article 98(2) only protects from ICC interference those international treaty obligations that, like the obligations in traditional SOFAs, give immunity to persons who are present on the territory of a requested State because they have been sent on official business. In addition to the negotiating history of Article 98, the EU also draws support from (1) the Vienna Convention on the Law of Treaties, which obliges countries who have signed or otherwise accepted an international agreement pending ratification or formal approval to refrain from acts that would defeat the object and purpose of that agreement; and (2) the provisions in the Rome Statute that require States Parties to cooperate with and assist the Court. Consequently, the EU has argued that, in deciding whether compliance with a request for surrender would conflict with a country's treaty obligations, the ICC may ignore any international treaty obligations that would prevent a member-country from surrendering a person who was not sent to the requested country on official business. However, this position is potentially complicated by reports that, several years after the Rome Conference, the head of the U.S. delegation claimed the United States had contemplated the development of BIA-type agreements during negotiations on Article 98(2). A second position advanced by the EU and some scholars contends that Article 98 was only intended to permit States Parties to continue to adhere to obligations imposed by agreements that predated their entry into the ICC. The EU maintains that Article 98(2) does not extend to agreements that the requested country entered into after signing the Rome Statute. The EU Commission reached this conclusion largely on the grounds that the concern guiding the negotiations on Article 98 was the elimination of any obstacle to ratification that could result from already existing agreements. Scholars who support this position have also pointed to language in an earlier draft of the Rome Statute that refers only to existing treaty obligations in its description of when an ICC request might be barred for conflicting with international obligations. Critics of this position, on the other hand, argue that Article 98 applies to all agreements, whether pre or post-dating the Rome Statute, because the actual ratified language of Article 98(2) does not contain a limitation regarding the time of the conclusion of the international agreements in question. The ICC has yet to request the surrender of a U.S. citizen from a State Party that has entered a BIA with the United States. Accordingly, it is unclear whether the Court would interpret Article 98 of the Rome Statute as permitting the ICC to proceed with a request to surrender when the sending State has entered an agreement that forbids it from honoring the request. Regardless of international and scholarly opinion as to the proper interpretation of Article 98, the Rome Statute vests the ICC with the ultimate legal authority to interpret the requirements and obligations that the Statute imposes on States Parties. However, at least one commentator has suggested that the Court's decision making does not take place in a vacuum, but, rather, may be affected by predictions about the implementation and practicality of its judgments. If this is true, the Court may consider not only the text and history of the Rome Statute, but also non-textual concerns, such as whether a request to surrender in the context of a BIA would be worth the cost of requiring the sending State to upset its relations with another country and the possibility that the sending State might choose not to honor the ICC's request. If considered, these practicalities could weigh in favor of the U.S. position on the purpose and effect of Article 98. The Preliminary Investigation of a Situation Article 53 of the Rome Statute: Initiation of a Formal Investigation When the Office of the Prosecutor receives information about potential war crimes, it must take several steps before prosecuting the persons alleged to have committed these offenses. The first is a preliminary investigation, or preliminary analysis, in which the Prosecutor decides whether to launch a formal investigation. The second step is the actual initiation of a formal investigation. The Office of the Prosecutor must consider three factors before deciding to initiate a formal investigation: (1) whether the available information provides a reasonable basis to believe that a crime within the jurisdiction of the Court has been or is being committed; (2) whether a resulting case would meet Article 17's requirements for complementarity; and (3) whether, given the gravity of the crime and the interests of the victims, there are substantial reasons to believe that an investigation would serve the interests of justice. In assessing the first factor, whether a reasonable basis exists to believe a crime occurred, the Prosecutor may seek additional information from countries, organs of the United Nations, intergovernmental or non-governmental organizations (NGOs), or other reliable sources that he or she deems appropriate. The Prosecutor may also receive written or oral testimony on the matter. To assess the second factor, whether a potential case satisfies Article 17's complementarity regime, the Prosecutor collects similar information on the initiation and progress of national proceedings. In assessing the third factor, the gravity of an alleged crime, the ICC has considered both whether an alleged offense falls under the scope of its subject matter jurisdiction, and also whether it satisfies an additional threshold of severity in comparison to the thousands of other crimes over which the ICC may exercise jurisdiction. A key consideration in this comparison is the number of victims resulting from each crime. Although the Office of the Prosecutor has received a significant number of communications regarding alleged offenses, there have been relatively few occasions when the Office has examined these communications and concluded that the basic requirements for even an intensive preliminary examination have been satisfied. Only if the information provided leads the Prosecutor to conclude that the three requirements (reasonable basis, complementarity, and gravity) are satisfied may he submit a request for authorization of an investigation to the Pre-Trial Chamber. In turn, the Pre-Trial Chamber will grant the Prosecutor's request only if it too concludes that there is a reasonable basis to proceed with an investigation. Where the Prosecutor believes the requirements for an investigation are not satisfied, the Prosecutor will inform those who provided the information of his decision not to initiate an investigation. However, a decision not to investigate a situation does not preclude the Prosecutor from considering further information regarding the same situation in light of new facts or evidence. Over the course of 2009, the Office of the Prosecutor has publicly acknowledged considering information concerning situations in the Republic of Georgia, Colombia, Afghanistan, Côte D'Ivoire, Palestine, and Guinea. This kind of public acknowledgment is not necessarily the norm: the Office of the Prosecutor does not always announce or even admit when a situation is under analysis. In general, the ICC's Rules of Procedure and Evidence require the Prosecutor to keep the analysis process confidential to preserve the privacy of the senders, the confidentiality of submitted information, and the integrity of the analysis and any resulting investigation. However, Office policy permits the Prosecutor to publicly disclose the reasons for a decision to request, or not to request, an investigation if (1) the situation has warranted intensive analysis; (2) the situation has generated public interest and the fact of the analysis is in the public domain; and (3) the reasons can be provided without risk to the safety, well-being, and privacy of senders. Notable Examples of Preliminary Analyses by the Prosecutor The following examples of preliminary analyses undertaken by the Office of the Prosecutor are notable for the interest they garnered in the Untied States. Although not all of these analyses have been completed, to date, none of these analyses has resulted in the initiation of formal investigations or trials. Iraq In 2006, the Office of the Prosecutor concluded its preliminary investigation into alleged offenses committed in Iraq. The Prosecutor investigated two different categories of alleged crimes: (1) war crimes and (2) willful killing and inhumane treatment of civilians. The Office of the Prosecutor's published discussion of its analysis is instructive on how the Prosecutor approaches a preliminary analysis in light of the mandate to determine whether there is a reasonable basis to believe the alleged crimes occurred, whether a resulting case would satisfy the complementarity regime, and whether the crimes are sufficiently grave to warrant a case before the ICC. Jurisdiction The alleged crimes occurred in Iraq, which is not a State Party of the ICC. Therefore, the Court lacked jurisdiction over offenses by nationals of non-ICC States Parties that were committed on Iraq soil. However, some communications submitted to the Prosecutor argued that nationals of ICC States Parties were accessories to crimes committed by nationals of non-member countries. Consequently, the Office's preliminary analysis focused on whether a formal investigation should be launched into the involvement of States Parties' citizens as accessories to either war crimes or crimes against civilians. Allegations of War Crimes In its analysis of war crimes allegedly committed by States Parties' nationals, the Office of the Prosecutor reviewed submitted communications, identified those containing substantiated information, examined relevant documentation and video-records, and purportedly conducted an exhaustive search of readily available open source information. Some of the readily available open source information used was from non-governmental organizations including Amnesty International, Human Rights Watch, Iraq Body Count, and Spanish Brigades Against the War in Iraq. The Office also stated that it sought and received additional information on the alleged crimes from other relevant countries and entities. The Office paid particularly close attention to allegations concerning the targeting of civilians or "clearly excessive" attacks. In that context, a war crime, as defined by the Rome Statute, only occurs if there is an intentional attack directed against civilians or an attack is launched on a military objective with the knowledge that incidental civilian injuries would clearly be excessive relative to the anticipated military advantage. The Office found that the available information established that a considerable number of civilians died or were injured during military operations. However, it believed that the information failed to either sufficiently prove or disprove that (1) there were any intentional attacks on civilians; (2) the attacks were clearly excessive in relation to military objectives; and (3) nationals of States Parties were involved in the attacks. These gaps in intelligence led the Office to seek out still more information about the alleged crimes. Additional information provided by the United Kingdom stated that lists of potential targets were identified in advance; commanders were aware of the need to comply with international humanitarian law; detailed computer modeling was used in assessing targets; target approval was subject to political and legal oversight; and collateral damage assessments were sent back to headquarters. In addition, the United Kingdom claimed that nearly 85% of the weapons released by U.K. aircraft were precision-guided, which, to the Prosecutor, evinced an intent to minimize casualties. The Office continued to examine several incidents in detail until it felt it had exhausted all measures "appropriate during the analysis phase." Ultimately, the Prosecutor concluded that the available information did not provide a reasonable basis to believe that a crime within the jurisdiction of the Court had been committed. The Prosecutor noted, however, that many facts remained undetermined and its conclusion could be reviewed in light of new facts or evidence. Allegations of Willful Killing and Inhumane Treatment After allegations came to light in media reports concerning incidents of mistreatment of detainees and willful killing of civilians in Iraq, the Prosecutor began collecting information on these incidents and on related criminal proceedings that were undertaken by the States Parties whose nationals were allegedly responsible. The Prosecutor concluded that, in light of the available information, there was a reasonable basis to believe that crimes within the jurisdiction of the ICC had been committed. However, the Prosecutor did not believe that these crimes satisfied the gravity prong of Article 53's standard for initiating a formal investigation. Assessing the gravity of the offenses in light of the number of victims resulting from each crime, the Prosecutor found that there were at most 12 victims of willful killing and a "limited" number of victims of inhuman treatment within the jurisdiction of the Court. Noting that the Office of the Prosecutor was investigating three other situations that each involved thousands of willful killings as well as intentional and large-scale sexual violence and abductions, the Prosecutor concluded that the incidents in Iraq reviewed by the Office did not meet the required threshold of the Rome Statute. Because the situation did not meet the gravity threshold, the Prosecutor wrote that it was "unnecessary" to assess whether the situation satisfied Article 53's other two prongs, including Article 17's complementarity requirements. Selected Situations Undergoing Preliminary Analysis by the Prosecutor Afghanistan Preliminary Analysis in Afghanistan On September 9, 2009, Prosecutor Moreno-Ocampo confirmed that his office was gathering information about possible war crimes committed by NATO soldiers, U.S. soldiers, and both Taliban and al Qaeda insurgents in Afghanistan. The Prosecutor has declined since to provide further details about the specific incidents or allegations that the ICC is considering. The Prosecutor also has not made public any decision regarding whether he is inclined to seek the Pre-Trial Chamber's permission to initiate a formal investigation. The United States has not officially supported or opposed the Chief Prosecutor's statements or information-gathering efforts regarding Afghanistan. Under questioning from Members of Congress in December 2009, Karl Eikenberry, U.S. Ambassador to Afghanistan, and General Stanley McChrystal, Commander of U.S. Forces Afghanistan and the International Security Assistance Force (ISAF), did not specifically refute the ICC's authority to investigate alleged crimes committed by U.S. and other NATO troops in Afghanistan. Instead, they stated that the U.S.-Afghanistan BIA and SOFA precluded the ICC from obtaining custody of members of the U.S. armed forces. In addition, alluding to the ICC's Article 17 on complementarity, they explained that any alleged wrongdoing would be properly investigated and prosecuted, if necessary, under the U.S. military justice system. General McChrystal and Ambassador Eikenberry stated that they were opposed to any ICC arrest and prosecution of members of the U.S. armed forces for actions taken in Afghanistan. ICC Jurisdiction over Alleged Crimes in Afghanistan Unlike the Iraq situation discussed previously, the ICC has jurisdiction over alleged crimes that occurred in Afghanistan, even in cases where those offenses were committed by nationals of States that are not themselves States Parties to the ICC, because Afghanistan acceded to the Rome Statute on February 10, 2003. Afghanistan could choose to lodge a declaration with the Court accepting the Court's ad hoc jurisdiction over a period of time prior to that date under Article 12(3), thus empowering the Prosecutor to investigate crimes committed on Afghan soil after the Rome Statute entered force (July 1, 2002), but prior to Afghanistan's May 2003 ratification of it. However, as with other cases, the ICC must consider not only whether it has jurisdiction over a situation, but also whether the situation meets the requirements described in Article 53 for a formal investigation and whether it is admissible under the complementarity requirements under Article 17. As a result, if the United States, for example, shows that it is willing and able to conduct "genuine" investigations and, where appropriate, prosecutions of nationals allegedly involved in criminal activities, those cases would become permanently inadmissible in the ICC. In addition, both countries can always seek to have the U.N. Security Council adopt a resolution pursuant to Article 16 of the Rome Statute to defer an investigation or prosecution for one year, with the option of renewal. Extradition of U.S. Nationals Should the Prosecutor decide to proceed with a formal investigation and prosecution of crimes allegedly committed by U.S. citizens, a predictable concern is whether a foreign government could extradite U.S. suspects to the ICC. As always, a country's ratification of the Rome Statute is not a prerequisite for the ICC's transmission of a request for the arrest and surrender of a suspect, but only those countries that are States Parties to the Rome Statute are mandated to comply with such a request. Unlike the United States, Afghanistan is a party to the Rome Statute, having ratified it on February 10, 2003. In theory this means that Afghanistan is mandated to comply with a request from the ICC to surrender an American national. However, the United States and Afghanistan have also entered two agreements, the U.S-Afghanistan Bilateral Immunity Agreement (BIA) and the U.S.-Afghanistan SOFA, which present the kind of international obligations that, under Article 98, may preclude the ICC from requesting that Afghanistan surrender an American. These Article 98 Agreements do not bar the ICC from asking States Parties other than Afghanistan to extradite the accused if the accused voluntarily enters their territory. However, the effect that these two agreements would have on a similar request to Afghanistan is unclear given the debate over the meaning and applicability of Article 98. Without guidance from the ICC itself, it is impossible to know whether the Court would find that the BIA or the SOFA precludes an ICC request that Afghanistan surrender a U.S. national. It is also not clear whether Afghanistan would honor an extradition request from the ICC in light of any conflicting obligation imposed by the BIA or SOFA. As discussed, there are at least two potential approaches that the ICC might take on this question in addition to the textualist reading of Article 98 on which the United States has relied in entering bilateral immunity agreements. If the ICC agrees with the view that Article 98 preserves only SOFA-like obligations contained in international agreements, the Court would most likely interpret the U.S.-Afghanistan SOFA as preempting an ICC request that Afghanistan surrender U.S. personnel , but conclude that the U.S.-Afghanistan BIA does not preempt an ICC request that Afghanistan surrender any U.S. citizens present in Afghanistan who were not serving as U.S. personnel. If, on the other hand, the ICC interprets Article 98 pursuant to either of the other two approaches discussed, namely (1) that Article 98 was intended to preempt requests to surrender that conflict with international obligations predating the sending State's entry into the ICC, or (2) that Article 98 should be interpreted literally, then a request to Afghanistan for the surrender of a U.S. citizen would most likely be deemed preempted by the BIA. While the ICC is the sole arbiter of the meaning and applicability of Article 98, political realities could weigh in favor of the U.S. position on the application of Article 98 to its BIA with Afghanistan. Gaza Strip On January 22, 2009, the Palestinian National Authority (PNA) lodged a declaration pursuant to Article 12(3) of the Rome Statute with the Registrar of the ICC, accepting ICC ad hoc jurisdiction over alleged crimes committed during the December 2008/January 2009 conflict between Israeli and Hamas forces in the Gaza strip. The ICC's jurisdiction over any alleged crimes would come solely from the PNA's declaration as neither Israel nor the PNA are States Parties to the Rome Statute. However, the PNA's declaration is complicated by the fact that it has not been recognized as a State, and, absent this recognition, the PNA cannot confer on the Court ad hoc jurisdiction over offenses on its territory under Article 12. This has raised concerns that the contentious issue of Palestinian statehood could come before the ICC. When the PNA lodged its declaration seeking to confer on the ICC ad hoc jurisdiction, the Office of the Prosecutor had received 213 communications from individuals and NGOs relating to the situation between Israel and the Palestinian Territories. By February 13, 2009, less than a month later, that number had jumped to 326. The Prosecutor has not released any further information about the status of its preliminary analysis into the Gaza Conflict. In September 2009, the U.N. Human Rights Council-established U.N. Commission of Inquiry on Gaza presented the Report of the U.N. Fact Finding Mission on the Gaza Conflict ("Goldstone Report"), which found both war crimes and crimes against humanity had been committed in the Gaza conflict. The report recommended that the U.N. Security Council (1) require Israel and the PNA to carry out national level investigations and prosecutions against those responsible for the crimes, and (2) if Israel and the PNA failed to conduct these proceedings within a six-month period, refer the situation to the ICC Prosecutor. If the U.N. Security Council ultimately refers the situation to the ICC, then, under Article 13(b), the ICC Prosecutor will have jurisdiction even though neither Israel nor Palestine is a member of the ICC and the ICC may not deem Palestine a "state" under the Rome Statute. The Security Council has referred only one situation to the ICC Prosecutor previously, and that referral resulted in the ICC Prosecutor opening a formal investigation into alleged war crimes in Darfur. The United States has generally opposed ICC involvement in investigating alleged crimes committed during the December 2008-January 2009 conflict between Israel and Hamas in the Gaza Strip. U.S. representatives in the United Nations have disagreed with the conclusions of the Goldstone Report, including the recommendation of a U.N. Security Council resolution to authorize an ICC investigation of alleged crimes. The United States was one of six members to vote against a resolution adopted by the U.N. Human Rights Council endorsing the findings of the Goldstone Report. State Department spokesman Ian Kelly, in addition to disagreeing with the report's assessment of the actions taken by both sides to the conflict, also expressed the department's concern over calls in the report for the issue "to be taken up in international fora outside the Human Rights Council and in national courts of countries not party to the conflict." Other statements by U.S. representatives have indicated the Obama Administration's preference that the Gaza issue be dealt with in the Human Rights Council and not in the ICC or the Security Council, where a vote on a resolution referring the alleged crimes to the ICC for investigation might occur. Developments in U.S. ICC Policy A shift in the overall U.S. government policy and treatment of the ICC is apparent from legislative and executive branch actions in recent years. As discussed earlier, the United States has based its opposition to the ICC on sovereignty concerns, the possibility for overreach by the ICC prosecutor, and the desire to protect members of the U.S. armed forces from politically motivated prosecutions before the Court. While these concerns do not seem to have abated, the views of the U.S. government, beginning under the George W. Bush Administration and continuing under the Obama Administration, appear to have shifted toward the conclusion that the ICC may sometimes serve as a useful tool in bringing perpetrators of the worst atrocities to justice. In addition, representatives of the Obama Administration have stated that despite continuing concerns about the Court, the United States can best protect and promote its interests through engaging with the ICC. Congress, after passing a number of pieces of legislation evincing opposition to the ICC and any effect of the Court on U.S. individuals or interests, has recently moved to roll back restrictions on U.S. foreign assistance to ICC States Parties. Executive Branch Policy Although remaining opposed to United States becoming a State Party to the Rome Statute, the Bush Administration in its second term took actions that evidenced an acceptance of the work and importance of the ICC in bringing perpetrators of atrocities to justice. In its first year, the Obama Administration was at times supportive of the ICC in its statements, and began to engage with the ICC, but did not adopt a policy to join the Court. The Obama Administration has undertaken an interagency review of its ICC policy and is expected to complete the review and make public its conclusions sometime in 2010. United States Engagement with the ICC In November 2009, the United States participated as an observer in the ICC's annual Assembly of States Parties in The Hague. In announcing the decision, Stephen Rapp, the U.S. Ambassador-at-Large for War Crimes Issues, stated, "Our government has now made the decision that Americans will return to engagement with the ICC." He insisted, however, that the United States still does not intend to become party to the Rome Statute at this time. Ambassador Rapp specifically mentioned continuing concerns over the possibility that U.S. service members "might be subject to politically inspired prosecutions." Both Ambassador Rapp and the State Department Legal Advisor, Harold Koh, attended the ICC Assembly of States Parties. In his remarks to the Assembly, Ambassador Rapp asserted that while not a State Party to the Rome Statute, the United States did not at any point abandon its commitment to bringing perpetrators of atrocities to justice, including through international criminal tribunals such as those created by the United Nations for crimes committed in the former Yugoslavia and Rwanda. He stated that there are instances when only the international community, working together, can ensure justice is done, and cited the U.S. support of and cooperation in the ICC's investigation into alleged crimes in Darfur. He also explained the U.S. intention to gain a "better understanding of the issues being considered [by the ICC States Parties] and the workings of the Court." Ambassador Rosemary DiCarlo, U.S. Alternate Representative to the United Nations for Special Political Affairs, stated in the Security Council on December 4, 2009, "Although the United States is not a party to the Rome Statute, the United States was pleased to participate last week for the first time as an observer to the Assembly of States Parties to the Rome Statute. This decision reflected the U.S. commitment to engage with the international community on issues that affect our foreign policy interests." Ambassador Rapp has also stated that the United States will participate in the Review Conference of the Rome Statute, to take place in Kampala, Uganda, in May-June 2010. At the Assembly, he spoke about the possibility of amending the Rome Statute to include the crime of aggression within the ICC's jurisdiction, an issue that will be a topic of discussion at the 2010 Review Conference. His remarks reflected the continuing U.S. opposition to inclusion of such a crime within the Court's purview, stating that determining and dealing with aggression is the responsibility of the U.N. Security Council, and that decisions on ICC prosecution of aggression could draw the ICC "into a political thicket that could threaten its perceived impartiality." U.S. Actions in the United Nations Concerning the ICC On March 31, 2005, the U.N. Security Council by a vote of 11 in favor with four Members abstaining, including the United States, adopted Resolution 1593, which referred allegations of crimes committed by President Omar Hassan Ahmad al-Bashir of Sudan to the ICC prosecutor. On July 31, 2008, the United States abstained in a Council vote on Resolution 1828, which contained language implying that the Security Council would consider an Article 16 deferral of the Bashir prosecution under the Rome Statute. The Obama Administration has opposed an Article 16 deferral of the prosecution of President Bashir. Upon the issuance of the arrest warrant for President Bashir, Ambassador Susan Rice, U.S. Permanent Representative to the United Nations, released a statement calling for restraint from all parties in Darfur, and cooperation from the government of Sudan. With regard to the enforcement of the warrant for the arrest of the President of Sudan, Ambassador Rapp stated in his confirmation hearing that it is the Obama Administration's intent to support ICC efforts to enforce the arrest warrant. The Obama Administration has also reversed a Bush Administration policy to oppose language in Security Council resolutions referring to the ICC. On September 30, 2009, the U.N. Security Council, chaired by U.S. Secretary of State Hillary Clinton, unanimously adopted Resolution 1888, which contains a specific reference to sexual violence crimes listed in the Rome Statute. Obama Administration Statements Concerning the ICC Although the Obama Administration has expressed general support for the ICC and has stated that the ICC may sometimes service as a useful tool for prosecuting war crimes and other atrocities, the Administration has not announced a policy to automatically back every proposed ICC investigation and prosecution. Instead, as Ambassador Rapp stated before the ICC Assembly of States Parties, the United States will support international tribunals when they are necessary to achieve justice, but will continue to place "greatest importance" on helping individual States set up their own systems of justice to deal with the worst atrocities. The Obama Administration has treated possible U.S. adherence to the ICC Statute as a separate issue from its willingness to support the Court's work, continuing to cite the security of U.S. armed forces as a stumbling block to the United States joining as a State Party to the Rome Statute. ICC's Effectiveness and the United States as a Possible State Party Indications that the Obama Administration would shift U.S. policy toward the ICC were apparent early on, with Administration representatives characterizing the ICC as a body with potential to provide justice for victims of atrocities. In response to written questions from Senator John Kerry prior to her nomination hearing to become Secretary of State, Hillary Clinton stated that the Obama Administration would end U.S. "hostility" to the ICC, and would support the work of the ICC. She stated that the ICC had so far operated with "professionalism and fairness," citing the ICC's work on cases in Darfur, Congo, and Uganda. She explained that the Obama Administration would conduct a full review of the U.S. position on becoming a State Party to the Rome Statute, citing the continuing concern about the security of members of the U.S. armed forces deployed overseas. In January 2009, U.N. Ambassador Susan Rice stated that the ICC is "look[ing] to become an important and credible instrument for trying to hold accountable the senior leadership responsible for atrocities committed in the Congo, Uganda and Darfur." In August 2009, Secretary of State Hillary Clinton spoke about the fact that the United States had not become party to the Rome Statute. Responding to arguments regarding an apparent contradiction between U.S. support for a possible ICC investigation into the massacres that marked the 2007 elections in Kenya and the U.S. refusal to become party to the Rome Statute, she stated it is "a great regret" that the United States is not a party to the Rome Statute, adding, "I think we could have worked out some of the challenges that are raised concerning our membership by our own government, but that has not yet come to pass." She asserted, however, that the United States will support the ICC in its investigations and prosecutions. Continuing U.S. Preference for National Justice Systems and Special Tribunals The Obama Administration has continued to adhere to a policy of encouraging local and national justice systems to take up prosecutions of alleged atrocities, or to create special tribunals within communities where the violence has occurred. Ambassador Rapp, during his nomination hearing, stated that the Office for War Crimes Issues is committed to bringing individuals to account for war crimes and other atrocities. He expressed the U.S. government's continuing preference for local and specialized forms of justice for such crimes, but acknowledged the need for international efforts in some cases: Our first preference should be for a process of accountability at the level that is closest to the affected communities. However, peace and reconciliation can best be assured by a justice system that is independent and has sufficient capacity to hold to account those bearing the greatest responsibility for atrocities. Achieving accountability in different situations will require varying levels of assistance and international participation. This statement seems to reflect the continuation of the view that the United States will cooperate with the ICC when it believes it is a useful forum for bringing criminals to justice, but that it will encourage other special courts or the use of national justice systems when feasible. This position is, arguably, consistent with the principle of complementarity that underlies the ICC because it sees ICC involvement as limited to those situations when local justice systems lack the capacity to effectively deal with alleged atrocities. This approach has been reinforced in Obama Administration comments concerning specific ICC investigations and other proceedings. With regard to the 2007 election violence in Kenya, Secretary Clinton in August 2009 stated that it is the hope of the United States that Kenya can use its own national justice system to bring alleged criminals to justice, therefore negating the need for the ICC to conduct prosecutions. The United States has urged Kenya to create a special tribunal to prosecute alleged perpetrators of the violence, but has also urged Kenyan officials to cooperate fully with the ICC in its investigations into these criminal allegations. If Kenya cannot set up a special tribunal, U.S. diplomatic officials have stated support for action by the ICC. In the Democratic Republic of the Congo (DRC), the ICC has brought charges against certain military commanders for war crimes, crimes against humanity, and sexual crimes. The United States has not opposed these cases, but has stated that other mechanisms of justice and accountability are needed in the DRC. ICC's Effect on Peace Settlements Some observers have criticized the ICC for effectively discouraging the settlement of armed conflicts, arguing that alleged perpetrators of war crimes and other atrocities will lose any incentive to bring hostilities to an end if an ICC warrant for their arrest is issued. In addition, some have criticized the United States and others for negotiating with governments whose representatives are currently wanted by the ICC for alleged crimes. Ambassador Rapp has addressed these concerns, claiming that while the United States is currently working to achieve a peace settlement with the Sudanese government and rebel groups in Darfur, for example, such efforts are not "inconsistent with pressing for accountability for those responsible for serious violations of international humanitarian law." In addition, he stated that the indictments of Charles Taylor by the Special Court for Sierra Leone and of Joseph Kony by the ICC enhanced, rather than hindered, prospects for peace in Sierra Leone and Uganda, respectively. Bilateral Immunity Agreements As explained previously, the United States has executed BIAs with scores of countries, in the hope of limiting the ICC's ability to request that States Parties surrender U.S. nationals to the ICC. The United States concluded the most recent BIA in 2007, with Montenegro. CRS has located the texts of 96 BIAs, but there are six additional BIAs that were reported but not located. A number of countries have concluded BIAs with the United States despite not being States Parties to the Rome Statute. These agreements remain in effect, although, as discussed above, their effectiveness under international law has been questioned. Recent Congressional Action Although several provisions in legislation opposing U.S. adherence to and support for the ICC Statute remain in effect, recent Congresses have eliminated or refrained from renewing sanctions provisions that affect U.S. assistance for countries that are ICC States Parties. Although these actions could be interpreted as indicating a change in Congress's position toward the ICC, the changes might also be interpreted as being primarily rooted in a concern that sanctions may have begun to hurt U.S. interests. Section 2007 of the American Servicemembers' Protection Act Enacted in 2002, Section 2007 of the American Servicemembers' Protection Act (ASPA) prohibited U.S. military assistance to ICC States Parties. Such assistance was defined in Section 2013(13) of the act as assistance provided under chapter 2 (Military Assistance) or 5 (International Military Education and Training, or IMET) of part II of the Foreign Assistance Act of 1961, as amended (FAA, P.L. 87-195), as well as credit sales of defense articles or services under Section 23 of the Arms Export Control Act, as amended (AECA, P.L. 90-629; 22 U.S.C. § 2463). Section 2007 contained a general prohibition on assistance, two bases for presidential waivers of that prohibition, and an exemption from the prohibition. Subsection (a) stated that effective one year after the date on which the Rome Statute enters into force, no U.S. military assistance may be provided to States Parties to the ICC. Subsection (b) provided that the President could waive, without prior notice to Congress, the prohibition with regard to a country if he determines and reports to Congress that it is in the U.S. national interest to do so. Subsection (c) authorized the President to waive, again without prior notice to Congress, the prohibition with regard to a country if (1) the country entered into a BIA with the United States and (2) the President reported the agreement to Congress. Subsection (d) exempted NATO members, designated major non-NATO allies (MNNAs), and Taiwan from the prohibition. Nethercutt Amendment Provisions Provisions enacted in the 2005, 2006, and 2008 Foreign Operations Appropriations bills (so-called "Nethercutt Amendment" provisions ) contained similar funding prohibitions for Economic Support Fund (ESF) assistance to ICC States Parties: Section 574 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2005 (FY2005 Appropriations Act; Division D of P.L. 108-447 ; 118 Stat. 3027) prohibited Economic Support Fund (ESF) assistance to ICC States Parties for funds available through September 30, 2006. Section 574 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2006 (FY2006 Appropriations Act; P.L. 109-102 ; 119 Stat. 2229) contained the same general ESF prohibition for funds available through September 30, 2007. Section 671 of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2008 (FY2008 Appropriations Act; Division J of P.L. 110-161 ; 121 Stat. 2354) prohibited ESF assistance for ICC States Parties with regard to funds available through September 30, 2009. Each Nethercutt Amendment provision differed somewhat from the other two. Section 574 of the FY2005 Appropriations Act contained a general prohibition on ESF assistance, two bases for a Presidential waiver of the prohibition, and an exemption from the prohibition. Subsection (a) prohibited the use of ESF funds to assist a country that is a party to the ICC and that has not entered into an Article 98 agreement with the United States. Subsection (b) authorized the President to waive, without prior notice to Congress, this prohibition for NATO members, MNNAs, or Taiwan, if he determines and reports to Congress that it is important to U.S. national security interests to do so (emphasis not in legislation). Subsection (c) allows the President to waive, without prior notice to Congress, the prohibition with regard to a country if the country entered into an agreement with the United States pursuant to Article 98 of the Rome Statute preventing the ICC from proceeding against U.S. personnel in such country, and if the President reports to Congress on the agreement. Subsection (d) provided that the prohibition does not apply to countries otherwise eligible for assistance under the Millennium Challenge Act of 2003 (MCA, Title VI of Division D of the Consolidated Appropriations Act, 2004; P.L. 108-199 ). Section 574 of the FY2006 Appropriations Act contained the general prohibition on ESF assistance, two bases for a Presidential waiver of the prohibition, an exemption from the prohibition in that section, and an additional exemption from the prohibition contained in the Nethercutt Amendment provision from the 2005 Act. Subsection (a) provided the identical prohibition on ESF funds to ICC States Parties without an Article 98 agreement with the United States. Subsection (b) also provided for a Presidential determination justifying a waiver of the prohibition, but it required prior notice to Congress, included "such other country as he may determine" along with NATO members, MNNAs, and Taiwan as eligible to receive the waiver, and changed the standard from a determination of national security interest to one of national interest. Subsection (c) of the FY2006 Act provision is similar to that of FY2005, allowing the President to waive if a country entered an Article 98 agreement, except this waiver also became dependent on prior notice to Congress. Subsection (d) contained the identical exemption from the prohibition for MCA-eligible countries. Subsection (e) exempted democracy and rule of law programs and activities from the FY2005 Nethercutt Amendment's prohibition on ESF funds to ICC States Parties. Subsections (a) through (d) of Section 671 of the FY2008 Appropriations Act were identical to those of Section 574 of the FY2006 Appropriations Act, with the same general prohibition; national interest waiver eligibility for NATO, MNNAs, Taiwan, and "such other" countries as the President may determine; Article 98 agreement waiver; and MCA-eligible country exemption. There was no further subsection concerning previous Nethercutt Amendment provisions. Modifications to the ASPA/Nethercutt Sanctions Policy Although Section 2007 of ASPA and the Nethercutt Amendment provisions articulated a strong policy of opposition to the ICC, in line with the U.S. policy toward the Court during much of the Bush Administration, questions from within the executive branch on the costs and benefits of such sanctions surfaced as early as 2006. Secretary of State Condoleezza Rice was quoted as describing the sanctions as akin to "shooting ourselves in the foot" when they prohibited military aid to key U.S. allies. The 2005 Quadrennial Defense Review characterized APSA's restrictions as a burden on the U.S. military in its efforts to combat terrorism. In addition, President Bush granted nearly 90 waivers of ASPA or Nethercutt prohibitions during his Administration on national interest grounds where no BIA was in place, revealing a substantial need to continue military and ESF assistance to U.S. partners that were also ICC States Parties. A number of Members of Congress shared the concerns of certain Bush Administration officials. In 2006, Congress amended Section 2013(13)(A) of the ASPA to remove IMET funding from the definition of U.S. military assistance (Section 1222 of Division A of the John Warner National Defense Authorization Act for Fiscal Year 2007, P.L. 109-364 ). In 2007, Section 1212(a) of the National Defense Authorization Act for Fiscal Year 2008 ( P.L. 110-181 ; 122 Stat. 371) repealed Section 2007 of ASPA altogether, thus ending the prohibition on FAA military assistance and AECA military credit sales for States Parties to the ICC. After being included in the previous three bills, Nethercutt Amendment language was not included in the most recent foreign operations appropriations legislation (Department of State, Foreign Operations, and Related Programs Appropriations Act, 2009; Division H of P.L. 111-8 ). At present, therefore, ICC-related prohibitions on military and ESF assistance are no longer operative. Legislation Proposed in the 111th Congress To date, no bills have been introduced in the current Congress relating to the ICC or U.S. becoming party to the Rome Statute, or participating in or cooperating with the Court. Members in the House have proposed non-binding resolutions concerning the ICC as it relates to alleged atrocities. H.Res. 867 : This resolution characterizes the Goldstone Report concerning the 2008-2009 conflict in Gaza as biased and unbalanced in its criticism of Israel's actions during that conflict. It calls on President Obama to veto "any United Nations Security Council resolution that endorses the contents of this report, seeks to act upon the recommendations contained in this report, or calls on any other international body to take further action regarding this report." The Goldstone Report recommended that the Security Council refer the Gaza case to the ICC prosecutor to investigate allegations of war crimes if no prosecutions by national justice systems are undertaken within 6 months. It passed the House on November 3, 2009. H.Res. 241 : This resolution commends the ICC for issuing a warrant for the arrest of Omar Hassan Ahmad al-Bashir, President of the Republic of the Sudan. It was referred to the House Foreign Affairs Committee on March 12, 2009. H.Con.Res. 97 : This concurrent resolution calls on the President to (1) support U.N. Security Council referrals of atrocities to the ICC; (2) state as U.S. policy a commitment to support the Rome Statute and to reactivate the United States as signatory to the Statute; (3) cooperate with ICC investigations unless it is not in the U.S. national interest; (4) participate as observer at the annual ICC Assembly of States Parties; (5) and grant waivers, based on national interest, of prohibitions against assistance and cooperation with the ICC. It was referred to the House Foreign Affairs Committee on April 2, 2009.

The International Criminal Court (ICC) is the first permanent international court with jurisdiction to prosecute individuals for "the most serious crimes of concern to the international community." Currently, 110 countries are States Parties to the ICC. Since its inception in 2002, the ICC has received three referrals for investigations by States Parties and one referral from the United Nations Security Council. While the U.S. executive branch initially supported the idea of creating an international criminal court, the United States ultimately voted against the Statute of the ICC (the "Rome Statute") and informed the United Nations that the United States did not intend to become a State Party to the Rome Statute. The United States' primary objection to the treaty has been the potential for the ICC to assert jurisdiction over U.S. civilian policymakers and U.S. soldiers charged with "war crimes." This concern has been highlighted with recent preliminary investigations by the ICC's Prosecutor into alleged war crimes in the Middle East and Afghanistan. In 2006, the ICC's Office of the Prosecutor completed a preliminary investigation into alleged war crimes in Iraq, finding that the information did not establish sufficient grounds for the Prosecutor to launch a formal investigation into the situation. In 2009, the Office of the Prosecutor confirmed that it was conducting another preliminary investigation into possible war crimes committed by NATO soldiers, U.S. soldiers, and both Taliban and al Qaeda insurgents in Afghanistan. That same year, the Palestinian National Authority (PNA) sought the ICC's jurisdiction over alleged crimes committed during the Gaza conflict of December 2008/January 2009, and the United Nations Commission of Inquiry on Gaza issued a report recommending that the Security Council refer the situation to the ICC Prosecutor if Israel and the PNA did not undertake appropriate national level investigations and prosecutions. The United States has taken both diplomatic and domestic actions with the potential to affect the ICC's authority over U.S. citizens. On a diplomatic level, the United States has concluded bilateral immunity agreements (BIAs) with many ICC States Parties to prevent other countries from surrendering U.S. citizens to the ICC without U.S. consent under Article 98 of the Rome Statute. These agreements have generated a vigorous debate over when and whether obligations in international agreements preempt an ICC request to a State Party for the arrest and surrender of a person in its territory. However, the ICC, in which the Rome Statute vests the sole responsibility for interpreting the Statute's text, has remained silent on the question, neither validating nor refuting the U.S. position that BIAs or any agreement creating similar obligations preempt an ICC request to surrender. Although remaining opposed to U.S. ratification of the Rome Statute, the Bush Administration in its second term took actions that suggested its support for some ICC activities. The Obama Administration has also taken a more supportive stance toward the ICC and has begun to engage directly with the Court. The Obama Administration is currently reviewing its ICC policy and is expected to announce its conclusions sometime in 2010. Similarly, actions by Congress have eliminated or chosen not to extend provisions affecting U.S. assistance for countries that are ICC States Parties. Although these actions seem to soften Congress's position on the ICC, the changes might also be interpreted as a decision to reverse sanctions that were perceived as hurting U.S. interests.

Overview of Unemployment Insurance Programs In general, when eligible workers lose their jobs, the joint federal-state Unemployment Compensation (UC) program may provide up to 26 weeks of income support through regular UC benefit payments. UC benefits may be extended for up to 13 weeks or 20 weeks by the Extended Benefit (EB) program if certain economic situations exist within the state. During previous Congresses, the temporarily authorized Emergency Unemployment Compensation (EUC08) program provided additional weeks of benefits (depending on the date, from 13 weeks to 53 weeks). EUC08 benefits expired on December 28, 2013, and are no longer authorized. Currently, although the UC and EB programs are authorized, no state is in an active EB period. For information on the expired EUC08 program, which provided additional unemployment benefits depending on state economic conditions during the period of July 2008 to December 2013, see CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration . Unemployment Compensation Program The Social Security Act of 1935 (P.L. 74-271) authorizes the joint federal-state UC program to provide unemployment benefits under which most states provide up to a maximum of 26 weeks of UC benefits. Former federal workers may be eligible for unemployment benefits through the Unemployment Compensation for Federal Employees (UCFE) program. Former U.S. military servicemembers may be eligible for unemployment benefits through the Unemployment Compensation for Ex-servicemembers (UCX) program. The Emergency Unemployment Compensation Act of 1991 ( P.L. 102-164 ) provides that ex-servicemembers be treated the same as other unemployed workers with respect to benefit levels, the waiting period for benefits, and benefit duration. Although federal laws and regulations provide broad guidelines on UC benefit coverage, eligibility, and determination, the specifics regarding UC benefits are determined by each state. This results in essentially 53 different programs. UC eligibility is generally based on attaining qualified wages and employment in covered work over a 12-month period (called a base period) prior to unemployment. All states require a worker to have earned a certain amount of wages or to have worked for a certain period of time (or both) within the base period in order to be eligible to receive any UC benefits. The methods states use to determine eligibility vary greatly. Most state benefit formulas replace approximately half of a claimant's average weekly wage up to a weekly maximum. In addition, each state's UC law requires individuals to have lost their jobs through no fault of their own and must be able to work, available for work, and actively seeking work. These eligibility requirements help ensure that UC benefits are directed toward workers with significant labor market experience who are unemployed because of economic conditions. The UC program is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Act (SUTA). The 0.6% effective net FUTA tax paid by employers on the first $7,000 of each employee's earnings (no more than $42 per worker per year) funds federal and state administrative costs, loans to insolvent state UC accounts, the federal share (50%) of EB payments, and state employment services. SUTA taxes on employers are limited by federal law to funding regular UC benefits and the state share (50%) of EB payments. Federal law requires that the state tax be on at least the first $7,000 of each employee's earnings (it may be more) and requires that the maximum state tax rate be at least 5.4%. Federal law also requires each employer's state tax rate to be based on the amount of UC paid to former employees (known as "experience rating"). Within these broad requirements, each state has great flexibility in determining its SUTA structure. Generally, the more UC benefits paid out to its former employees, the higher the tax rate of the employer, up to a maximum established by state law. Funds from FUTA and SUTA are deposited in the appropriate accounts within the Unemployment Trust Fund (UTF). Extended Benefit Program The EB program was established by the Federal-State Extended Unemployment Compensation Act of 1970 (EUCA; P.L. 91-373) (26 U.S.C. §3304, note). EUCA may extend receipt of unemployment benefits (extended benefits) at the state level if certain economic situations exist within the state. The President's FY2017 Budget Proposal contained several possible alternations to the EB program. See the " President's Budget Proposal for FY2017 " section of this report for details on the proposals. EB Triggers The EB program is triggered when a state's insured unemployment rate (IUR) or total unemployment rate (TUR) reaches certain levels. All states must pay up to 13 weeks of EB if the IUR for the previous 13 weeks is at least 5% and is 120% of the average of the rates for the same 13-week period in each of the two previous years. States may choose to enact two other optional thresholds. (States may choose one, two, or none.) If the state has chosen one or more of the EB trigger options, it would provide the following: Option 1—an additional 13 weeks of benefits if the state's IUR is at least 6%, regardless of previous years' averages. Option 2—an additional 13 weeks of benefits if the state's TUR is at least 6.5% and is at least 110% of the state's average TUR for the same 13 weeks in either of the previous two years; an additional 20 weeks of benefits if the state's TUR is at least 8% and is at least 110% of the state's average TUR for the same 13 weeks in either of the previous two years. EB benefits are not "grandfathered" (phased out) when a state triggers "off" the program. When a state triggers "off" of an EB period, all EB benefit payments in the state cease immediately regardless of individual entitlement. The EB benefit amount is equal to the eligible individual's weekly regular UC benefits. Under permanent law, FUTA finances half (50%) of the EB payments and 100% of EB administrative costs. States fund the other half (50%) of EB benefit costs through their SUTA. Expired Emergency Unemployment Compensation Program On June 30, 2008, President George W. Bush signed the Supplemental Appropriations Act of 2008 ( P.L. 110-252 ), which created a new temporary unemployment insurance program, the EUC08 program. This was the eighth time Congress had created a federal temporary program to extend unemployment compensation during an economic slowdown. State UC agencies administered the EUC08 benefit along with regular UC benefits. The authorization for this program was extended multiple times since its enactment, but it was terminated on December 28, 2013, for all states except New York (December 29, 2013) and North Carolina (June 29, 2013). Unemployment Insurance Benefits and the Sequester The sequester order required by the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and implemented on March 1, 2013 (after being delayed by P.L. 112-240 ), affected some but not all types of unemployment insurance expenditures. Regular UC, UCX, and UCFE payments are not subject to the sequester reductions. EB, EUC08 (when available), and most forms of administrative funding are subject to the sequester reductions. Please see CRS Report R43133, The Impact of Sequestration on Unemployment Insurance Benefits: Frequently Asked Questions , for additional information on the impact of sequestration on UI benefits and sequestration for FY2013 and FY2014. FY2017 Sequester of UI Benefits The FY2017 sequestration order required a 6.9% reduction in all nonexempt nondefense mandatory expenditures, but no sequestration reductions applicable to discretionary programs, projects, and activities. Therefore, the sequestration order required that EB expenditures be reduced by 6.9% (only on the federal share of EB benefits) for weeks of unemployment beginning on October 8, 2016, through September 30, 2017. However, EB was not available in any state from the beginning of FY2017 through the time of this report date (April 2017). FY2016 Sequester of UI Benefits Among many actions, the Bipartisan Budget Act of 2015, P.L. 114-74 , increased discretionary spending limits for FY2016. As a result, although a 6.8% sequester reduction in non-exempt mandatory programs went into effect on October 1, 2015, for FY2016, there were no sequestration reductions applicable to discretionary programs, projects, and activities. However, if any EB benefits had become available, they would have been subject to the FY2016 6.8% sequestration reduction. Additionally, there may have been certain delayed EB or EUC08 benefit payments and related administrative costs made in FY2016 from prior fiscal years (for example, because of appeals). Those payments would have bene subject to the FY2016 6.8% sequestration reduction because FY2016 funds would have been apportioned for these purposes. FY2015 Sequester of UI Benefits In FY2015, the sequestration order required a 7.3% reduction in all nonexempt nondefense mandatory expenditures. Therefore, the sequestration order required that EB expenditures be reduced by 7.3% (only on the federal share of EB benefits) for weeks of unemployment beginning on October 4, 2014, through September 26, 2015. EB was not available in any state during FY2015. State Fiscal Concerns Alleviating State Unemployment Compensation Stress If a recession is deep enough and if state unemployment tax (SUTA) revenue is inadequate for long periods of time, states may have insufficient funds to pay for UC benefits. Federal law, which requires states to pay these benefits, provides a loan mechanism within the UTF framework that an insolvent state may opt to use to meet its UC benefit payment obligations. States must pay back these loans. If the loans are not paid back quickly (depending on the timing of the beginning of the loan period), states may face interest charges and the states' employers may face increased net FUTA rates until the loans are repaid. Near the end of the 114 th Congress on October 18, 2016, only California and the Virgin Islands had outstanding loans. Together they owed a cumulative $3.6 billion to the federal accounts within the UTF. In general, the increased state borrowing to fund UC benefits reflects the magnitude of the recession and the slow employment recovery afterward. President's Budget Proposal for FY2017 President Obama's budget proposal for FY2017 attempted to address some of the state and federal financing concerns. In addition, the proposal would have expanded and reformed UI benefits and benefit availability. Federal Unemployment Tax Changes The President's budget proposal for FY2017 would have (1) reauthorized the lapsed 0.2% Federal Unemployment Tax (FUTA) surtax; and (2) increased the taxable wage base to $40,000 while decreasing the effective FUTA tax rate to 0.165% (making it approximately actuarially equivalent to 0.8% on $7,000). After 2018, the taxable wage base would have been indexed to inflation. Beginning in 2018, the proposal would have required states to impose a minimum tax per employee that equates to 0.175% of the FUTA wage base ($70 per employee in 2018). Requiring States to Maintain Increased UTF Balances In addition, the President's budget proposal for FY2017 would have required states to maintain a UTF account balance of at least 50% of the state's Average High Cost Multiple (AHCM). The proposal would have altered the rules for calculating the net FUTA rate, requiring a net FUTA rate on a state's employer if that state maintained an AHCM of less than 50% on two or more consecutive January firsts. The additional FUTA revenue would have been deposited into the state UTF account and would have been terminated once the AHCM met the 50% criteria. State Requirement to Provide 26 Weeks of UC The President's budget proposal for FY2017 would have required all states to have a maximum duration of at least 26 weeks for the regular UC program and adopt three policies that expand access to UC benefits. The states would have had to (1) enact an alternative base period option for determining UC eligibility; (2) not deny benefits for claimants who seek part-time employment; and (3) allow unemployed workers to be eligible for UI benefits if they leave their jobs for family reasons. Modernization Incentives Finally, the President's budget proposal for FY2017 would have provided up to a total of $5 billion in lump sum payments to states for opting for changes that "modernize" state UC laws. To become eligible for the payments, states would have had to (1) provide for broader federal access to UI wage records; (2) adopt e-filing and/or increased penalties for employer non-reporting; (3) provide for at least 26 weeks of benefits in the regular UC program; and (4) define "misconduct" that conforms to the U.S. DOL model definition. States also would have had to commit to not make qualifying requirements more stringent or reduce benefit levels. Additionally, to receive the incentive payment, a state would have had to adopt two work incentive reforms and one benefit expansion reform. The work incentive options would have included (1) progressively more intense reemployment service delivery as duration of benefit receipt lengthens; (2) improved reemployment services for UI claimants; (3) voluntary work-based programs for UI claimants, such as on-the-job training or apprenticeship programs or subsidized temporary work programs; (4) relocation assistance programs coupled with individual case management, in-person career counseling, provision of customized information on availability of job opportunities in other locations, and referrals to suitable jobs in other locations; and (5) improvement of data systems to enable and provide access to workforce and educational entities for performance, research, and evaluation. The benefit expansion options would have included (1) allowing UC benefits to be paid to claimants in approved training; (2) establishing a maximum weekly benefit amount that is at least two-thirds of the state's average weekly wage in covered employment in the most recent 12-month period for which data are available; and (3) improving eligibility provisions related to temporary workers. EB Reform The President's budget proposal for FY2017 also would have altered and replaced most of the EB program. The mandatory IUR trigger would have been replaced by a modification of the current optional TUR trigger. Funding for EB would have continued to be shared (50% state, 50% federal) if the maximum number of weeks of UC benefits available in the state was fewer than 26 weeks. Funding for EB would have been 100% reimbursed with federal funds if the state offered at least 26 weeks of UC. In addition, all EB claimants would have been required to receive Reemployment Services and Eligibility Assessments (RES/REAs) as a condition of eligibility. If federal funds in the UTF were insufficient to pay EB, funds would have been provided from the Treasury's General Fund through non-repayable advances. Wage Insurance The President's budget proposal for FY2017 would have created a new wage insurance program that would have replaced half of lost wages, up to $10,000 over two years for certain formerly unemployed workers who find employment at lower salaries. The reemployed worker's new position would have had to pay less than $50,000/year and workers must have worked for their prior employer for at least three years to be eligible for this program. Enacted Laws in the 114th Congress The National Defense Authorization Act for Fiscal Year 2016(P.L. 114-92) Senator Ron Johnson sponsored S. 1356 , which was enacted as the National Defense Authorization Act for Fiscal Year 2016, P.L. 114-92 . In addition to many other actions, the law altered certain conditions for individuals to receive Unemployment Compensation for Former Servicemembers (UCX). The law generally prohibits the concurrent receipt of UCX and Post-9/11 Veterans Educational Assistance but does provide exceptions. In addition, the law doubled the number of days (from 90 to 180 continuous days) a reserve member of the Armed Forces would have to be on active duty to qualify for UCX. Two earlier proposals had similar provisions, but did not include exceptions to the prohibition of concurrent receipt. Representative Mac Thornberry sponsored H.R. 1735 , the National Defense Authorization Act for Fiscal Year 2016, which was vetoed by President Obama on October 22, 2015. Senator John McCain sponsored an identically named bill ( S. 1376 ) that contained similar provisions. Legislative Proposals in the 114th Congress Concurrent Receipt of SSDI and UI Benefits33 S. 499 (Senator Orin Hatch), S. 2005 (Senator David Vitter), and H.R. 918 (Representative Sam Johnson), all titled the Social Security Disability Insurance and Unemployment Benefits Double Dip Elimination Act, would have required for any month that an individual is entitled to UC, EB, or Trade Adjustment Assistance (TAA) for at least one week, he or she would have been deemed to have engaged in substantial gainful activity (SGA) and be disqualified from receiving SSDI benefits. If an SSDI beneficiary had been participating in a period of trial work, the individual would have been deemed to have rendered services in a month if he or she had been entitled to UC, EB, or TAA for any week that month (and, therefore, that month would count toward the 60-month rolling period in the trial work period without having the benefits reduced or terminated). H.R. 5919 , the Preserving and Reforming SSDI (PAR-SSDI) Act of 2016, was introduced by Representative David Schweikert. H.R. 5919 would have required (among other provisions) that for any week in whole or in part within a month that an individual was paid or determined to be eligible for UC, he or she would have been deemed to have engaged in substantial gainful activity and so be disqualified from receiving Social Security disability benefits after a certain period has elapsed. S. 343 , the Reducing Overlapping Payments Act, was introduced by Senator Jeff Flake. S. 343 would have required for any month that an individual was entitled to UC, no SSDI benefits would be paid. UI Program Integrity Representative David Reichert sponsored H.R. 2503 , the Permanently Ending Receipt by Prisoners Act. H.R. 2503 would have required states to use the Prisoner Update Processing System (PUPS) data compiled by the Social Security Administration. States would use PUPS data to confirm that an individual was not confined in a jail, prison, or other penal institution or correctional facility. Any individual who was incarcerated would not be eligible for regular UC benefits because the individual would not have been available for work. Representative Kevin Brady sponsored H.R. 2512 , the Furloughed Federal Employee Double Dip Elimination Act. The bill would have clarified that if a federal employee were to receive back pay for a period during which he or she had been furloughed due to a lapse in federal appropriations, the federal employee would have to repay any unemployment compensation for that period. Drug Testing35 Representative Steve Pearce sponsored H.R. 1136 , the Accountability in Unemployment Act of 2015. The bill would have required individuals to undergo drug testing and test negative to be eligible for UC benefits. H.R. 1136 would also have required a 30-day waiting period for applicants who test positive for any one of several specified drugs and would have required individuals to be ineligible for UC benefits for five years after the third positive drug test. Representative Earl Carter sponsored H.R. 2148 , the Ensuring Quality in the Unemployment Insurance Program (EQUIP) Act. The bill would have required any UC applicant to complete a substance abuse risk assessment. If the applicant had been deemed high-risk, the applicant would have to pass a controlled substances test to receive UC benefits. Those who did not pass the test would be ineligible for benefits for 30 days and then would have to be retested to determine eligibility. Representative Kevin Brady introduced H.R. 5945 , the Ready to Work Act of 2016. The proposal would have terminated the final rule issued by the U.S. DOL on August 1, 2016, the "Federal-State Unemployment Compensation Program; Middle Class Tax Relief and Job Creation Act of 2012 Provision on Establishing Appropriate Occupations for Drug Testing of Unemployment Compensation Applicants" (81 Fed. Reg. 50298). This DOL rule established occupations that regularly conduct drug testing. As such, the rule implemented a change made under the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ; February 22, 2012) that allowed states to drug test UC applicants for whom suitable work is available only in an occupation that regularly conducts drug testing. Rehiring UI Beneficiaries and Exhaustees Representative Bill Pascrell introduced H.R. 481 , the Long-Term Unemployed Hiring Incentive Act. The bill would have extended the work opportunity tax credit (WOTC) for companies that hire any UC exhaustees through December 31, 2017. Representative Julia Brownley introduced H.R. 2265 , the VOW to Hire Heroes Extension Act of 2015, and Senator Richard Blumenthal introduced an identically named bill, S. 1517 . This legislation would have expanded and extended WOTC for companies that hire veterans through December 31, 2018. In addition, the bill would have expanded the program by allowing tax-exempt organizations to apply a credit against payroll taxes for hiring a veteran. Representative Barbara Lee introduced H.R. 2721 , the Pathways Out of Poverty Act of 2015, and Representative Frederica Wilson introduced H.R. 3555 . Both proposals would have amended the work opportunity tax credit to allow an increased work opportunity tax credit for long-term unemployed individuals (individuals who are unemployed and receiving unemployment compensation for six months or more). Representative David McKinley introduced the Manufacturing Economic Recovery Act of 2015, H.R. 3622 . The bill, among other items, would have created a permanent work opportunity tax credit for hiring a full-time employee in a manufacturing facility located in the United States and included an increased credit for hiring individuals receiving unemployment compensation. Delegate Eleanor Holmes Norton introduced the Reducing Long-Term Unemployment Act, H.R. 4593 . The bill would have suspended employment and railroad retirement taxes for employers who hired unemployed individuals through 2017. The aggregate reduction in taxes from such suspension would have been limited to $5,000 per employee. Representative Bonnie Watson Coleman introduced the Investing in Older Americans Act of 2016, H.R. 4973 . The bill would have made the WOTC permanent and expanded it to include the hiring of older long-term unemployment recipients who are at least 55 years old at the time of hiring. The bill would have limited the amount of the qualified first-year wages that may be taken into account under the WOTC to $14,000 for a qualified older long-term unemployment recipient. Reauthorize Emergency Unemployment Compensation Two bills would have reauthorized the lapsed temporary Emergency Unemployment Compensation (EUC08) benefits until the end of 2015: H.R. 2721 , the Pathways Out of Poverty Act of 2015 and H.R. 3555 , the Jobs! Jobs! Jobs! Act of 2015 (Representative Frederica Wilson). Vouchers and Demonstration Projects Representative James Renacci sponsored H.R. 2509 , the Flexibility to Promote Reemployment Act. The bill would have made a number of changes to the state UC demonstration projects created by the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). The bill would have extended the time period that the (now-expired) state demonstration projects could be approved by DOL through December 31, 2019 ( P.L. 112-96 authorized these demonstration projects through December 31, 2015), as well as expanded the existing authority for state UC demonstration projects by authorizing 10 states per year to conduct approved demonstration projects (the original, expired authority was only for 10 states total). H.R. 2509 also would have revised state UC demonstration project requirements, including removing a requirement that any direct disbursements paid to employers for hiring UC claimants not exceed an individual's UC weekly benefit amount and requiring that DOL approve state applications for UC demonstration projects based on the order of receipt. Additionally, the bill would have transferred the responsibility for the state UC demonstration project impact evaluation from the states, as under the now-expired demonstration authority, to DOL and would have required a specific procedure for termination of the state UC demonstration project by DOL. Both H.R. 2721 , the Pathways Out of Poverty Act of 2015, and H.R. 3555 , the Jobs! Jobs! Jobs! Act of 2015, among many provisions, would have allowed states to (1) establish a Bridge to Work program to provide EUC08 claimants with short-term work experience placements with eligible employers; (2) provide a wage insurance program to pay, for up to two years, an EUC08 claimant who obtains reemployment up to 50% of the difference between the wages received at the time of work separation and the wages received for reemployment; and (3) provide a program of enhanced reemployment services to EUC08 claimants, including unemployed individuals who have exhausted their EUC08 rights. Job Training and Education Representative Rodney Davis sponsored H.R. 2219 , the Opportunity KNOCKs Act. The bill would have required that states allow UC beneficiaries to participate in a Workforce Investment Act (WIA) authorized job training program and remain eligible for benefits. If the UC beneficiary has been profiled to exhaust regular benefits, the individual would have been allowed to enroll in any coursework necessary to attain a recognized postsecondary credential. Relocation Subsidies Representative Tony Cárdenas sponsored H.R. 2755 , the American Worker Mobility Act of 2015. The proposal would have authorized the U.S. Department of Labor to grant a relocation subsidy of up to $10,000 to long-term unemployed workers. Short-Time Compensation39 Both H.R. 2721 , the Pathways Out of Poverty Act of 2015, and H.R. 3555 , the Jobs! Jobs! Jobs! Act of 2015, would have provided temporary 100% federal financing for up to three years and six months after enactment for short-time compensation (STC) benefits in states with existing STC programs. States without existing STC programs would have been allowed to enter into an agreement with DOL for up to two years and three months after enactment and receive federal reimbursement for administrative expenses, as well as temporary federal financing of 50% of STC payments to individuals, with employers paying the other 50% of STC costs. If a state would have entered into an agreement with the Secretary of Labor and then subsequently enacted a law providing for STC, that state would have been eligible to receive 100% federal financing at that enactment. The proposals would have awarded grants of up to $700 million total to eligible states, with one-third of each state's grant available for implementation and improved administration purposes and two-thirds of each state's grant available for program promotion and enrollment of employers. This proposal would have provided $1.5 million for DOL to submit a report to Congress and the President, within four years of enactment, on the implementation of this provision. Representative Rosa DeLauro and Senator Jack Reed introduced the Layoff Prevention Extension Act of 2016, H.R. 5408 and S. 1902 , respectively. The proposals would have extended federal financing of the STC programs for an additional two years. Additionally, they would have extended the deadline by two years for a state to submit its application for a STC grant through December 31, 2016. Unemployment Benefits for Energy Workers Senator Bernie Sanders introduced S. 2398 , the Clean Energy Worker Just Transition Act. Among other provisions, the proposal would have provided additional weeks of unemployment benefits for adversely affected workers in coal-related or coal-dependent or similar energy industries. The workers' employment status would have had to change for causes attributable to the low cost of competing alternative forms of energy. Representative Evan Jenkins introduced H.R. 5669 , the Creating Opportunities for America's Laid-off (COAL) Miners Act of 2016. The proposal would have added up to 26 weeks of additional unemployment benefits for adversely affected workers in coal-related or coal-dependent or similar energy industries. Domestic Violence Representative Lucille Roybal-Allard and Senator Patty Murray introduced the Security and Financial Empowerment Act of 2015, H.R. 3841 and S. 2208 , respectively. The bills would have required states to consider an individual who quit a job as a result of domestic or sexual violence to be eligible for UC benefits.

The 114th Congress considered many issues related to unemployment insurance (UI) programs: Unemployment Compensation (UC), the temporary, now-expired Emergency Unemployment Compensation (EUC08), and Extended Benefits (EB). This report gives a brief overview of the UI programs that may provide benefits to eligible unemployed workers. In addition, it briefly summarizes the President's budget proposal for FY2017. The National Defense Authorization Act for Fiscal Year 2016, P.L. 114-92, altered certain conditions for individuals to receive Unemployment Compensation for Former Servicemembers (UCX). This report also describes UI legislation proposed in the 114th Congress that addressed: Concurrent receipt of Social Security Disability Insurance (SSDI) and UI benefits—S. 343, S. 499, H.R. 5919, H.R. 918, and S. 2005 UI program integrity—H.R. 2503 and H.R. 2512 Unemployment Compensation for Former Servicemembers (UCX)—P.L. 114-92, S. 1376, and H.R. 1735 Drug testing—H.R. 1136, H.R. 2148, and H.R. 5945 Rehiring UI beneficiaries and exhaustees—H.R. 481, H.R. 2265, H.R. 2721, H.R. 3555, H.R. 3622, H.R. 4593, H.R. 4973 and S. 1517 Reauthorization of EUC08—H.R. 2721 and H.R. 3555 Vouchers and demonstration projects—H.R. 2509, H.R. 2721, and H.R. 3555 Job training and education—H.R. 2219 Relocation Subsidies—H.R. 2755 Short-time Compensation (STC)—H.R. 2721, H.R. 3555, H.R. 5408, and S. 1902 New benefits for certain energy workers—H.R. 5669 and S. 2398 Domestic violence—H.R. 3841 and S. 2208 For information on the expired EUC08 program, which provided additional unemployment benefits depending on state economic conditions during the period of July 2008 to December 2013, see CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration. For a brief overview of UC, see CRS In Focus IF10336, The Fundamentals of Unemployment Compensation.

Overview of FY2018 USDA-FNS Funding Domestic food assistance—SNAP and child nutrition programs in the mandatory spending accounts, and WIC and other programs in the discretionary spending accounts—represents over two-thirds of the FY2018 Agriculture appropriations act ( Figure 1 ). The federal budget process treats discretionary and mandatory spending differently. Discretionary spending is controlled by annual appropriations acts and receives most of the attention during the appropriations process. The annual budget resolution process sets spending limits for discretionary appropriations. Agency operations (salaries and expenses) and many grant programs are discretionary. Mandatory spending —though carried in the appropriation—is controlled by budget rules during the authorization process. Appropriations acts then provide funding to match the parameters required by the mandatory programs' authorizing laws. For the domestic food assistance programs, these laws are typically reauthorized in farm bill and child nutrition reauthorizations. Domestic food assistance funding ( Table 1 ) largely consists of open-ended, appropriated mandatory programs—that is, it varies with program participation (and in some cases inflation) under the terms of the underlying authorization law. The largest mandatory programs include SNAP and the child nutrition programs (including the National School Lunch Program and School Breakfast Program). Though their funding levels are dictated by the authorizing law, in most cases appropriations are needed to make funds available. The three largest discretionary budget items are WIC, the Commodity Supplemental Food Program (CSFP), and federal nutrition program administration. The enacted FY2018 appropriation would provide nearly $105 billion for domestic food assistance ( Table 1 ). This is a decrease of approximately $3.2 billion from FY2017. Declining participation in SNAP is responsible for most of the difference. Over 95% of the FY2018 appropriations are for mandatory spending. Table 1 summarizes funding for the domestic food assistance programs, comparing FY2018 levels to those of prior years. In addition to the accounts' appropriations language, the enacted appropriation's general provisions include additional funding, rescissions, and/or policy changes. These are summarized in this report. President's FY2018 Budget Request Table 1 compares the enacted funding to the House- and Senate-reported bills, prior years' enacted funding, and the President's FY2018 budget request. The President's budget request includes the Administration's forecast for programs with open-ended funding such as SNAP and the child nutrition programs; this assists the appropriations committees in providing funding levels expected to meet obligations. The budget also includes the Administration's requests for discretionary programs. Additionally, it is a place for the Administration to include legislative requests. The FY2018 request did include SNAP legislative proposals. Most significantly for the FNS programs, the President's FY2018 budget request did the following: It included eight legislative proposals pertaining to SNAP. The majority of these would have restricted SNAP eligibility and made changes to the benefit calculation. The request also proposed to require states to share the cost of SNAP benefits and to require retailers applying to accept SNAP benefits to pay a fee. Together, these proposals were estimated by both the Administration and Congressional Budget Office (CBO) to reduce program spending in FY2018 and over the 10-year budget window. None of these policies were enacted as part of the FY2018 appropriation. Related policies were debated in the formulation of the 2018 farm bill. It requested no funding for the WIC Farmers' Market Nutrition Program, a program that had received consistent discretionary funding in past years (see " Commodity Assistance Program "). Domestic Food Assistance Appropriations Accounts and Related General Provisions Office of the Under Secretary for Food, Nutrition, and Consumer Services For the Under Secretary's office, the enacted FY2018 appropriation provides approximately $0.8 million. This office received approximately equal funding in FY2017. The enacted appropriation (§740) continues to require the coordination of FNS research efforts with USDA's Research, Education and Economics mission area. This is to include a research and evaluation plan submitted to Congress. Section 750 of the enacted appropriation prohibits state Electronic Benefit Transfer (EBT) contractors and subcontractors from charging fees for switching or routing USDA benefit transactions. All states use EBT systems for SNAP, and most use them for WIC. The provision defines switching fees as "the routing of an intrastate or interstate transaction that consists of transmitting the details of a transaction electronically recorded through the use of an electronic benefit transfer card in one State to the issuer of the card that may be in the same or different state." In the past, these fees have at times been charged to retailers and/or those routing transactions on behalf of retailers, increasing these entities' costs. The prohibition is in place from the date of enactment through the end of FY2019. SNAP and Other Programs under the Food and Nutrition Act Appropriations under the Food and Nutrition Act (formerly the Food Stamp Act) support (1) SNAP (and related grants); (2) a nutrition assistance block grant for Puerto Rico and nutrition assistance block grants to American Samoa and the Commonwealth of the Northern Mariana Islands (all in lieu of SNAP); (3) the cost of food commodities as well as administrative and distribution expenses under the Food Distribution Program on Indian Reservations (FDPIR); (4) the cost of commodities for TEFAP, but not administrative/distribution expenses, which are covered under the Commodity Assistance Program budget account; and (5) Community Food Projects. The enacted appropriation provides approximately $74.0 billion for programs under the Food and Nutrition Act. This FY2018 level is approximately $3.2 billion less than FY2017 appropriations. This difference is largely due to a forecasted reduction in SNAP participation. The enacted appropriation provides $3 billion for the SNAP contingency reserve fund. The SNAP account also includes mandatory funding for TEFAP commodities. The enacted appropriation provides nearly $290 million, according to the terms of the Food and Nutrition Act. This is less funding (-$26.5 million, -8.3%) than the $316.0 million provided in FY2017. (TEFAP also receives discretionary funding for storage and distribution costs, as discussed later in " Commodity Assistance Program .") SNAP Account: Other General Provisions and Committee Report Language SNAP-Authorized Retailers. The FY2017 appropriations law limited USDA's implementation of December 2016 regulations regarding SNAP retailers' inventory requirements, and the enacted FY2018 appropriation (§728) continues those limits. Only SNAP-authorized retailers may accept SNAP benefits. On December 15, 2016, FNS published a final rule to change retailer requirements for SNAP authorization. The final rule would have implemented the 2014 farm bill's changes to inventory requirements for SNAP-authorized retailers ( P.L. 113-79 , §4002). Namely, the 2014 farm bill increased both the varieties of "staple foods" and the perishable items within those varieties that SNAP retailers must stock. In addition to codifying the farm bill's changes, the final rule would have changed how staple foods are defined, clarified limitations on retailers' sale of hot foods, and increased the minimum number of stocking units. Section 728 in the enacted appropriation continues to require that USDA amend its final rule to define "variety" more expansively and that USDA "apply the requirements regarding acceptable varieties and breadth of stock" that were in place prior to P.L. 113-79 until such regulatory amendments are made. In the meantime, USDA-FNS has implemented other aspects of the final rule, such as increased stocking units. Child Nutrition Programs16 Appropriations under the child nutrition account fund a number of programs and activities authorized by the Richard B. Russell National School Lunch Act and the Child Nutrition Act. These include the National School Lunch Program (NSLP), School Breakfast Program (SBP), Child and Adult Care Food Program (CACFP), Summer Food Service Program (SFSP), Special Milk Program (SMP), assistance for state administrative expenses, procurement of commodities (in addition to transfers from separate budget accounts within USDA), state-federal reviews of the integrity of school meal operations ("Administrative Reviews"), "Team Nutrition" and education initiatives to improve meal quality and food safety, and support activities such as technical assistance to providers and studies/evaluations. (Child nutrition efforts are also supported by permanent mandatory appropriations and other funding sources discussed in the section " Other Nutrition Funding Support .") The enacted FY2018 appropriation provides approximately $24.3 billion for child nutrition programs. This is approximately $1.5 billion more (+6.4%) than the amount provided in FY2017, and reflects a transfer of over $8.9 billion from the Section 32 account. The enacted appropriation funds certain child nutrition discretionary grants. These include the following: School Meals Equipment Grants. The law provides $30 million, $5 million more than was provided in FY2017. Summer EBT (Electronic Benefit Transfer) Demonstration Projects. These projects provide electronic food benefits over summer months to households with children in order to make up for school meals that children miss when school is out of session and as an alternative to Summer Food Service Program meals. The projects were originally authorized and funded in the FY2010 appropriations law ( P.L. 111-80 ). The enacted appropriation provides $28 million, a $5 million increase from FY2017. The child nutrition programs and WIC were up for reauthorization in 2016, but it was not completed. Many provisions of the operating law nominally expired at the end of FY2015, but nearly all operations continued via funding provided in appropriations laws since that time, including the enacted FY2018 appropriation. The enacted appropriation also continued to extend, through September 30, 2018, two expiring provisions: mandatory funding for an Information Clearinghouse and USDA's food safety audits. Child Nutrition Programs: General Provisions General provisions in the enacted FY2018 appropriation included additional funding for child nutrition programs: Farm to School Grants. Section 763 of the enacted appropriation provides $5 million for competitive grants to assist schools and nonprofit entities in establishing farm-to-school programs. The same amount was provided in FY2017. This is in addition to $5 million in permanent mandatory funding (provided annually by Section 18 of the Richard B. Russell National School Lunch Act), for a total of $10 million available in FY2018. School Personnel Training . Section 755 of the enacted appropriation provides $2 million for "allied professional associations to develop a training program for school nutrition personnel that focuses on school food service meal preparation and workforce development." This was not included in FY2017 appropriations. FY2018 general provisions also included policy provisions : Processed Poultry from China. The enacted appropriation includes a policy provision (§728) to prevent any processed poultry imported from China from being included in the National School Lunch Program, School Breakfast Program, Child and Adult Care Food Program, and Summer Food Service Program. This policy has been included in enacted appropriations laws since FY2015. Certain Types of Discrimination in the School Meals Programs. 20 The enacted appropriation includes a provision (§768) that prohibits USDA from using the appropriated funds in a way that violates specific federal statute and regulations that bar discrimination against children eligible for free or reduced-price (F/RP) meals and prohibit certain stigmatizing practices. Specifically, the referenced statute and regulations prohibit schools from physically segregating F/RP-eligible children (e.g., through separate lunch lines) and overtly identifying children using special tokens, tickets, lists of names, or other means. The regulations also prohibit schools from making F/RP-eligible children work in exchange for food or providing different types of food to these children. Paid Lunch Equity. For school year 2018-2019, Section 775 of the enacted appropriation changes federal policy on the pricing of paid (full-price) meals. Included in the 2010 child nutrition reauthorization, and first implemented in the 2011-2012 school year, this policy required schools annually to review their revenue from paid lunches and to determine, using a calculation specified in law and regulation, whether paid prices had to be increased. The purpose of the calculation was to ensure that federal funding intended for F/RP meals was not instead subsidizing full-price meals. For school year 2018-2019, the enacted appropriation requires a smaller subset of schools—only those with a negative balance in their nonprofit school food service account as of January 31, 2018—to be subject to this calculation and potentially to be required to raise prices. WIC Program30 Although WIC is a discretionary funded program, since the late 1990s the practice of the appropriations committees has been to provide enough funds for WIC to serve all projected participants. The enacted FY2018 appropriation provides $6.175 billion for WIC; however, the law also rescinds available carryover funds from past years. This funding level is $175 million less than the FY2017 appropriation. The enacted appropriation also includes set-asides for WIC breastfeeding peer counselors and related activities ("not less than $60 million") and infrastructure ($14.0 million). These set-asides are approximately equal to FY2017 levels. In addition, the appropriation sets aside $25 million for WIC's contingency fund; these reserve funds are to remain available until expended. The enacted appropriation (§724) rescinds $800 million in prior-year (or carryover) WIC funds (reflected in Table 1 ). Both reported bills would also have rescinded carryover funds: H.R. 3268 (§741) would have rescinded $600 million; S. 1603 (§741) would have rescinded $800 million. The enacted appropriation's explanatory statement indicates that "the agreement fully funds estimated WIC participation in fiscal year 2018." Commodity Assistance Program The Commodity Assistance Program budget account supports several discretionary programs and activities: (1) Commodity Supplemental Food Program (CSFP), (2) funding for TEFAP administrative and distribution costs, (3) the WIC Farmers' Market Nutrition Program (FMNP), and (4) special Pacific Island assistance for nuclear-test-affected zones in the Pacific (the Marshall Islands) and areas affected by natural disasters. The enacted appropriation provides over $322 million for this account, an increase of $7 million compared to FY2017. The increase is for CSFP (+$14 million) and TEFAP administrative costs (+$5 million). In addition to this discretionary TEFAP funding, the law allows the conversion of up to 15% of TEFAP mandatory commodity funding (included in the SNAP account discussed above) to administrative and distribution costs. The law keeps WIC FMNP at the FY2017 level, though the President's budget requested no funding for this program. Nutrition Programs Administration This budget account funds federal administration of all the USDA domestic food assistance program areas noted previously; special projects for improving the integrity and quality of these programs; and the Center for Nutrition Policy and Promotion, which provides nutrition education and information to consumers (including various dietary guides). The enacted appropriation provides nearly $154 million for this account, a decrease of approximately $17 million from FY2017. As in FY2017 and prior years, the law sets aside $2 million for the fellowship programs administered by the Congressional Hunger Center. Other Nutrition Funding Support Domestic food assistance programs also receive funds from sources other than appropriations: USDA provides commodity foods to the child nutrition programs using funds other than those in the child nutrition account. These purchases are financed through post-transfer "Section 32" funds. For example, about $465 million out of a total of $1.9 billion in entitlement commodity support for the National School Lunch Program in FY2017 came from outside the child nutrition account. The Fresh Fruit and Vegetable Program (FFVP) for selected elementary schools nationwide is financed with permanent, mandatory funding. The underlying law (Section 19 of the Richard B. Russell National School Lunch Act) provides funds at the beginning of every school year (July). In FY2017 and prior years, appropriations laws have delayed a portion of the funds (generally $125 million) to the start of the next fiscal year (October 1). In the FY2018 appropriations law, this delay was not included, so for FY2018 USDA received both the full amount for the fiscal year ($172 million) on July 1, 2018, and $125 million that FY2017 appropriations had delayed until October 1, 2017. Therefore, funding for FFVP in FY2018 is higher than in previous fiscal years. The Food Service Management Institute (technical assistance to child nutrition providers, also known as the Institute of Child Nutrition) is funded through a permanent annual appropriation of $5 million. The Senior Farmers' Market Nutrition program receives nearly $21 million of mandatory funding per year (FY2002-FY2018) outside of the regular appropriations process.

The Consolidated Appropriations Act, 2018 (P.L. 115-141) was enacted on March 23, 2018. This omnibus bill included appropriations for the U.S. Department of Agriculture (USDA), of which USDA's domestic food assistance programs are a part. Prior to its enactment, the federal government had continued to operate for the first six months of the fiscal year under continuing resolutions (CRs). This report focuses on the enacted appropriations for USDA's domestic food assistance programs and, in some instances, policy changes provided by the omnibus law. CRS Report R45128, Agriculture and Related Agencies: FY2018 Appropriations provides an overview of the entire FY2018 Agriculture and Related Agencies portion of the law as well as a review of the reported bills and CRs preceding it. Domestic food assistance funding is primarily mandatory but also includes discretionary funding. Most of the programs' funding is for open-ended, appropriated mandatory spending—that is, terms of the authorizing law require full funding and funding may vary with program participation (and in some cases inflation). The largest mandatory programs include the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) and the child nutrition programs (including the National School Lunch Program and School Breakfast Program). Though their funding levels are dictated by the authorizing law, in most cases, appropriations are needed to make funds available for obligation and expenditure. The three largest discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Commodity Supplemental Food Program (CSFP); and federal nutrition program administration. The domestic food assistance funding is, for the most part, administered by USDA's Food and Nutrition Service (FNS). The enacted FY2018 appropriation provides nearly $105 billion for domestic food assistance (Table 1). This is a decrease of approximately $3.2 billion from FY2017. Declining participation in SNAP is responsible for most of the difference. Over 95% of the FY2018 appropriations for domestic food assistance are for mandatory spending. Highlights of the associated appropriations accounts are summarized below. For SNAP and other programs authorized by the Food and Nutrition Act, such as The Emergency Food Assistance Program (TEFAP) commodities, the FY2018 appropriations law provides approximately $74.0 billion. Certain provisions of the law affect SNAP policies. For example, it continues a policy in the FY2017 appropriations law that limited USDA's implementation of December 2016 regulations regarding SNAP retailers' inventory requirements. USDA must amend its final rule to define "variety" more expansively and must "apply the requirements regarding acceptable varieties and breadth of stock." For the child nutrition programs (National School Lunch Program and others), the enacted law provides approximately $24.3 billion. This includes discretionary funding for school meals equipment grants ($30 million) and Summer Electronic Benefit Transfer (EBT) demonstration projects ($28 million). General provisions provide an additional $5 million for farm-to-school grants and $2 million for training school nutrition personnel. The law includes policy provisions related to processed poultry from China, discrimination in the school meals programs, and requirements for schools' paid lunch pricing. For the WIC program, the law provides nearly $6.2 billion while also rescinding $800 million in prior-year carryover funding. For the Commodity Assistance Program account, which includes funding for the Commodity Supplemental Food Program, TEFAP administrative and distribution costs, and other programs, the law provides over $322 million. It provides level funding for the WIC Farmers' Market Nutrition Program ($18.5 million), though the President's budget requested no funding for this program. For Nutrition Programs Administration, the law provides nearly $154 million.

Introduction and Background In the 111 th Congress, H.R. 2499 , introduced by Representative Pedro Pierluisi, would have established procedures to determine Puerto Rico's political status. It would have authorized a two-stage plebiscite in Puerto Rico to reconsider the status issue. H.R. 2499 was similar to H.R. 900 as introduced in the 110 th Congress. A possible outcome of this process is Puerto Rican statehood. If Puerto Rico's citizens vote in favor of statehood in the series of plebiscites as outlined in H.R. 2499 , then Puerto Rico would, most likely, be entitled to five Representatives in the House of Representatives as well as two United States Senators. If the size of the House remains fixed at the legally mandated 435-seat limit, then five states would likely have one fewer Representative than they would have had if Puerto Rico had not become a state. Another option that the House could choose, given the entrance of another state, is to increase the size of the House. Apportionment Options When Admitting New States Congressional Precedent General congressional practice when admitting new states to the union has been to increase the size of the House, either permanently or temporarily, to accommodate the new states. New states usually resulted in additions to the size of the House in the 19 th and early 20 th centuries. The exceptions to this general rule occurred when states were formed from other states (Maine, Kentucky, and West Virginia). These states' Representatives came from the allocations of Representatives of the states from which the new ones had been formed. When Alaska and Hawaii were admitted in 1959 and 1960 the House size was temporarily increased to 437. This modern precedent differed from the state admission acts passed following the censuses in the 19 th and early 20 th centuries, which provided that new states' representation would be added to the apportionment totals. Table 1 lists the number of seats each state has received after each census, and the notes show the initial seat assignments to states admitted between censuses. The apportionment act of 1911 anticipated the admission of Arizona and New Mexico by providing for an increase in the House size from 433 to 435 if the states were admitted. And, as noted above, the House size was temporarily increased to 437 to accommodate Alaska and Hawaii in 1960. In 1961, when the President reported the 1960 census results and the resulting reapportionment of seats in the reestablished 435-seat House, Alaska was entitled to one seat, and Hawaii two seats. Massachusetts, Pennsylvania, and Missouri each received one less seat than they would have if the House size had been increased to 438 (as was proposed by H.R. 10264, in 1962). Puerto Rican Statehood Apportionment Options If Puerto Rico were admitted to statehood between censuses, Congress would have at least three options for handling the five Representatives the new state would be entitled to under the current apportionment formula using the 2010 apportionment figures: (1) subtract seats from states that would have lost them if Puerto Rico had been admitted before the previous census; (2) temporarily increase the size of the House until the next census; or (3) permanently increase the size of the House. The first option, subtracting seats from other states, has only been done by Congress when new states were formed from existing states. If Puerto Rico were to be given statehood after 2012, then this would require the losing states to redraw the new, 2012 district boundaries in their states to account for these losses. The second option, temporarily increasing the House size, has only been done once, in the Alaska and Hawaii precedent. The third option, permanently increasing the House size (probably to 440), was the procedure commonly used in the 19 th and early 20 th centuries. House Apportionment If Puerto Rico Became a State, Post-2010 What would the apportionment of the House of Representatives look like if Puerto Rico were to become the 51 st state? The most recent population figures for the states are from the 2010 Census and are displayed in Table 2 , below. One complicating factor concerns the overseas military and federal employees and their dependents. The state figures used in apportioning seats in the House of Representatives are based on the sum of the each state's resident population and the number of persons included in the overseas military and federal employees and their dependents who designate the state as their state of residency (i.e., where they would return to when their tour of duty was completed). The total figure for this number in the 2010 apportionment process was 1,039,648 for all 50 states. However, as Puerto Rico was not a state and was not apportioned seats based on its population, no figure for the overseas population for Puerto Rico was produced. Consequently, only the total 2010 resident population for Puerto Rico is used in Table 2 . Potential Impact of Puerto Rican Statehood on the 2010 Apportionment Table 2 shows two comparisons. First, the 2010 apportionment of the House of Representatives is shown both without and with Puerto Rico's resident population included. As can be seen, when Puerto Rico is included as the 51 st state, it is allocated five seats in the House of Representatives. Without Puerto Rican statehood, California, Florida, Minnesota, Texas, and Washington would have been allocated the last five seats rather than Puerto Rico. It is fairly clear that with a population of almost 4 million people, Puerto Rico's statehood would have an impact on the apportionment process unless the size of the House is increased. The second comparison, and the more involved, is between the current allocation of seats based on the 2000 Census population and the allocation of the 2012 seats based on the, just released, 2010 apportionment population figures. Examining the "winners" and "losers" with respect to the change between 2000 and 2010, several points are worth noting. First, Arizona, Georgia, Nevada, South Carolina and Utah will all gain a seat relative to the current allocation, regardless of the statehood status of Puerto Rico. Second, Florida will gain two seats relative to its current status, but if Puerto Rico became a state Florida would only gain one seat. Similarly, Texas will gain four seats relative to its current status, but would only gain three seats if Puerto Rico were to become a state. Third, Washington will gain a seat relative to its current status, but if Puerto Rico were to become a state, Washington remains at its 2000 allocation of House seats. Fourth, Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania will each lose a seat relative to their current allocation of House seats, regardless of the status of Puerto Rico. Similarly, New York and Ohio will each lose two seats relative to their current allocation, regardless of the status of Puerto Rico. Fifth, California and Minnesota will lose a seat if Puerto Rico were to become a state, but will retain the same number of seats relative to its current allocation of House seats if Puerto Rico does not become a state. Increasing the Size of the House and the Tradition of a 435-Seat House The strong 20 th century tradition that the total number of Representatives in the House of Representatives should total 435 Members might prevent an increase in the House size should Puerto Rico be admitted to statehood. The U.S. Constitution (Article I, Section 2) requires that "Representatives shall be apportioned among the several states according to their respective numbers, counting the whole number of persons in each state." The requirement that districts must be apportioned among states means that district boundaries cannot cross state lines. The Constitution also sets a minimum size for the House of Representatives (one Representative for every state) and a maximum size for the House (one Representative for every 30,000 persons). Congress is free to choose a House size within these parameters by changing the relevant law. Thus, the House size of 435 may be altered by changing statutory law rather than by enacting a constitutional amendment. Based on the 2010 apportionment population of 309,183,463 from Table 2 above, the House could be as large as 10,306 Representatives (based on the constitutional maximum of one Representative for every 30,000 persons). Statehood for Puerto Rico would raise the maximum to 10,430 Members. The House size was increased in every decade except one in the 19 th century to accommodate the growth of the country's population, but the permanent increases stopped after the 1910 census, when the House reached 435 Members. As noted previously, the House size was increased temporarily to 437 in 1960, to accommodate the admission of Alaska and Hawaii as states, but the total went back to 435 in 1963, with the new reapportionment following the 1960 census. Although one cannot say for sure why the House size has not been permanently increased since the 1910 census, the arguments most often raised center on efficiency and cost. Proponents of the status quo suggest that a larger House would work less efficiently and at greater cost, due to Member and staff salaries and allowances. Proponents of increasing the House size often argue that other legislative bodies seem to work well with larger memberships, and less populous districts might give minorities greater representation in Congress. Since 1940, the average population of a congressional district has more than doubled (from 303,827 in 1940 to 710,767 in 2010).

For years, the people of the Commonwealth of Puerto Rico have been involved in discussions relating to changing the political status of Puerto Rico from a commonwealth of the United States to either the 51st state or an independent nation, or maintaining the status quo as a commonwealth. In the 111th Congress, H.R. 2499, introduced by Representative Pedro Pierluisi, would have established procedures to determine Puerto Rico's political status. It would have authorized a two-stage plebiscite in Puerto Rico to reconsider the status issue. H.R. 2499 was similar to H.R. 900 as introduced in the 110th Congress. A possible outcome of this process is Puerto Rican statehood. Proposals to change Puerto Rico's governmental relationship with the United States from a commonwealth to some other model raise many political, social, and economic issues. This report focuses exclusively on what impact adding a new state that is more populous than 22 of the existing 50 states would have on representation in the House of Representatives. Statehood for Puerto Rico would likely cause Congress to explore whether the current limit of 435 seats in the House of Representatives should be changed. If Puerto Rico had been a state when the 2010 census was taken, it would have been entitled to five Representatives based on its 2010 census population of 3.7 million residents. If the House were faced with the addition of five new Representatives, it could accommodate them either by expanding the size of the House or adhering to the current 435-seat statutory limit, which would reduce the number of Representatives in other states.

Introduction Title I of the Rehabilitation Act of 1973, as amended, recognizes that individuals with disabilities face high levels of unemployment and poverty and authorizes the federal government to make grants available to states and territories for the purpose of providing vocational rehabilitation (VR) services to persons with disabilities to prepare for and engage in gainful employment. VR grants are administered by the Rehabilitation Services Administration (RSA), an agency of the Department of Education (ED), and can be used by designated state or territorial agencies to provide customized supports and services to persons with disabilities with the goal of providing these persons increased opportunities to secure competitive employment and self-sufficiency. States and territories may establish a single VR agency (referred to as a combined agency) or establish separate agencies to handle persons with general disabilities and persons with blindness. States and territories are required to match a portion of their federal grants and contribute 21.3% of the total cost of providing VR services. In FY2005, states and territories spent more than $1.7 billion on VR services. In 2005, state and territorial VR agencies worked with nearly 1.4 million clients and helped more than 206,000 persons with disabilities achieve employment. The authorization for VR grants to states and territories expired at the end of FY2003 and Congress has continued to make capped appropriations to fund the program under the provisions of an extension clause in the law. The House of Representatives and Senate each passed bills to reauthorize the VR program in both the 108 th and 109 th Congresses, however, these efforts did not become law. There was no action taken on the reauthorization of the VR program in the 110 th Congress, but a supplemental appropriation for the program was included in the American Recovery and Reinvestment Act of 2009 in the 111 th Congress. This report provides an overview of the VR program, including discussions on the eligibility for VR services, the types of services provided by state and territorial VR agencies, and the requirements concerning state plans and fund-matching requirements that states and territories must meet in order to qualify for federal grants. This report also discusses the current authorization for VR grants and recent legislative attempts to extend this authorization. In addition, it describes the formula used to determine each state and territory's allotment of VR funds. Also included is a discussion of a recent Government Accountability Office (GAO) study that highlights several problems stemming from the current formula, including its lack of accounting for (1) populations of individuals with disabilities, (2) differences in the costs of administering VR services, (3) the ability of states and territories to meet fund-matching requirements, and (4) issues related to the use of FY1978 allotments as a baseline. Finally, potential issues for the 112 th Congress are discussed. Individual Eligibility for Vocational Rehabilitation Services Section 102(a) of the Rehabilitation Act of 1973 establishes the requirements a person must meet in order to be eligible to receive VR services from a state or territorial agency. The requirements state that a person must be an individual with a disability and must also need VR services to become employed, stay employed, or return to previous employment. Definition of Disability A person is considered to be an individual with a disability for the purposes of eligibility for VR services if he or she (i) has a physical or mental impairment which for such individual constitutes or results in a substantial impediment to employment, and (ii) can benefit in terms of an employment outcome from vocational rehabilitation services pursuant to Title I, III, or VI (of the Rehabilitation Act of 1973). The definition of disability used by the VR program is different from that used by the Social Security disability programs. In order to receive VR services a person does not need to be eligible for, or have applied for, Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). However, Section 102(a)(3) of the Rehabilitation Act of 1973 specifies that any person receiving SSDI or SSI benefits shall be presumed to be eligible for VR services if he or she intends to pursue employment. Each state or territorial agency is responsible for determining the eligibility of applicants for VR services consistent with program rules specified in Section 102 of the act and in the Code of Federal Regulations (CFR). Order of Selection to Receive Services If a state or territorial VR agency feels that it will not have enough resources to provide services to all eligible persons with disabilities during a given fiscal year, then it must notify the RSA that it will implement an "Order of Selection" plan to determine which persons will have the first priority to receive services. Regulations require that the order of selection plan must ensure that persons with the "most significant disabilities" will be able to receive services before other eligible persons. Other persons not placed in the priority group may be placed on a waiting list but are not guaranteed services. A state or territorial agency is given a certain degree of latitude in determining how it will set up its order of selection system and neither the Rehabilitation Act of 1973 nor the CFR provide firm requirements on how agencies should determine which persons have the most significant disabilities. Although SSDI and SSI beneficiaries are presumed to be eligible for VR services, they may not be deemed to have the most significant disabilities by their state or territorial VR agency. In such a case, it would be possible for a state to deny VR benefits to persons receiving benefits from a Social Security disability program. If a SSDI or SSI recipient is a participant in the Ticket to Work program, but deemed not eligible for VR services because of an order of selection rule, he or she would not be able to use a Ticket to Work voucher to pay for VR services from a state or territorial agency and would be required to obtain services from a private sector employment network. States and territories may implement order of selection plans at the beginning of a fiscal year or during a fiscal year if it becomes likely that they will not be able to provide services to all eligible persons. For FY2009, 40 of the 80 state and territorial VR agencies are operating under order of selection procedures. The longest continuous order of selection is in Georgia, which first established its procedure in 1979. Table A -1 and Table A -2 , in Appendix A , provide the order of selection status for each of the 80 state and territorial VR agencies for FY2009. Of the 32 states and territories with combined VR agencies, 18, or 56%, are operating under an order of selection procedure. In addition, 16 of the 24 general VR agencies (67%) and six of the 24 agencies serving the blind (25%) have orders of selection in place. At the end of FY2007, 41,224 individuals were on waiting lists for VR services because of state and territorial orders of selection. There is wide variance in the size of state and territorial waiting lists. At the end of FY2007, six agencies operating under orders of selection had no waiting lists while the waiting list in Tennessee had almost 10,000 persons on it and there were 12,098 persons on the waiting list for services from the Washington general VR agency. Services Provided by Vocational Rehabilitation Agencies VR agencies provide a wide range of customized services to their clients. Agency staff work with each client individually to design a package of services that are intended to help the client achieve his or her employment goal. There is no master list of services that can or cannot be provided by VR agencies and no package of services that are provided to every client. Individualized Plan for Employment (IPE) The core of the VR service model is the Individualized Plan for Employment (IPE). Every client who receives services from a VR agency prepares an IPE with the assistance of agency staff. The IPE states the employment goal of the client as well as the specific services that the agency will provide to help the client reach his or her goal. Before an IPE can be created, staff of the VR agency perform an assessment of the client. This assessment looks at the factors that may affect the client's prospects for employment, including factors related to the client's disability, work history, and educational background. The assessment also identifies the client's specific needs that can be met by the VR agency. Although the staff of the VR agency provides assistance to the client in the preparation of the IPE, it is the client that has the final say on his or her employment goal and the services that he or she would like to be provided with. The staff member has the responsibility of providing the client with enough information about available jobs and services to assist the client in making an informed choice about his or her employment goal and service package. Clients may develop their own IPEs with the assistance of persons outside of the VR agency. However, the agency must approve all IPEs before services can be provided. The IPE is reviewed by the staff and the client at least once per year and changes are made if necessary. Section 102(b)(3) of the Rehabilitation Act of 1973 specifies that an IPE must include the following items: the specific employment outcome chosen by the client; the specific VR services that will be provided to the client; the time line for starting services and achieving the employment outcome; the specific entity, selected by the client, from which services will be obtained; the criteria that will be used to evaluate the progress made by the client; the responsibilities of the client, the VR agency, and other entities included in the IPE; the extended services that will be needed if the client is expected to need supported employment; and the projected need for post-employment services. Case Closure and Employment Outcomes An individual can exit the VR program, and the record can be closed, if an agency determines that he or she is ineligible for VR services; received services under an IPE but did not achieve an employment outcome; or is eligible for VR services but did not receive services under an IPE. VR agencies generally work with clients until their selected employment goals are met. A VR case is usually not considered closed until all of the following conditions have been met: the client has achieved the employment outcome specified in his or her IPE; the client has maintained the employment outcome for a period of at least 90 days; the client and the VR counselor meet after 90 days of employment and agree that the employment outcome is satisfactory; and the client is informed of the availability of post-employment services. For cases that resulted in employment outcomes in FY2005, clients received VR services for an average of 26.3 months. State Vocational Rehabilitation Plans and Matching Requirements State Plans To qualify for funding under the Rehabilitation Act of 1973, a state or territory must file a state plan with the Department of Education. This plan must designate the state or territorial agency that will provide VR services and must specify if a separate state agency will provide services to blind clients. A state or territory's order of selection plan must also be included as part of the state plan. The state plan must demonstrate how the state or territory will meet the specific requirements of Section 101 of the act, including requirements concerning program goals and evaluation, cooperation with other agencies, the IPE process, and the provision of VR services to qualified individuals. A state plan does not have to be submitted each year, but must be amended to reflect any changes in state VR policy. Matching Requirement Section 104 of the Rehabilitation Act of 1973 includes a requirement that states and territories that receive VR grants match a portion of their federal allotment with state or territorial funds. Section 7(14) of the act sets the federal share of VR funding at 78.7% and requires that states and territories provide the remaining 21.3% of VR funding. Authorization for Federal Funding of Vocational Rehabilitation Section 100(b)(1) of the Rehabilitation Act of 1973 authorizes Congress to make appropriations to DE for the purposes of providing VR grants to states and territories. For each year authorized, the appropriation for VR grants must be no lower than the previous year's appropriation increased by the percentage change in the Consumer Price Index for All Urban Consumers (CPI-U). This authorization expired at the end of FY2003. The mandatory minimum increase in appropriations is based on the change in the CPI-U reported in October of each year. The October CPI-U report is released in November of each year, a month after the beginning of the federal fiscal year. Therefore, the appropriation for a given fiscal year is based on the appropriation for the previous fiscal year increased by the change in the CPI-U reported for October of the second previous fiscal year. For example, the mandatory minimum appropriation for FY2003 was based on the appropriation for FY2002 increased by the change in the CPI-U between October 2000 and October 2001. Extension of Authorization Although the authorization for the VR appropriation expired at the end of FY2003, Section 100(d) of the Rehabilitation Act of 1973 includes a provision to automatically extend this authorization for years after the final authorized fiscal year if Congress has not amended the act to extend the authorization. Under the provisions of this extension, the appropriations for VR grants are capped at the amount appropriated in the previous fiscal year increased by the percentage change in the CPI-U using the same method outlined above. Effect of the Extension of Authorization on Appropriations The extension of authorization provision sets a cap on the amount Congress can appropriate to DE for VR state grants until the act is reauthorized. Appropriations under this provision are capped at the previous year's level increased by the change in the CPI-U. This funding cap went into effect with the expiration of the VR authorization at the end of FY2003 and was first part of the appropriations process for FY2004. Figure 1 and Figure 2 show the appropriations and change from the previous fiscal year for the period FY2001 through FY2010. Because the authorization is under extension beginning in FY2004, appropriations after FY2003 are capped at the rate of the increase in the CPI-U. Because the funding in years prior to the extension of budget authority was at the minimum level of increase, the cap placed on appropriations by the expiration of the funding authority at the end of FY2003 has not had any practical impact on the overall funding level of the VR program. Indeed, Figure 1 also illustrates that when adjusting for inflation, funding for the VR has remained relatively flat over the past decade. Recent Legislative Activity to Extend the Authorization for Vocational Rehabilitation Appropriations Both the House of Representatives and the Senate passed bills in the 108 th and 109 th Congresses that would have, if enacted, extended the authorization for appropriations for VR state grants. These bills were part of larger packages of legislation that would have made technical changes to the VR program and re-authorized the Workforce Investment Act of 1998. In the 108 th Congress, H.R. 1261 , the Workforce Investment Act Amendments of 2003, would have extended the authorization for VR state and territorial grants until the end of FY2009. This bill was passed by the House on May 8, 2003, and by the Senate on November 14, 2003, with the bills differing in areas not related to VR. A conference committee was appointed to resolve the differences in the two versions of the bill but no conference report was issued and the bill was not considered for final passage into law. In the 109 th Congress, H.R. 27 , the Job Training Act of 2005, would have extended the authorization for the VR program until the end of FY2011 and was passed by the House on March 2, 2005. S. 1021 , the Workforce Investment Act Amendments of 2005, was incorporated into H.R. 27 as an amendment in the nature of a substitute and the amended version of H.R. 27 was passed by the Senate on June 29, 2006, which would have extended the authorization for appropriations for VR until the end of FY2011. The House and Senate bills in the 109 th Congress largely differed on matters unrelated to VR and no conference committee was ever formed. A final version of these bills was not passed by the 109 th Congress. No bills to extend VR appropriations were introduced in the 110 th or the 111 th Congress; however, the Recovery Act provided a supplemental appropriation of $540 million to improve employment outcomes for individuals with disabilities. FY2011 Budget Request As part of a proposal to reauthorize the Workforce Investment Act (WIA), the President's FY2011 request includes provisions for consolidating several programs authorized under the Rehabilitation Act. According to the budget proposal, the proposed consolidations would reduce duplication and administrative costs and improve program management, accountability, and the provision of rehabilitation and independent living services. Vocational Rehabilitation Allotment Formula Sections 8 and 110 of the Rehabilitation Act of 1973 provide a formula to be used by the RSA in determining each state and territory's allotment of appropriated VR funds. This allotment formula does not take into account a state or territory's population of individuals with disabilities, or the employment rate of a state or territory's VR clients. Rather, the formula is based on the following three factors: the state or territory's VR allotment in FY1978; the state's current per capita income as compared to the national per capita income; and, the state or territory's current population. A two-step process is used to determine each state and territory's VR allotment. In the first step, the Allotment Percentage is determined using the formula specified in Section 8 of the act. In the second step, this allotment percentage is used in a formula specified in Section 110 of the act to determine the Final Allotment for each state and territory. Step 1. Determine A State's Allotment Percentage Each state is assigned an allotment percentage that is used in Step 2 of the allotment formula. In general, the larger a state's allotment percentage, the larger its final allotment of VR funds will be. A state with a larger per capita income relative to other states will have a smaller allotment percentage. This formula is not used for territories or the District of Columbia. The allotment percentage for these jurisdictions is set at 75%. No state may have an allotment percentage less than 33% or greater than 75%. If a state's allotment percentage falls outside of these boundaries, it is automatically increased to 33% or decreased to 75% as necessary. Each state's allotment percentage is calculated only in even numbered years and is current for that year and the following year. A state's per capita income as compared with the national per capita income has an inverse relationship to the final allotment. The higher a state's per capita income as compared with the national per capita income, the lower its final allotment of VR funds. Step 2. Determine the Final Allotment In Step 2, the formula uses the allotment percentage and a squared term of the allotment percentage calculated in Step 1. The Ex cess A mount is the difference between the total appropriation for the current fiscal year and the total appropriation for FY1978. Step 2 also uses annual population estimates for states and territories, as calculated by the US Census Bureau. No state's final allotment can be less than one-third of 1% of the total amount appropriated for any given fiscal year, or $3 million, whichever is greater. If a state falls below this amount, its final allotment is increased to this level and the final allotments of all other states are decreased in proportion to their share of the total appropriation. A state or territory's VR allotment in FY1978 and its population both have a direct relationship to its current final allotment. States and territories that received larger allotments in FY1978 and states or territories with larger populations will receive larger allotments of VR funding. The VR allotment formula does not contain a year-over-year, hold harmless provision and it is possible that a state or territory could receive less in a given fiscal year than it did in a previous fiscal year. This occurred in FY2008, when Hawaii, Louisiana, Nevada, New York, and the Northern Mariana Islands saw their final allotments decrease from FY2007. That year, the reduction in funding for the Northern Mariana Islands and Louisiana was due to a drop in population, whereas Hawaii, Nevada, and New York saw their per capita incomes grow faster than the national average. The VR allotments for each state and territory for FY2009 can be found in Table B -3 in Appendix B . Reallotment Section 110(b) of the Rehabilitation Act of 1973 requires that the RSA commissioner determine each year if any state or territory will not be able to fully spend its VR allotment and then reallot this money to states that will be able to fully utilize these funds. This determination must be made no later than 45 days before the end of the fiscal year with the reallotment taking place as soon as is practical but not after the end of the fiscal year. There is no law or regulation governing how the RSA must reallot these funds. However, current RSA policy is to first make reallotments to those states and territories that did not see their original allotment increase by at least the increase in the CPI-U and then make any additional reallotments in accordance with the standard VR allotment formula. States must request a reallotment and must provide matching state funds according to the standard VR matching requirements that set the federal share at 78.7% and the state share at 21.3%. Money realloted to states and territories or money not expended after the reallotment period can be carried over into the next fiscal year. Analysis of the Vocational Rehabilitation Funding Formula A state or territory's VR allotment is based on its allotment in 1978, its per capita income, and its population. The size of a state or territory's population of individuals with disabilities, the varying costs of providing VR services, the ability of a state or territory to match allotted funds, and high population growth in certain states and territories are not fully factored into determining how much money a state or territory will have available for VR services. GAO Assessment of the Funding Formula In 2009, the Government Accountability Office (GAO) completed an investigation into the VR formula. The study concluded that the formula fell short of allocating grant funds to states and territories in an equitable manner, based on the following four issues: First, general population estimates do not accurately reflect a state or territory's actual population of individuals with disabilities. As a result, funding allotments are disproportionate to the size of a state or territory's caseload for VR services. Second, the current funding formula does not account for differences in the costs of providing VR services across states and territories. Third, the current funding formula does not account for a state or territory's ability to pay its share of the funding and, as a result, unspent funds are frequently returned to the RSA for reallotment. Fourth, the current formula's use of a state or territory's 1978 allotment as a baseline lessens the impact of a state's population on its allotment and tends to negatively affect states with large population growth since 1978. General Population Estimates Do Not Accurately Reflect a State or Territory's Population of Individuals with Disabilities The current VR formula uses annual population estimates from the Census Bureau as a factor in distributing grants to states and territories. The use of this figure falsely assumes that the working-aged population of individuals with disabilities is proportionately distributed across states and territories. For example, some states and territories may have large general populations, but a relatively low proportion of individuals with disabilities. Conversely, other states and territories may have smaller general populations, but a relatively high proportion of individuals with disabilities. For example, according to the GAO, New Mexico had a slightly larger population than West Virginia (2 million compared with 1.8 million) in 2007, and as result would have received equal treatment for funding under the "population" component of the current formula. However, nearly 13% of West Virginia's working-aged adult population is composed of individuals with disabilities, compared with 8.7% of New Mexico's population. Presumably, the size of a state or territory's population of individuals with disabilities serves as a proxy for the number of individuals who will potentially seek VR services. The use of general population estimates—rather than estimates of the population of individuals with disabilities—has resulted in an allocation of grants that does not take this specific sub-population into account. Because neither the size of a state or territory's caseload nor the population of individuals with disabilities is part of the allotment formula, state and territorial VR agencies are often unable to provide services for persons that seek them. Currently, half of all state VR agencies are operating under orders of selection which require that they establish waiting lists for vocational services and provide services to persons determined to have the most significant disabilities (see Table A -1 and Table A -2 in Appendix A ). More than 41,000 persons with disabilities seeking VR services are currently waiting on these lists. The Formula Does Not Account For Differences in the Costs of Providing Services Across States and Territories The current VR formula fails to account for differences in the cost of providing services across states and territories. For example, using a basic measure of "service costs" that estimates the average price of wages for labor and rent for office space (essential components of a service agency) across the 50 states, GAO demonstrates, for instance, that the cost of providing VR services in Idaho would be 24% less expensive than the cost of providing similar services in Massachusetts. This suggests that states that have higher costs are unable to provide the same level of services, dollar-for-dollar, as compared with states with lower costs. For example, based on the FY2008 allotments, GAO estimates that the western coastal states of Washington, Oregon, California, and Nevada spent less than $115 for each individual with a disability in the VR program, compared with the $129-$150 that the southeastern coastal states of Florida, Georgia, and North Carolina (where rent and labor expenses are lower) spent on their clients. Figure 3 illustrates the estimated ranges of FY2008 grant allotments, per working-aged person with a disability, adjusted for the costs of wages and rents between states. The Formula Does Not Take Into Account a State or Territory's Ability to Pay its Share of the Match The current VR allotment formula does not take into account a state or territory's ability or willingness to match the federal grant with state or territorial funds as required by law. As a result, states and territories that for political or economic reasons are not able to contribute the required 21.3% of total VR funding must return some of their federal funding to the RSA for reallotment. The Senate Committee on Health, Education, Labor and Pensions has recognized this as a problem with the current formula stating in its report on S. 1021 in the 109 th Congress: Yearly, States return millions of Federally appropriated dollars to carry out vocational rehabilitation services program under Subtitle A to the Department of Education to redistribute, as they were unable to match the allotted funds with State dollars. As shown in Table C -1 of Appendix C , since 2003, states and territories have returned more than $184 million in federal VR funds to the RSA for reallotment. This amount is just under 1% of the total federal funding for VR state and territorial grants during this period. The current VR funding formula uses per capita income as a factor in determining fund distribution. Generally, states with a per capita income that is lower than the national average receive a greater portion of funds. However, states with lower per capita income may also be the least likely to have the financial resources needed to match the additional funds that are allotted. The Formula's 1978 Baseline Negatively Affects States With Population Growth Since the Mid-1970s A unique feature of the VR allotment formula is its use of a state's 1978 allotment as a baseline for all current and future allotments. Although the formula also considers a state's per capita income and population, these variables only affect a state's share of the excess amount —the difference between the total appropriations for the current fiscal year and the total appropriations for FY1978. For FY2009, the excess amount makes up approximately 74% of the total VR appropriation meaning that about 26% of the total appropriation is not affected by the allotment formula but rather is distributed to match each state and territory's FY1978 allotment. To analyze the impact of the 1978 baseline on the VR allotment formula, each state and territory's FY2009 allotment is estimated using a modified formula that does not take into account a state or territory's allotment in FY1978. Table D -1 , in Appendix D shows each state and territory's estimated allotment for FY2009 under this modified formula and the difference between these amounts and the actual allotments. This modified allotment is calculated by multiplying a state's share of the excess amount by the total appropriation for FY2009. In this table, states with positive differences between their actual and modified allotments are benefitting from the current formula and its use of the FY1978 allotment as a baseline while states with negative differences are not benefitting from this formula. An analysis of the modified allotment formula as compared with the actual FY2009 state allotments shows that states with the largest increases in population from 1976 to 2007 also had the largest reductions due to the use of the FY1978 baseline to actual allotments. Arizona, the state with the second-largest population growth, also had the largest difference in allotments. Of the seven states with the largest differences in allotments, four were also among the top five states in population growth. Statistical analyses of the data show a strong and significant negative correlation between a state's rate of population growth since 1976 and the difference between its FY2009 allotment and its modified allotment. These negative correlations suggest that states with large increases in population since the mid-1970s have the largest differences between their actual and modified allotments under the current allotment formula. This analysis also suggests that the current VR allotment formula does not adequately account for population changes, such as migrations to the southern and western states during this period. Additional Analysis of the Vocational Rehabilitation Formula Rehabilitation advocates have also raised several issues of concern with the current VR allotment formula. Advocacy groups have consistently called for changes in the formula, and have been particularly concerned with the following issues: First, the increase in the CPI-U that affects the total appropriation is not always passed on to each state or territory. As a result, some states and territories do not receive an increase in funding to keep pace with increased costs due to inflation. Second, the current funding formula does not account for a state's success at rehabilitating and returning clients to work. The Increase in the CPI-U is Not Always Passed Along to the States and Territories As shown in Table B -1 and Table B -2 of Appendix B , increases in the total federal appropriation for VR grants are meant to keep pace with price inflation as reflected by the CPI-U. However, although the total appropriation for VR grants increases each year to reflect higher prices, this increase does not necessarily translate to an increase for individual states and territories. There is no hold harmless provision in the law that guarantees that a state or territory will see a year-over-year increase in its VR allotment. The increased appropriation in any given fiscal year is distributed solely based on the VR formula, without regard for ensuring that an individual state or territory's allotment will also increase based on the change in the CPI-U. In FY2009, four states and one territory received lower allotments than they had received in FY2008. Also in FY2009, 15 states, two territories and the District of Columbia received increases that were less than the growth in the CPI-U that the total appropriation was indexed on. The Senate passed legislation in the 108 th and 109 th Congresses that would have partially dealt with this issue by requiring that states and territories that did not receive an increase in their VR allotment that was at least equal to the increase in the CPI-U from the previous year would receive the first priority for any reallotted funds. The RSA currently reallots funds using this method. Advocacy groups have taken this a step further, however, and both the National Rehabilitation Association and the Council of State Administrators of Vocational Rehabilitation (CSAVR) have publicly called for changes to the VR funding process that would ensure that each state and territory receives an annual allotment that keeps pace with the increases in the cost of living. The Formula Does Not Take Into Account a State or Territory's Success at Rehabilitating and Returning Clients to Work The allotment formula does not take into account a state or territory's performance in returning clients to the workforce and helping them maintain competitive employment. As a result, the Department of Education (ED) is left without a possible tool to encourage compliance with established performance standards and has no way to reward state or territorial agencies that are successful at returning clients to the workforce. Section 107(c) of the Rehabilitation Act of 1973 does give the Secretary of Education the ability to withhold VR funding from any state or territory that is not in compliance with its published state plan or that is falling below the performance standards established by ED for the VR program. However, despite the fact that GAO identified two cases in FY2003 in which VR agencies failed to meet these performance standards, ED has never withheld funding from a state or territorial VR agency because of performance. GAO cited the inability of ED to establish a means to reward successful VR agencies with increased funding as part of the agency's overall inability to properly monitor and manage the performance of the state and territorial VR agencies that it provides funding to. In addition, the Senate recognized this shortcoming in the current law and Section 421 of S. 1021 in the 109 th Congress provided authorization for ED to provide incentive grants to states that demonstrated success at returning persons with disabilities to the workforce. In its report on S. 1021 , the Senate Committee on Health, Education, Labor, and Pensions stated Based on program data and other sources of information, it is apparent that there is a wide variation in the performance of individual State vocational rehabilitation agencies. In Section 421 of S. 1021 the Committee permanently authorizes the Administration's Vocational Rehabilitation Incentive Grants Program as a method to encourage State vocational rehabilitation agencies to improve their performance. The Committee intends that grant funds be used primarily to encourage State vocational rehabilitation agencies to adopt effective strategies to improve employment outcomes for individuals with disabilities receiving assistance under the vocational rehabilitation program. The Congressional Budget Office (CBO) estimated that these incentive grants would have cost $13 million in 2006 and $137 million over the period from 2006 through 2010. Issues for the 112th Congress Efforts to reauthorize the VR program without significant changes to the allotment formula or other aspects of the program were unsuccessful in the 108 th Congress. The Workforce Investment Act Amendments of 2003 ( H.R. 1261 )—which would have extended the authorization for VR grants through FY2009—was passed by the House and Senate, but could not be reconciled in a conference committee, and a final version was not passed into law. In the 109 th Congress, H.R. 27 , the Job training Act of 2005, which would have extended the authorization for the VR program through FY2011, was passed by the House. A subsequent Senate bill ( S. 1021 , the Workforce Investment Act Amendments of 2005) was incorporated into H.R. 27 and passed by the Senate. The bills differed for reasons unrelated to the VR program and no conference committee was ever formed. A final version of these bills was never passed. Reauthorization of the program was not considered in the 110 th Congress, although supplemental VR grants were appropriated as part of the Recovery Act. If Congress does consider reauthorization in 2010, it may want to consider making changes to several parts of the VR program. Possible areas for reform include the definition of disability used and the order of selection rules that give preference to persons with the most severe disabilities even though this group may be the least likely to return to work. In addition, Congress may wish to consider some method for increasing the overall success rate of the VR program. Currently, the RSA has very little ability to give states and territories incentives to improve the return to work rate of their VR clients or to punish states that fail to meet established expectations for VR agencies. The Senate's reauthorization bill in the 109 th Congress did include a program of authorization grants that could be used to reward states that demonstrate success at returning clients to the workforce, and the Recovery Act supplemental appropriation passed in the 111 th Congress required agencies to report on program performance as a condition for receiving a portion of the funds. As discussed in this report, the current formula fails to account for a state or territory's actual population of individuals with disabilities and a state or territory's ability to pay its share of the costs of VR services. In addition, this report has shown that the current formula does not ensure that funding increases due to changes in the cost of living are passed along to individual states and territories. The formula also does not take into account a state or territory's success at returning VR clients to work. Finally, this report has also shown the impact of the allotment formula on the VR funding levels of states that have seen significant population growth since the 1970s. States with the largest increase in population since the mid-1970s have also had the largest reduction in VR funding due to the use of the FY1978 funding baseline in the allotment formula. These concerns with the allotment formula are areas that the House and Senate may consider if reauthorization of the VR program is proposed in the 112 th Congress. Appendix A. Order of Selection Status for State and Territorial Vocational Rehabilitation Agencies Appendix B. Vocational Rehabilitation Appropriations and State Allotment Data Appendix C. Vocational Rehabilitation Funds Returned for Reallotment Appendix D. State Vocational Rehabilitation Allotments, Modified Allotments, and Population Data

Title I of the Rehabilitation Act of 1973, as amended, authorizes the federal government to make grants to states and territories to provide vocational rehabilitation (VR) services to persons with disabilities who are interested in seeking and retaining employment. State and territorial VR agencies work with clients to determine their optimal employment outcomes and put together packages of services to help them meet these employment goals. The authorization for the VR program expired at the end of FY2003; Congress has continued to make appropriations to the Department of Education to fund the program under the provisions of an extension clause in the Rehabilitation Act. Both chambers worked on bills in the 109th Congress that would formally extend this authorization through FY2011, but these bills did not result in the enactment of a law before the end of that Congress. Reauthorization bills were not taken up by either chamber in the 110th Congress, although the 111th Congress included a supplemental appropriation for the VR program in the American Recovery and Reinvestment Act of 2009. The President's FY2011 budget request proposes an extension of the VR appropriation as part of a reauthorization of the Workforce Investment Act of 2005. Funds for the VR program are allotted to states and territories according to a formula that allocates money based on three factors: state allotments in FY1978, current state population, and current state per capita income. However, a 2009 GAO report cited the VR funding formula as inequitable because the formula does not fully account for (1) the actual number of individuals with disabilities within a state or territory, (2) differences in the costs of providing VR services across states and territories, (3) the ability for a state or territory to meet its statutory fund-matching obligations to the program, and (4) varying population growth since the mid-1970s across states and territories. Others have criticized the allotment formula for not ensuring that each state or territory is given an increase in funding to match increases in the cost of living. In addition, the formula has been criticized for not including measures related to a state's or territory's overall performance. This report will be updated to reflect any major legislative activity.

Introduction On August 9, 2007, liquidity abruptly dried up for many financial firms and securities markets. Suddenly some firms were able to borrow and investors were able to sell certain securities only at prohibitive rates and prices, if at all. The "liquidity crunch" was most extreme for firms and securities with links to subprime mortgages, but it also spread rapidly into seemingly unrelated areas. The Federal Reserve (Fed) was drawn into the liquidity crunch from the start. On August 9, it injected unusually large quantities of reserves into the banking system to prevent the federal funds rate from exceeding its target. In a series of steps between September 2007 and December 2008, the Fed reduced the federal funds rate from 5.25% to a target range of 0% to 0.25%. It has been observed that the most unusual aspect of the crisis is its persistence over time. Over that time, the Fed has aggressively reduced the federal funds rate and the discount rate in an attempt to calm the waters. When this proved not to be enough, the Fed greatly expanded its direct lending to the financial sector through several new lending programs, some of which can be seen as adaptations of traditional tools and others which can be seen as more fundamental departures from the status quo. The Fed's decision to assist specific troubled financial institutions sparked controversy. In March 2008, the Fed helped the investment bank Bear Stearns avoid bankruptcy, even though Bear Stearns was not a member bank of the Federal Reserve system (because it was not a depository institution), and, therefore, not part of the regulatory regime that accompanies membership. At the same time, it created two lending facilities for other non-bank primary dealers. In September, the investment bank Lehman Brothers filed for bankruptcy (it did not receive emergency government assistance), and the financial firm American International Group (AIG), which was also not a member bank, received a credit line from the Fed in order to meet its obligations. (Additional aid to AIG was extended on three subsequent occasions.) The Fed then began directly assisting the markets for commercial paper and asset-backed securities. More recently, the Fed and federal government has guaranteed losses on assets owned by Citigroup. This marked the first time in more than 70 years that the Fed had lent to non-members, and it did so using emergency statutory authority (Section 13(3) of the Federal Reserve Act). The Dodd-Frank Wall Street Reform and Consumer Protection Act ( H.R. 4173 ) adds conditions to the Fed's emergency lending authority. H.R. 4173 was signed into law on July 21, 2010, as P.L. 111-203 . In September 2008, the housing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were taken into conservatorship by the government. On November 25, 2008, the Fed announced that it would make large-scale purchases of the direct obligations and mortgage-backed securities (MBS) issued by the housing GSEs. As financial conditions have improved in 2009, the Fed's focus, in turn, has shifted from stabilizing financial markets to stabilizing the housing market. As fewer financial firms have accessed Fed lending facilities, direct assistance has been replaced on the Fed's balance sheet by purchases of debt and MBS issued by the housing GSEs. This has kept relatively constant the overall amount of liquidity the Fed has provided to the economy. The Fed purchased about $175 billion of GSE debt and $1.25 trillion of MBS by the spring of 2010. Most emergency facilities were allowed to expire in February 2010, but the central bank liquidity swap lines were reopened in May 2010 to provide dollar liquidity to foreign countries needed as a result of the economic crisis in Greece. One of the original purposes of the Federal Reserve Act, enacted in 1913, was to prevent the recurrence of financial panics. To that end, the Fed has been given broad authority over monetary policy and the payments system, including the issuance of federal reserve notes as the national currency. Because this authority is delegated from Congress, the Fed's actions are subject to congressional oversight. Although the Fed has broad authority to independently execute monetary policy on a day-to-day basis, the Fed's actions in the crisis have raised fundamental questions about the Fed's proper role, and what role Congress should play in assessing those issues. S. 896 , which was signed into law on May 20, 2009 ( P.L. 111-22 ), allows Government Accountability Office (GAO) audits of a limited subset of Fed emergency activities. H.R. 4173 removes most GAO audit restrictions, calls for a GAO audit of emergency actions, and requires disclosure of the identities of borrowers with a delay. H.R. 4173 also made comprehensive changes to the financial regulatory system. The Fed's role in prudential regulation, consumer protection regulation, payment system regulation, and systemic risk regulation was modified by this legislation. CRS Report R40877, Financial Regulatory Reform: Systemic Risk and the Federal Reserve , analyzes the effects of this legislation on the Fed's role in the regulatory system. This report reviews the Fed's actions since August 2007 and analyzes the policy issues raised by those actions. Traditional Tools The Fed, the nation's central bank, was established in 1913 by the Federal Reserve Act (38 Stat. 251). Today, its primary duty is the execution of monetary policy through open market operations to fulfill its mandate to promote price stability and maximum employment. Besides the conduct of monetary policy, the Federal Reserve has a number of other duties: it regulates financial institutions and consumer financial products, issues paper currency, clears checks, collects economic data, and carries out economic research. Prominent in the current debate is one particular responsibility: to act as a lender of last resort to the financial system when capital cannot be raised in private markets to prevent financial panics. The next two sections explain the Fed's traditional tools, open market operations and discount window lending, and summarize its recent use of those tools. Open Market Operations and the Federal Funds Rate Open market operations are carried out through the purchase and sale of U.S. Treasury securities in the secondary market to alter the reserves of the banking system. By altering bank reserves, the Fed can influence short-term interest rates, and hence overall credit conditions. The Fed's target for open market operations is the federal funds rate, the rate at which banks lend to one another on an overnight basis. The federal funds rate is market determined, meaning the rate fluctuates as supply and demand for bank reserves change. The Fed announces a target for the federal funds rate and pushes the market rate toward the target by altering the supply of reserves in the market through the purchase and sale of Treasury securities. More reserves increase the liquidity in the banking system and, in theory, should make banks more willing to lend, spreading greater liquidity throughout the financial system. When the Fed wants to stimulate economic activity, it lowers the federal funds target, in what is referred to as expansionary policy. Lower interest rates stimulate economic activity by stimulating interest-sensitive spending, which includes physical capital investment (e.g., plant and equipment) by firms, residential investment (housing construction), and consumer durable spending (e.g., automobiles and appliances) by households. Lower rates would also be expected to lead to a lower value of the dollar, all else equal. A depreciated dollar would stimulate exports and the output of U.S. import-competing firms. To reduce spending in the economy (called contractionary policy), the Fed raises interest rates, and the process works in reverse. The Fed's actions with regards to open market operations have taken two forms in the crisis. First, a loss of liquidity in the interbank lending market has forced the Fed to inject unusually large volumes of reserves into the market on several occasions since August 2007. These actions have been necessary to maintain the availability of reserves at the existing federal funds target. Second, the Fed has reduced the federal funds target on numerous occasions over the course of the crisis. On September 18, 2007, the Fed reduced the federal funds target rate by 0.5 percentage points to 4.75%, stating that the change was "intended to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets." Since then, the Fed has aggressively lowered interest rates several times. The Fed decides whether to change its target for the federal funds rate at meetings scheduled every six weeks. In normal conditions, the Fed would typically leave the target unchanged or change it by 0.25 percentage points. From September 2007 to March 2008, the Fed lowered the target at each regularly scheduled meeting, by an increment larger than 0.25 percentage points at most of these meetings. It also lowered the target by 0.75 percentage points at an unscheduled meeting on January 21, 2008. Although financial conditions had not returned to normal, the Fed kept the federal funds rate steady from April 30, 2008, until October 9, 2008, when it again reduced the federal funds rate, this time by 0.5 percentage points, to 1.5%. Unusually, this rate reduction was coordinated with several foreign central banks. On December 16, 2008, the Fed established a target range of 0% to 0.25% for the federal funds rate. Quantitative Easing Even before December 2008, the Fed began supplying the federal funds market with a greater quantity of bank reserves than needed to reach the federal funds target, a policy that has been described as "quantitative easing." Because the Fed has only one tool, it cannot meet more than one target at once. As long as the Fed was willing to create liquidity on demand, the federal funds rate was unlikely to meet its target. Therefore, after the Fed began focusing on meeting the financial sector's liquidity needs in September, the federal funds rate began undershooting the Fed's target on a regular basis. In December 2008, the Fed began providing so much liquidity that the interest rate target often fell close to zero. The target range of 0% to 0.25% set in December can be seen as an acknowledgment by the Fed that targeting interest rates had been subordinated to the goal of providing ample liquidity to the financial system for the time being. Initially, quantitative easing was implemented through direct lending, but even after that liquidity was no longer sought by financial firms through the Fed's lending facilities, quantitative easing was continued through large purchases of Treasury securities, Agency securities, and Agency mortgage-backed securities in an attempt to continue stimulating the economy. According to one estimate, the Fed purchased 22% of the entire available stock of these assets. The Discount Window The Fed can also provide liquidity to member banks (depository institutions that are members of the Federal Reserve system) directly through discount window lending. Discount window lending dates back to the early days of the Fed, and was originally the Fed's main policy tool. (The Fed's main policy tool shifted from the discount window to open market operations several decades ago.) Loans made at the discount window are backed by collateral in excess of the loan value. A wide array of assets can be used as collateral; loans and asset-backed securities are the most frequently posted collateral. Although not all collateral has a credit rating, those that are rated typically have the highest rating. Most discount window lending is done on an overnight basis. Unlike the federal funds rate, the Fed sets the discount rate directly through fiat. During normal market conditions, the Fed discouraged banks from borrowing at the discount window on a routine basis, believing that banks should be able to meet their normal reserve needs through the market. In 2003, the Fed made that policy explicit in its pricing by changing the discount rate from 0.5 percentage points below to 1 percentage point above the federal funds rate. A majority of member banks do not access the discount window in a typical year. Thus, the discount window has played a secondary role in policymaking to open market operations. On August 17, 2007, the Fed began reducing the discount rate—about a month before it first reduced the federal funds rate. Since then, the discount rate has been lowered several times, typically at the same time as the federal funds rate. Over that period, the Fed has reduced the spread between the federal funds rate and the discount rate, but kept the spread positive. When the federal funds rate was allowed to fall to zero beginning in December 2008, the discount rate was set at 0.5%. From 1959 to 2007, discount window lending outstanding never surpassed $8 billion, and was usually well below $1 billion. Discount window lending (in the primary credit category) increased from a daily average of $45 million outstanding in July 2007 to $1,345 million in September 2007. Lending continued to increase to more than $10 billion outstanding per day from May 2008, and peaked at $111 billion in October 2008, but was superseded in economic significance by the creation of the " Term Auction Facility " in December 2007. Discount window lending fell steadily throughout 2009, and by mid-2010, it had returned to pre-crisis levels. New Tools The Fed's traditional tools are aimed at the commercial banking system, but current financial turmoil has occurred outside of the banking system as well. The inability of traditional tools to calm financial markets since August 2007 has led the Fed to develop several new tools to fill perceived gaps between open market operations and the discount window. Traditionally, the lender of last resort function has focused on the banking system, and the Fed's relationship with the banking system, encompassing costs and privileges, is prescribed in detail by the Federal Reserve Act. Many of the new facilities are aimed at other parts of the financial system, however, and the Federal Reserve Act is largely silent on the Fed's authority outside the banking system. One exception is the broad emergency authority under Section 13(3) of the Federal Reserve Act, which the Fed has frequently invoked since the financial crisis began. Term Auction Facility A stigma is thought to be attached to borrowing from the discount window. In good times, discount window lending has traditionally been discouraged on the grounds that banks should meet their reserve requirements through the marketplace (the federal funds market) rather than the Fed. Borrowing from the Fed was therefore seen as a sign of weakness, as it implied that market participants were unwilling to lend to the bank because of fears of insolvency. In the current turmoil, this perception of weakness could be particularly damaging since a bank could be undermined by a run based on unfounded, but self-fulfilling fears. Ironically, this meant that although the Fed encourages discount window borrowing so that banks can avoid liquidity problems, at first banks were hesitant to turn to the Fed because of fears that doing so would spark a crisis of confidence. To overcome these problems, the Fed created the supplementary Term Auction Facility (TAF) in December 2007. Discount window lending is initiated at the behest of the requesting institution—the Fed has no control over how many requests for loans it receives. The TAF allows the Fed to determine the amount of reserves it wishes to make available to banks, based on market conditions. The auction process determines the rate at which those funds will be lent, with all bidders receiving the lowest winning bid rate. The winning bid may not be lower than the prevailing federal funds rate. Determining the rate by bid provides the Fed with additional information on how much demand for reserves exists. Any depository institution eligible for discount window lending can participate in the TAF, and hundreds have accessed it or the discount window at a time since its inception. Auctions through the TAF have been held twice a month beginning in December 2007. The amounts auctioned have greatly exceeded discount window lending, which averages in the hundreds of millions of dollars outstanding daily in normal times and more than $10 billion outstanding since May 2008. The TAF initially auctioned up to $20 billion every two weeks, but this amount was increased on several occasions to as much as $150 billion (and currently up to $125 billion) every two weeks. Loans outstanding under the facility peaked at $493 billion in March 2009, and have fallen steadily since. Like discount window lending, TAF loans must be fully collateralized with the same qualifying collateral. Loans and asset-backed securities are the most frequently posted collateral. Although not all collateral has a credit rating, those that are rated typically have the highest rating. As with discount window lending, the Fed faces the risk that the value of collateral would fall below the loan amount in the event that the loan was not repaid. For that reason, the amount lent diminishes as the quality of the collateral diminishes. Most borrowers borrow much less than the posted collateral. Loans mature in 28 days—far longer than overnight loans in the federal funds market or the typical discount window loan. (In July 2008, the Fed began making some TAF loans that matured in 84 days.) Another motivation for the TAF may have been an attempt to reduce the unusually large divergence that had emerged between the federal funds rate and interbank lending rates for longer maturities. This divergence, which can be seen as a sign of how much liquidity had deteriorated in spite of the Fed's previous efforts, became much smaller after December 2007. In subsequent periods of market stress, such as September 2008, the divergence reemerged. The evidence on the effectiveness of the TAF in reducing this divergence is mixed. The TAF program was announced as a temporary program (with no fixed expiration date) that could be made permanent after assessment. Given that the discount rate is set higher than the federal funds rate to discourage its use in normal market conditions, it is unclear what role a permanent TAF would fill, unless the funds auctioned were minimal in normal market conditions. A permanent TAF would seem to run counter to the philosophy governing the discount window that financial institutions, if possible, should rely on the private sector to meet their short-term reserve needs during normal market conditions. The Fed has not held a TAF auction since March 2010. Term Securities Lending Facility For many years, the Fed has allowed primary dealers (see box for definition) to swap Treasuries of different maturities or attributes with the Fed on an overnight basis through a program called the System Open Market Account Securities Lending Program to help meet the dealers' liquidity needs. (While all Treasury securities are backed by the full faith and credit of the federal government, some securities are more liquid than others, mainly because of differences in availability.) Securities lending has no effect on general interest rates or the money supply because it does not involve cash, but can affect the liquidity premium of the securities traded. Because the loans were overnight and collateralized with other Treasury securities, there was very little risk for the Fed. On March 11, 2008, the Fed set up a more expansive securities lending program for the primary dealers called the Term Securities Lending Facility (TSLF) using emergency authority under Section 13(3) of the Federal Reserve Act. Under this program, up to $75 billion (previously up to $200 billion) of Treasury securities could be lent for 28 days instead of overnight. Loans could be collateralized with private-label MBS with an AAA/Aaa rating, agency commercial mortgage-backed securities, and agency collateralized mortgage obligations. On September 14, 2008, the Fed expanded acceptable collateral to include all investment-grade debt securities. Given the recent drop in MBS and other asset prices, this made the new lending program considerably more risky than the old one. But the scope for losses is limited by the fact that the loans are fully collateralized with a "haircut" (i.e., less money is loaned than the value of the collateral), and if the collateral loses value before the loan is due, the Fed can call for substitute collateral. In addition, most of the collateral that has been posted received a high rating from a credit rating agency. The first auction on March 27 involved $75 billion of securities. In August 2008, the program was expanded to allow the primary dealers to purchase up to $50 billion of options (with prices set by auction) to swap for Treasuries through the TSLF. The TSLF was announced as a temporary facility. In July 2009, the Fed announced that primary dealers could also swap their assets for the Fed's Agency debt securities. Securities lent through all programs peaked at $260 billion on October 1, 2008. Since August 2009, no securities have been borrowed through this facility. The facility expired at the end of January 2010. By allowing the primary dealers to temporarily swap illiquid assets for highly liquid assets such as Treasuries, "[t]he TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally," according to the Fed. According to research from the New York Fed, the spreads between repos backed by GSE debt and MBS and repos backed by Treasuries fell from over 1 percentage point before the first TSLF auction to less than 0.2 percentage points by April 2008. Given the timing of the announcement—less than a week before the failure of one of its primary dealers, Bear Stearns—critics have alleged that the program was created, in effect, in an attempt to rescue Bear Stearns from its liquidity problems. As will be discussed below, the Fed would take much larger steps to aid Bear Stearns later the same week. Primary Dealer Credit Facility On March 16—a day too late to help Bear Stearns—the Fed announced the creation of the Primary Dealer Credit Facility (PDCF), a new direct lending program for primary dealers very similar to the discount window program for depository institutions. Loans are made through the PDCF on an overnight basis at the discount rate, limiting their riskiness. Acceptable collateral initially included Treasuries, government agency debt, and investment grade corporate, mortgage-backed, asset-backed, and municipal securities. On September 14, 2008, the Fed expanded acceptable collateral to include certain classes of equities. Many of the classes of eligible assets can and have fluctuated significantly in value. Fees will be charged to frequent users. The program was announced as lasting six months, or longer if events warrant. The program is authorized under paragraph 3 of Section 13 of the Federal Reserve Act. The facility was subsequently extended, but allowed to expire at the end of January 2010. Borrowing from the facility has been sporadic, with average daily borrowing outstanding above $10 billion in the first three months, and falling to zero in August 2008. Much of this initial borrowing was done by Bear Stearns, before its merger with J.P. Morgan Chase had been completed. Loans outstanding through the PDCF peaked at $148 billion during the week of October 1, 2008. Since May 2009, outstanding loans through the PDCF have been zero, because of improvement in the financial system and because the largest investment banks converted into or were acquired by bank holding companies in late 2008, making them eligible to access other Fed lending facilities. Although the program shares some characteristics with the discount window, the fact that the program was authorized under paragraph 3 of Section 13 of the Federal Reserve Act suggests that there is a fundamental difference between this program and the Fed's normal operations. The Fed is referred to as the nation's central bank because it is at the center of the banking system—providing reserves and credit, and acting as a regulator, clearinghouse, and lender of last resort to the banking system. The privileges for banks that come from belonging to the Federal Reserve system—access to Fed credit—come with the costs of regulation to ensure that banks do not take excessive risks. Although the primary dealers are subject to certain capital requirements, they are not necessarily part of the banking system, and do not fall under the same "safety and soundness" regulatory structure as banks. Term Asset-Backed Securities Loan Facility In November 2008, the Fed created the Term Asset-Backed Securities Loan Facility (TALF) in response to problems in the market for asset-backed securities (ABS). According to the Fed, "new issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums." Data support the Fed's view: issuance of non-mortgage asset backed securities fell from more than $175 billion per quarter from 2005 through the second quarter of 2007 to $5 billion in the fourth quarter of 2008, according to the Securities Industry and Financial Markets Association (SIFMA). The Fed fears that if lenders cannot securitize these types of loans, less credit will be extended to consumers, and eventually households will be forced to reduce consumption spending, which would exacerbate the economic downturn. The TALF is intended to stimulate the issuance of new securities backed by pools of the following assets: auto loans or leases, including motorcycles, recreational vehicles (including boats), and commercial, rental, and government fleets; credit cards, consumer and corporate; student loans, private and government guaranteed; SBA-guaranteed small business loans; business equipment loans, including retail and leases; floorplan loans for inventories, including auto dealers; mortgage servicing advances; commercial mortgages; and insurance premium finance loans. In May 2009, the Fed began accepting legacy commercial mortgage-backed securities (CMBSs). The Fed announced that the TALF may later be expanded to other classes of ABS. In March 2009, the Treasury announced that TALF may be expanded in the future to include private-label residential MBS, and collateralized debt and loan obligations. To date, most TALF loans have been backed by auto, credit card, and student loans. Rather than purchase ABS directly, the Fed will make non-recourse loans to any private U.S. company or subsidiary with a relationship with a primary dealer to purchase recently issued ABS receiving the highest credit rating, using the ABS as collateral. The minimum loan size will be $10 million. If the ABS lose value, the losses will be borne by the Fed and the Treasury (through the TARP program) instead of by the borrower—an unusual feature for a Fed lending facility. The Fed will lend less than the current value of the collateral, so the Fed would not bear losses on the loan until losses exceed the value of the "haircut" (different ABS receive different haircuts). The loans will have a term of up to three years for most types of assets (and up to five years for some types of assets), but can be renewed. Interest rates will be set at a markup over different maturities of LIBOR or the federal funds rate, depending on the type of loan and underlying collateral. If the loans are not repaid, the Treasury will bear the first $20 billion in total losses on the underlying collateral, and the Fed will bear any additional losses. Treasury will receive interest in return for bearing this risk. The Treasury's losses will be financed through the Troubled Asset Relief Program (TARP), authorized by P.L. 110-343 . In addition, TARP has already loaned the TALF program $100 million to finance initial administrative costs. It was originally proposed that ABS issuers would be subject to TARP's executive compensation restrictions. Subsequently, in a letter to the Special Inspector General for TARP, the General Counsel of the Treasury reasoned that the Fed, not the TALF loan recipients nor the ABS issuers, is the recipient of TARP funds, and so executive compensation restrictions do not apply to TALF. TALF has some similarities to TARP as it was originally envisioned, with the primary differences being that the Fed is lending to purchase rather than directly purchasing assets, and the assets backing the loans are mostly newly or recently issued as opposed to "troubled" existing assets. Because the Treasury's funds will finance loan losses rather than asset purchases, the $20 billion will support a much larger volume of assets than would be possible through direct purchase via TARP. In March 2009, Treasury announced a new Public-Private Partnership Investment Program (PPIP) within TARP. Under this program, private investors will receive matching capital from TARP to purchase up to $500 billion to $1 trillion of legacy loans and securities. These legacy securities are defined as existing ABS backed by mortgages and other assets. Treasury has announced that private partners will be able to use loans from TALF (and other sources) to finance the purchase of these legacy securities. In May 2009, the Fed began accepting legacy commercial mortgage-backed securities (CMBSs) as the first class of legacy securities eligible for TALF. PPIP has also turned out to be much smaller than envisioned—as of May 2010, Treasury had pledged a maximum of $30 billion for PPIP-Securities. The Fed originally announced TALF as a $200 billion program, and Treasury expressed the desire to see it increased to $1 trillion. As it turns out, TALF lending grew slowly after inception, and peaked at $48 billion on March 17, 2010. The low lending totals seem less indicative of the unpopularity of TALF, and more indicative of the continued depressed state of the private securitization market. According to data from SIFMA, non-mortgage ABS issuance rose to $52 billion per quarter in the first two full quarters that TALF was in operation, but fell to $32 billion per quarter in the next two quarters—a far cry from issuance of more than $175 billion per quarter before the crisis. Nevertheless, a review of the program by the Federal Reserve Bank of Dallas argues that TALF should be credited with a decline in ABS spreads against Treasury bonds and a rise in ABS issuance. The facility expired at the end of June 2010 for loans against newly issued CMBS and March 2010 for loans against other assets. Intervention in the Commercial Paper Market Many large firms routinely issue commercial paper, which is short-term debt purchased directly by investors that matures in less than 270 days, with an average maturity of 30 days. There are three broad categories of commercial paper issuers: financial firms, non-financial firms, and pass-through entities that issue paper backed by assets. The commercial paper issued directly by firms tends not to be backed by collateral, as these firms are viewed as large and creditworthy and the paper matures quickly. Individual investors are major purchasers of commercial paper through money market mutual funds and money market accounts. The Securities and Exchange Commission regulates the holdings of money market mutual funds, limiting their holdings to highly rated, short-term debt; thus, investors widely perceived money market mutual funds as safe and low risk. On September 16, 2008, a money market mutual fund called the Reserve Fund "broke the buck," meaning that the value of its shares had fallen below face value. This occurred because of losses it had taken on short-term debt issued by Lehman Brothers, which filed for bankruptcy on September 15. Money market investors had perceived "breaking the buck" to be highly unlikely, and its occurrence set off a run on money market funds, as investors simultaneously attempted to withdraw an estimated $250 billion of their investments—even from funds without exposure to Lehman. This run greatly decreased the demand for new commercial paper. Firms rely on the ability to issue new debt to roll over maturing debt to meet their liquidity needs. Fearing that disruption in the commercial paper markets could make overall problems in financial markets more severe, the Fed announced on September 19 that it would create the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). This facility would make non-recourse loans to banks to purchase asset-backed commercial paper. Because the loans were non-recourse, the banks would have no further liability to repay any losses on the commercial paper collateralizing the loan. On October 1, 2008, daily loans outstanding peaked at $152 billion. The AMLF would soon be superseded in importance by the creation of the Commercial Paper Funding Facility, and lending fell to zero in October 2009. The temporary facility was authorized under Section 13(3) of the Federal Reserve Act, and was subsequently extended until the end of January 2010. Although the creation of the AMLF and the Treasury's temporary guarantee of money market mutual fund deposits had eased conditions in the commercial paper market, the market remained strained. For example, commercial paper outstanding fell from more than $2 trillion outstanding in August 2007 to $1.8 trillion on September 7, 2008, to $1.6 trillion on October 1, 2008. The yield on 30-day, AA-rated asset-backed commercial paper rose from 2.7% on September 8, 2008, to 5.5% on October 7, 2008. Because of the importance of commercial paper for meeting firms' liquidity needs, the Fed decided to take stronger action to ensure that the market was not disrupted. On October 7, it announced the creation of the Commercial Paper Funding Facility (CPFF), a special purpose vehicle (SPV) that would borrow from the Fed to purchase all types of three-month, highly rated U.S. commercial paper, secured and unsecured, from issuers. The Fed argued that the assurance that firms will be able to roll over commercial paper at the CPFF will encourage private investors to buy commercial paper again. The interest rate charged by the CPFF was set at the three month overnight index swap plus 1 percentage point for secured corporate debt, 2 percentage points for unsecured corporate debt, and 3 percentage points for asset-backed paper. The CPFF can buy as much commercial paper from any individual issuer as that issuer had outstanding in the year to date. Any losses borne by the CPFF would ultimately be borne by the Fed. The Fed has hired the private company PIMCO to manage the SPV's assets. The facility is authorized under Section 13(3) of the Federal Reserve Act, and was subsequently extended until the end of January 2010. At its peak in January 2009, the CPFF held $351 billion of commercial paper, and has fallen steadily since. Goldman Sachs reports that conditions in commercial paper markets improved significantly after the creation of the CPFF (although they remained worse than before the crisis), and in January 2009, the CPFF was holding far more commercial paper than the total that had been issued since its inception. The CPFF is notable on several grounds. First, it is the first Fed standing facility in modern times with an ongoing commitment to purchase assets, as opposed to lending against assets. Technically, the Fed is lending against the assets of the SPV, but the SPV was created by the Fed and is controlled by the Fed. Second, in the case of non-financial commercial paper, it is the first time in 50 years that the Fed is providing financial assistance to non-financial firms. (In practice, the Fed has bought very little commercial paper issued by non-financial firms. ) Third, in the case of commercial paper that is not asset backed, it is unusual for the Fed (through the SPV) to purchase uncollateralized debt. Indeed, the Federal Reserve Act would seem to rule out the direct purchase of uncollateralized debt. On October 21, 2008, the Fed announced the creation of the Money Market Investor Funding Facility (MMIFF), and pledged to lend it up to $540 billion. The MMIFF will lend to private sector SPVs that invest in commercial paper issued by highly rated financial institutions. Each SPV will be owned by a group of financial firms and can only purchase commercial paper issued by that group. These SPVs can purchase commercial paper from money market mutual funds and similar entities facing redemption requests to help avoid runs such as the run on the Reserve Fund. The facility expired at the end of October 2009 without ever being used. The Fed's director of the Division of Monetary Affairs reported that money market funds were unwilling to use it because "investors would recognize that leverage would ... intensify their incentive to run." Mortgage-Backed Securities Purchase Program and Purchase of GSE Obligations In July 2008, the stock prices of Fannie Mae and Freddie Mac, the housing GSEs, came under increasing pressure, leading to fears that they would be unable to roll over debt and become illiquid. On July 13, 2008, the Fed authorized lending to the housing GSEs, but this authority was not used at that point. On September 7, 2008, Treasury placed the two housing GSEs into conservatorship. On September 19, 2008, the Fed announced that it would purchase debt obligations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks through open market operations. On November 25, 2008, the Fed announced it would purchase up to $100 billion of direct obligations (e.g., bonds) issued by these institutions and up to $500 billion of MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, a government agency. GSE obligations will be purchased through auctions and MBS will be purchased on the Fed's behalf by private investment managers. Adjustable rate MBS, collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), and mortgage derivatives would not be eligible for purchase under the program. Assets purchased under these programs will be held passively and long-term. On March 18, 2009 the Fed announced an increase in the purchase commitment of up to $1.25 trillion in MBS and $200 billion of GSE obligations. In September 2009, the Fed announced that it would complete these purchases by the end of the first quarter of 2010. In November 2009, the Fed announced that it would purchase only $175 billion of Agency debt securities due to limited availability. The Fed argued that these programs would "reduce the cost and increase the availability of credit for the purchase of houses." Support to mortgage markets through these programs can be seen as indirect and selective, however. The Fed is not providing or purchasing mortgages directly, nor is it purchasing newly issued MBS. By purchasing existing MBS from the secondary market, the price should rise, and that may induce more MBS to be issued. If more MBS are issued, then the increased availability of credit to mortgage markets would be expected to cause mortgage rates to fall. Further, the Fed is accepting MBS issued by GSEs but not by private firms, even though the GSEs have issued more MBS in 2008 than before the crisis started, while private-label issuance has dried up almost entirely, according to data from the Securities Industry and Financial Markets Association. Further, overall mortgage rates have been low during the crisis, but access has been limited to highly qualified lenders. Increasing the demand for GSE-issued MBS and GSE debt would be expected to primarily reduce already low mortgage rates, and increase borrower access only indirectly, at best. Mortgage rates fell noticeably after the Fed announced that the programs had begun, although the amounts of securities purchased by the Fed at that point were small. Subsequently, mortgage rates rose despite the Fed's purchases, presumably because of the economy's improvement. One concern is that mortgage rates could rise after the Fed's purchases are complete, and the housing market will not have recovered by then. These programs did not require the use of Section 13(3) emergency authority. Transactions involving agency debt are authorized under Section 13(13) and 14b of the Federal Reserve Act. The Fed's programs are similar to two Treasury programs, the GSE MBS Purchase Program and the GSE Credit Facility, already in place. Since the Treasury programs were authorized to provide the GSEs with unlimited financial assistance through the end of 2009, it is not clear why the Fed felt that the Treasury programs needed to be supplemented. Swap Lines with Foreign Central Banks In December 2007, the Fed announced the creation of temporary reciprocal currency agreements, known as swap lines, with the European Central Bank and the Swiss central bank. These agreements let the Fed swap dollars for euros or Swiss francs for a fixed period of time. Since September 2008, the Fed has extended similar swap lines to central banks in several other countries. To date, most of the swaps outstanding have been with the European Central Bank and Bank of Japan. In October 2008, it made the swap lines with certain countries unlimited in size. Interest is paid to the Fed on a swap outstanding at the rate the foreign central bank charges to its dollar borrowers. The temporary swaps are repaid at the exchange rate at the time of the original swap, meaning that there is no downside risk for the Fed if the dollar appreciates in the meantime (although the Fed also does not enjoy upside gain if the dollar depreciates). The swap lines are currently authorized through the end of January 2010. Except in the unlikely event that the borrowing country's currency becomes unconvertible in foreign exchange markets, there is no credit risk involved for the Fed. Swaps outstanding peaked at $583 billion in December 2008, and have fallen steadily since. The swap lines are intended to provide liquidity to banks in non-domestic denominations. For example, many European banks have borrowed in dollars to finance dollar-denominated transactions, such as the purchase of U.S. assets. Normally, foreign banks could finance their dollar-denominated borrowing through the private inter-bank lending market. As banks have become reluctant to lend to each other through this market, central banks at home and abroad have taken a much larger role in providing banks with liquidity directly. But normally banks can only borrow from their home central bank, and central banks can only provide liquidity in their own currency. The swap lines allow foreign central banks to provide needed liquidity in dollars. As such, the swap lines directly benefit foreign borrowers who need access to dollars. But the swap lines indirectly benefit the United States by promoting the use of the dollar as the "reserve" currency, which results in more seigniorage (earnings from currency) for the United States, as well as intangible benefits. Initially, the swap lines were designed to allow foreign central banks to acquire U.S. dollars. In April 2009, the swap lines were modified so that the Fed could access foreign currency to provide to its banks as well; to date, the Fed has not accessed foreign currency through these lines. The swap lines were ended in February 2010, but reopened with five countries in May 2010 in response to the crisis in Greece. To date, their use in 2010 was much more limited than in 2008 to 2009. Payment of Interest on Bank Reserves Banks hold some assets in the form of cash reserves stored in their vaults or in accounts at the Fed to meet daily cash-flow needs and required ratios imposed by the Fed. At times before the federal funds target was reduced to zero in December 2008, the Fed faced conflicting goals—it sought to ensure that banks have enough reserves to remain liquid, but it also sought to maintain its target for the federal funds rate to meet its economic goals. The federal funds rate is the market rate in the private market where a bank with excess reserves lends them overnight to other banks. At times, ensuring that all banks have adequate reserves has resulted in an overall level of reserves in the market that has pushed the federal funds rate below its target. In other words, the only way for the Fed to make sure that each bank has enough reserves has been to oversupply the banking system as a whole with liquidity at the given federal funds target. To avoid this problem, Congress authorized the Fed to pay interest on bank reserves in the Emergency Economic Stabilization Act of 2008 ( H.R. 1424 / P.L. 110-343 ). By setting an interest rate on bank reserves close to the federal funds rate, the Fed would in effect place a floor on the rate. In theory, the federal funds rate would not fall below the interest rate on reserves because banks would rather hold excess reserves to earn interest than lend them out to other banks at a lower interest rate. Paying interest on reserves may also encourage banks to hold more reserves overall, which may somewhat reduce the likelihood that banks will have liquidity problems in the future. Paying interest on reserves does not encourage banks to increase overall lending to firms and households, however, because it increases the attractiveness of holding reserves. Thus, it is not a policy that stimulates the economy, at least in any direct sense; on the contrary, it prevents the increase in liquidity to banks from stimulating the economy by preventing the federal funds rate from falling. The interest rate on excess reserves was initially set at 0.75 percentage points less than the federal funds rate. In the short term, paying interest on reserves did not succeed in placing a floor under the federal funds target. Immediately after the Fed began paying interest, the federal funds rate was still falling below the target, and some days was even below the interest rate on reserves. In response, the Fed subsequently reduced the spread between the interest rate on reserves and the federal funds rate, but the actual federal funds rate continued to fall below the target rate. When the Fed reduced the federal funds rate target to a range of 0% to 0.25% in December 2008, it set the interest rate paid on reserves to 0.25%, the high end of the target range. At that point, paying interest on reserves could no longer place a floor under the federal funds rate, the stated rationale for its authorization. P.L. 110-343 gave the Fed permanent authority to pay interest on reserves. Once financial conditions return to normal, the liquidity benefits from paying interest will be less important (since banks will again be able to meet reserve needs through the federal funds market), and the primary remaining benefit would be a reduction in the volatility of the federal funds rate. The Fed previously intervened in the federal funds market on a daily basis to keep the market rate close to the target, sometimes unsuccessfully. The volatility partly resulted from banks devoting resources to activities that minimize reserves, such as "sweep accounts." Paying interest on reserves reduces the Fed's profits, and thus reduces its remittances to the Treasury, thereby increasing the budget deficit, all else equal. It can be viewed as a transfer from the federal government to the banks, although in the long run, competition makes it likely that the banks will pass on the benefit to depositors in the form of higher interest paid on deposits. From Congress's perspective, the benefit of a less volatile target rate and less resources spent minimizing reserves would have to be weighed against the lost federal revenue, over time. The decision to pay interest on required, as well as excess, reserves also increases the cost of the policy without any additional benefit to liquidity or reduced volatility (because banks must keep required reserves even if no incentive is offered). The growth in the Fed's balance sheet has raised concerns about the future implications for inflation. The Fed has argued that paying interest on reserves can help prevent its balance sheet growth from becoming inflationary. It approved "term deposits" of up to six months for bank reserves in April 2010. The interest rate paid by term deposits will be determined by auction. Assistance to Individual Financial Institutions Over the course of the year, several financial firms that were deemed "too big to fail" received financial assistance from the Fed in the form of loans, troubled asset purchases, and asset guarantees. This assistance went beyond its traditional role of acting as a lender of last resort by providing loans to illiquid but solvent firms. In a joint announcement in March 2009, the Treasury and Fed stated a desire in the long run to transfer assets acquired by the Fed (via the Maiden Lane LLCs) from Bear Stearns and the American International Group (AIG) to the Treasury, but to date have not taken any steps to do so. H.R. 4173 alters Section 13(3) authority in an attempt to prevent assistance to individual firms in the future. The Fed's Role in the JPMorgan Chase Acquisition of Bear Stearns The investment bank Bear Stearns came under severe liquidity pressures in early March 2008, in what many observers have coined a non-bank run. On Friday, March 14, 2008, JPMorgan Chase announced that, in conjunction with the Federal Reserve, it had agreed to provide secured funding to Bear Stearns, as necessary. Through its discount window, the Fed agreed to provide $13 billion of back-to-back financing to Bear Stearns via JPMorgan Chase. It was a non-recourse loan, meaning that the Fed had no general claim against JPMorgan Chase in the event that the loan was not repaid and the outstanding balance exceeded the value of the collateral. Bear Stearns could not access the discount window directly because, at that point, only member banks could borrow directly from the Fed. This loan was superseded by the events of March 16, and the loan was repaid in full on March 17, 2008. On Sunday, March 16, after negotiations between the two companies, the Fed and the Treasury, JPMorgan Chase agreed to acquire Bear Stearns. The Fed agreed to purchase up to $30 billion of Bear Stearns' assets through Maiden Lane I, a new Limited Liability Corporation (LLC) based in Delaware that it created and controls. After the merger was completed, the loan was finalized on June 26, 2008. Two loans were made to the LLC: the Fed lent the LLC $28.82 billion, and JPMorgan Chase made a subordinate loan to the LLC worth $1.15 billion, based on assets initially valued at $29.97 billion. The Fed's loan will be made at an interest rate set equal to the discount rate (2.5% when the terms were announced, but fluctuating over time) for a term of 10 years, renewable by the Fed. JPMorgan Chase's loan will have an interest rate 4.5 percentage points above the discount rate. Using the proceeds from that loan, the LLC purchased assets from Bear Stearns worth $29.97 billion at marked to market prices by Bear Stearns on March 14, 2008. On its website, the New York Fed gives information on the current fair market value of the assets by type of asset, credit rating of the assets, and geographical location of the underlying assets. At the end of 2008, 44% of the portfolio consisted of agency collateralized mortgage obligations (CMOs), 6% was non-agency CMOs, 18% was commercial loans, 3% was residential loans, 8% was swap contracts, 7% was TBA commitments, and 8% was cash or cash equivalents. More than half of the non-agency CMOs had a credit rating of AAA; about one-fifth had a junk rating. (Agency CMOs are guaranteed by the GSE that issued them, and the Treasury has pledged to maintain the GSE's solvency.) The CEO of JPMorgan Chase testified that JPMorgan Chase "kept the riskier and more complex securities in the Bear Stearns portfolio.... We did not cherry pick the assets in the collateral pool (for the LLC)." These assets are owned by the LLC, which will eventually liquidate them to pay back the principal and interest owed to the Fed and JPMorgan Chase. The LLC's assets (purchased from Bear Stearns) are the collateral backing the loans from the Fed and JPMorgan Chase. A private company, BlackRock Financial Management, has been hired to manage the portfolio. Neither Bear Stearns nor JPMorgan Chase owes the Fed any principal or interest, nor are they liable if the LLC is unable to pay back the money the Fed lent it. The New York Fed explained that the LLC was created to "ease administration of the portfolio and will remove constraints on the money manager that might arise from retaining the assets on the books of Bear Stearns." JPMorgan Chase and Bear Stearns did not receive the $28.82 billion from the LLC until the merger was completed. It was announced that the Fed is planning to begin liquidating the assets after two years. The assets will be sold off gradually, "to minimize disruption to financial markets and maximize recovery value." As the assets are liquidated, interest will continue to accrue on the remaining amount of the loan outstanding. Thus, in order for the principal and interest to be paid off, the assets will need to appreciate enough or generate enough income so that the rate of return on the assets exceeds the weighted interest rate on the loans (plus the operating costs of the LLC). Table 1 shows how the funds raised through the liquidation will be used. Any difference between the proceeds and the amount of the loans is profit or loss for the Fed, not JPMorgan Chase. Because JPMorgan Chase's $1.15 billion loan was subordinate to the Fed's $28.82 billion loan, if there are losses on the total assets, the first $1.15 billion of losses will be borne, in effect, by JPMorgan Chase, however. The interest on the loan will be repaid out of the asset sales, not by JPMorgan Chase. At the end of 2009, the value of the assets had already been written down by over $3.5 billion, exceeding the maximum losses borne by JPMorgan Chase. The CEO of JPMorgan Chase testified that "we could not and would not have assumed the substantial risks of acquiring Bear Stearns without the $30 billion facility provided by the Fed" (emphasis in original). The primary risk was presumably that the value of mortgage-related assets would continue to decline. Had the transaction been crafted as a typical discount window loan directly to JPMorgan Chase, JPMorgan Chase would have been required to pay back the principal and interest, and it (rather than the Fed) would have borne the full risk of any depreciation in value of Bear Stearns' assets. The Fed's statutory authority for its role in both Bear Stearns transactions comes from paragraph 3 of Section 13 of the Federal Reserve Act. In his testimony, Timothy Geithner, New York Fed president at the time, stated that the Fed did not have authority to acquire an equity interest in Bear Stearns or JPMorgan Chase. Yet the LLC controlled by the Fed acquired assets from Bear Stearns, and the profits or losses from that acquisition will ultimately accrue to the Fed. It is unclear why the Fed decided to create and lend to a LLC to complete the transaction, rather than engaging in the transaction directly. Although the Fed did not buy Bear Stearns' assets directly, there are certainly important policy questions raised by the Fed's creation and financing of an LLC in order to buy Bear Stearns' assets. Typically, the Fed lends money to institutions and receives collateral in return to reduce the risk of suffering a loss. When the loan is repaid, the collateral is returned to the institution. In this case, the Fed made a loan, but to a LLC they created and controlled, not to a financial institution. From the perspective of JPMorgan Chase or Bear Stearns, the transaction was a sale (to the LLC), not a loan, regardless of whether the Fed or the LLC was the principal. Assistance to American International Group (AIG)63 Initial Loan On September 16, 2008, the Fed announced, after consultation with the Treasury Department, that it would lend up to $85 billion to the financial institution American International Group. AIG had experienced a significant decline in its stock price and was facing immediate demands for $14 billion to $15 billion in collateral payments due to recent downgrades by credit rating agencies, according to press reports. The Fed and Treasury feared that AIG was also "too big to fail" because of the potential for widespread disruption to financial markets that would result. The Fed announced that AIG could borrow up to $85 billion from the Fed over the next two years. On September 18, the Fed announced that it had initially lent $28 billion to AIG. The interest rate on the funds drawn is 8.5 percentage points above the London Interbank Offered Rate (LIBOR), a rate that banks charge to lend to each other. A lower interest rate is charged on any funds that it is does not draw from the facility. In return, the government agreed to receive warrants that, if exercised, would give the government a 79.9% ownership stake in AIG. The Fed named three independent trustees to oversee the firm for the duration of the loan. The lending facility is backed by the assets of AIG's non-regulated subsidiaries (but not the assets of its insurance company). In other words, the Fed can seize AIG's assets if the firm fails to honor the terms of the loan. This reduces the risk that the Fed (and ultimately, taxpayers) will suffer a loss. The risk still remains that if AIG turned out to be insolvent, its assets would be insufficient to cover the amount it had borrowed from the Fed. Since AIG has been identified as too big to fail, it is unclear how its assets could be seized in the event of non-payment without precipitating failure. Second Loan On October 8, 2008, the Fed announced that it was expanding its assistance to AIG and swapping cash for up to $37.8 billion of AIG's investment-grade, fixed-income securities. These securities, belonging to AIG's insurance subsidiaries, had been previously lent out and unavailable as collateral at the time of the original agreement. It has been reported that as AIG's loans matured, AIG realized losses on investments it had made with the collateral and some counterparties stopped participating in the lending program. As a result, AIG needed liquidity from the Fed to cover these losses and counterparty withdrawals. Although this assistance resembles a typical collateralized loan (the Fed receives assets as collateral, and the borrower receives cash), the Fed characterized the agreement as a loan of securities from AIG to the Fed in exchange for cash collateral. It appears the arrangement was structured this way because New York insurance law prevents AIG from using the securities as collateral in a loan. Revision to Agreement on November 10, 2008 On November 10, 2008, the Federal Reserve and the U.S. Treasury announced a restructuring of the federal intervention to support AIG. As evidenced by the additional borrowing after the September 16 loan, AIG had continued to see cash flow out of the company, particularly to post collateral for the credit default swaps that were arguably the primary cause of the financial problems in the company. The revised agreement points to the tension between making the terms of the assistance undesirable enough to deter other firms from seeking government assistance in the future, compared to making the terms of assistance so punitive that it exacerbates the financial problems of the recipient firm. It also points to the fact that once a firm has been identified as too big to fail, government assistance to the firm can become open-ended, as the original amounts offered were quickly revised upward. The November 10 restructuring eased the payment terms for AIG and had three primary parts: (1) a $40 billion direct capital injection, (2) restructuring of the $85 billion loan, and (3) a $52.5 billion purchase of troubled assets. Loan Restructuring The initial $85 billion loan facility from the Federal Reserve was reduced to $60 billion, for a time period extended to five years, and the financial terms are eased considerably. Specifically, the interest rate on the amount outstanding is reduced by 5.5 percentage points (to Libor plus 3%) and the fee on undrawn funds is reduced by 7.75 percentage points (to 0.75%). Purchase of Troubled Assets While P.L. 110-343 provided for the government purchase of troubled assets, the purchases related to AIG are being done by LLCs created and controlled by the Federal Reserve. This structure is similar to that created by the Federal Reserve to facilitate the purchase of Bear Stearns by JPMorgan Chase in March 2008. There are two LLCs set up for AIG—one for residential mortgage-backed securities (RMBS) and one for collateralized debt obligations (CDO). The agreement called for the RMBS LLC (Maiden Lane II) to be lent up to $22.5 billion by the Federal Reserve and $1 billion from AIG to purchase RMBS from AIG's securities lending portfolio. The AIG loan is subordinated and AIG will bear the first $1 billion in losses should there be future losses on these securities. AIG and the Federal Reserve will "share" in any future gains, with five-sixths of future profits accruing to the Fed and one-sixth accruing to AIG. As of March 2009, the assets had lost nearly $3 billion in value, more than AIG's total loss exposure. The previous $37.8 billion loan securities lending loan facility is to be repaid and terminated with the proceeds from this LLC plus additional AIG funds if necessary. At the end of 2008, about half of the RMBS purchased were backed by subprime mortgages, and about one quarter were backed by Alt-A mortgages. Thirteen percent of the portfolio's holdings had a credit rating of AAA and 65% had a junk rating. At the end of 2009, the Maiden Lane II assets had lost $1.1 billion in value, slightly exceeding the AIG's maximum loss sharing. The agreement called for the CDO LLC (Maiden Lane III) to be lent up to $30 billion from the Federal Reserve and $5 billion from AIG to purchase CDOs on which AIG has written credit default swaps. The $5 billion loan from AIG is subordinated and AIG will bear the first $5 billion in future losses on these securities. As of March 2009, the assets had lost nearly $8.5 billion in value, more than AIG's total loss exposure. AIG and the Federal Reserve will "share" in any future gains, with five-sixths of future profits accruing to the Fed and one-sixth accruing to AIG. The Federal Reserve also indicates that the credit default swaps will be unwound at the same time that the CDOs are purchased. Many credit default swaps, however, are purchased by entities not holding the underlying CDOs; it is unclear how, or if, such credit default swaps written by AIG will be addressed. At the end of March 2009, 16% of the portfolio's holdings had a credit rating of AAA, and 72% had a junk rating. At the end of 2009, the Maiden Lane III assets had lost $0.9 billion in value, resulting in no losses to date for the Fed. Direct Capital Injection Through the TARP, the Treasury purchased $40 billion in preferred shares of AIG. In addition to $40 billion in preferred shares, the Treasury also receives warrants for common shares equal to 2% of the outstanding AIG shares. AIG was the first announced non-bank to receive TARP funds. The $40 billion in preferred AIG shares now held by the Treasury are slated to pay a 10% dividend per annum, accrued quarterly. Participation in TARP triggers restrictions on executive pay as required by Congress, including a restriction on "golden parachutes" and a requirement for clawbacks on previously provided bonuses in the case of accounting irregularities. According to the November 10, 2008, AIG filings with the Securities and Exchange Commission, the amount of shares held in trust for the benefit of the U.S. Treasury will be reduced by the shares and warrants purchased under TARP, so the total equity interest currently held by the U.S. government equals 77.9% plus warrants to purchase another 2%. The warrants equal to 77.9% of AIG equity were exercised and transferred to the government on March 4, 2009. Revision to Agreement on March 2, 2009 On March 2, 2009, the Treasury and Fed announced another revision of the financial assistance to AIG. On the same day, AIG announced a loss of more than $60 billion in the fourth quarter of 2008. In response to the poor results and ongoing financial turmoil, the ratings agencies were reportedly considering further downgrading AIG, which would most likely have resulted in further significant cash demands due to collateral calls. According to the Treasury, AIG "continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally." The revised assistance is intended to "enhance the company's capital and liquidity in order to facilitate the orderly completion of the company's global divestiture program." The revised assistance includes the following: Exchange of the existing $40 billion in preferred shares purchased through the TARP program for preferred shares that "more closely resemble common equity," thus improving AIG's financial position. Dividends paid on these new shares will remain at 10%, but will be non-cumulative and only be paid as declared by AIG's board of directors. Should dividends not be paid for four consecutive quarters, the government has the right to appoint at least two new directors to the board. Commitment of up to $30 billion in additional preferred share purchases from TARP. As of October 2009, AIG had issued $3.2 billion of these shares. Reduction of interest rate on the existing Fed loan facility by removing the current floor of 3.5% over the LIBOR portion of the rate. The rate will now simply be three month LIBOR plus 3%, which is approximately 4.25%. Limit on Fed revolving credit facility will be reduced from $60 billion to $25 billion. Up to $33.5 billion of the approximately $38 billion outstanding on the Fed credit facility will be repaid by asset transfers from AIG to the Fed. Specifically, (1) $8.5 billion in ongoing life insurance cash flows will be securitized by AIG and transferred to the Fed; and (2) $25 billion in preferred interests in two of AIG's large life insurance subsidiaries will be issued to the Fed. The transfer of the preferred interest in the life insurance subsidiaries was finalized in December 2009. This effectively transfers a majority stake in these companies to the Fed, but the companies will still be managed by AIG. Assistance through the end of 2009 is summarized in Table 2 . In addition to the new assistance, AIG announced that it was forming a new holding company to include its primary property/casualty insurance subsidiaries. Since the first assistance in September 2008, AIG has sought to sell subsidiaries, including those whose equity has been transferred to the Fed, to repay the loans and reduce its holdings to a core property/casualty business. Such sales have been difficult during the ongoing financial turmoil. By effectively transferring the two life insurance subsidiaries to the Fed and gathering property casualty subsidiaries in a new holding company, AIG is arguably progressing toward this goal. CBO estimates that most of the expected government losses from assistance to AIG will accrue to TARP, in part because those claims are junior to the Fed's. In addition, CBO did not expect losses from the Maiden Lane asset purchases at the time of purchase because the Fed reported the assets were bought at current market value. It is unclear why it was necessary for the Fed to acquire the assets if they could have been sold at the same price in the private market, however. Who Benefits From Assistance to AIG? While billions of dollars in government assistance have gone to AIG, in many cases, it can be argued that AIG has essentially acted as an intermediary for this assistance. In short order after drawing on government assistance, substantial funds have flowed out of AIG to entities on the other side of AIG's financial transactions, such as securities lending or credit default swaps. If AIG had been allowed to fail and had entered bankruptcy, as was the case with Lehman Brothers, then these counterparties in many cases would have been treated as unsecured creditors and seen their claims reduced. Seen from this view, the true beneficiaries of the billions in federal assistance that have flowed to AIG has not been AIG itself, but these counterparties. On March 15, 2009, AIG released information detailing the counterparties to many of its transactions. The released information detailed $52.0 billion of direct support to AIG that went to AIGFP related transactions, $29.6 billion in Maiden Lane III CDS-related transactions, and $43.7 billion in payments to securities lending counterparties. Legal Authority All Fed assistance to AIG is authorized under Section 13(3) of the Federal Reserve Act, the same emergency authorization used for Bear Stearns. This authorization was needed because the Fed cannot normally lend to a financial firm that is neither primarily a depository institution (although it owns a small thrift) nor a primary dealer. Guarantee of Citigroup's Assets Similar to Bear Stearns and AIG, Citigroup faced a sudden drop in its stock price in late 2008. Its stock price fell from $23 per share on October 1, 2008, to $3.77 on November 21, 2008, amidst investor concern about its losses. Stepping in before a potential run began, the Federal Reserve and federal government announced on November 23 that they would purchase an additional $20 billion of Citigroup preferred shares through TARP and guarantee a pool of up to $306 billion of Citigroup's assets. (The assets were valued at $301 billion when the agreement was finalized on January 16, 2009.) Citigroup announced that the assets guaranteed include mortgages, consumer loans, corporate loans, asset backed securities, and unfunded lending commitments. The guarantee was to be in place for 10 years for residential assets and five years for non-residential assets. Citigroup would exclusively bear up to the first $29 billion of losses on the pool. Any additional losses would be split between Citigroup and the government, with Citigroup bearing 10% of the losses and the government bearing 90%. The first $5 billion of any government losses would be borne by the Treasury using TARP funds; the next $10 billion would be borne by the FDIC; any further losses would be borne by the Fed through a non-recourse loan. Citigroup will pay the federal government a fee for the guarantee in the form of $7 billion in preferred stock with an 8% dividend rate and warrants to purchase common stock that were worth $2.7 billion at the time of the agreement. The assets will remain on Citigroup's balance sheet, and Citigroup will receive the income stream generated by the assets and any future capital gains. In December 2009, Citigroup and the Treasury reached an agreement to repay the outstanding $20 billion in preferred securities and to cancel the asset guarantee. As part of this agreement, Citigroup paid a termination fee of $50 million and Treasury agreed to cancel $1.8 billion worth of the trust preferred securities originally paid as a fee for the guarantee. While the asset guarantee was in place, no losses were claimed and no federal funds paid out. In the cases of Bear Stearns and AIG, management was replaced and shareholders equity was diluted to limit moral hazard problems associated with receiving government assistance. Similar steps were not taken in the case of Citigroup. Guarantee of Bank of America's Assets On January 16, 2009, the federal government and the Federal Reserve announced that that they would purchase an additional $20 billion of Bank of America preferred shares through TARP and guarantee a pool of up to $37 billion of Bank of America's assets and derivatives with maximum potential future losses of up to $81 billion. The guarantee would remain in place for 10 years for residential mortgage-related assets and five years for all other assets. Bank of America will bear up to the first $10 billion of losses on the assets, with any subsequent losses split 90% by the government and 10% by Bank of America. The government's share of the next $10 billion of losses will be borne jointly by the FDIC and the Treasury, and any further losses will be borne by the Fed. It was announced that the assets being guaranteed were largely acquired during Bank of America's acquisition of Merrill Lynch. Bank of America will pay the federal government a fee for the guarantee in the form of $4 billion in preferred stock with an 8% dividend rate and warrants to purchase common stock worth $2.4 billion at the time of the agreement. As part of the agreement, Bank of America was prohibited from paying dividends on common stock for three years. The assets will remain on Bank of America's balance sheet, and Bank of America will receive the income stream generated by the assets and any future capital gains. Bank of America can further limit its cost and the benefit to the government by opting out of the guarantee early at its discretion. In the cases of Bear Stearns and AIG, management was replaced and shareholders equity was diluted to limit moral hazard problems associated with receiving government assistance. Similar steps were not taken in the case of Bank of America. On the other hand, the government has tried to encourage healthy financial firms to merge with troubled firms, and it may have felt that harsh terms on an agreement to guarantee assets that were in part acquired from Bank of America's takeover of Merrill Lynch would have discouraged future mergers. It has been reported that the asset guarantees to Bank of America were motivated by a desire to prevent them from withdrawing from their uncompleted merger agreement with Merrill Lynch. The agreement to guarantee Bank of America's assets was never finalized, and on September 22, 2009, it was announced that Bank of America would pay $425 million to exit the agreement. Although Bank of America never formally received government protection of its assets, an exit fee could be justified on the grounds that Bank of America benefited from the implicit support that the negotiations provided. Policy Issues Cost to the Treasury Unlike all other institutions, currency (Federal Reserve notes) is the Fed's primary liability. Along with its holdings of Treasury securities, its assets are the loans it makes (through the discount window and the new programs detailed above) and the private assets it buys directly or holds through LLCs (e.g., for AIG and the Bear Stearns takeover). It earns profits on its assets that are largely remitted to the Treasury. Its loans and asset purchases are financed by increasing its liabilities (Federal Reserve notes), and the financing does not necessarily result in any inherent cost for the Treasury. Indeed, if the loans are repaid, they would increase the profits of the Fed, which in turn would increase the Fed's remittances to the Treasury. Even if the loans are not repaid, most are fully collateralized (usually over-collateralized), so the Fed would not suffer losses unless the collateral had lost value. In addition, most of its loans are made with recourse, which means that borrowers are still liable if the collateral loses value. The Fed had net income of $38.8 billion and remitted $34.9 billion to the Treasury in 2008. Net income increased to $52.4 billion and remittances to the Treasury rose to $47.4 billion in 2009. In the past, most of the Fed's net income has derived from the interest on its Treasury securities holdings, not its loans. By the end of 2008, its loans and private assets holdings were much larger than its Treasury holdings (see Table 4 ). The earnings and any losses the Fed took on its loans would increase or reduce its net income, respectively. If loan losses caused an overall net loss, the Fed's capital (the excess of its assets compared with its liabilities) would be reduced. The Fed had capital equal to about $52 billion at end of 2009, half of which was paid-in capital of member banks and the other half of which was surplus. The Fed has not had an annual net operating loss since 1915. However, the Fed's balance sheet became more risky in 2008, due to the shift in composition of its assets from U.S. Treasuries to direct loans and private securities and due to the increase in its liabilities relative to its capital. For example, at the end of 2008, the Fed's capital would be depleted if its realized net losses were equal in value to 1.9% of its holdings of financial assets (U.S. Treasuries, loans, and other private securities). Thus, any potential losses on loans to the Fed would not involve taxpayer dollars flowing to the Fed unless the losses exceeded the sum of its other earnings and its capital and the Treasury decided it did not want the Fed to operate as technically insolvent. However, even if the losses did not result in insolvency, any losses could result in a smaller remittance of earnings to the Treasury than would have occurred had the Fed not made the loans. Therefore, the ultimate cost to the government is the same whether loans to the financial sector are made through the Fed or the Treasury. The Fed has reported to Congress that it does not expect there to be losses on any of the actions it has undertaken under its emergency authorities (including the Maiden Lane LLCs, two of which had unrealized capital losses at the end of 2009), but it has not provided details as to how it reached that conclusion. Some analysts are concerned that a future increase in interest rates could result in losses on the Fed's asset holdings, but these losses would be realized only if the Fed were forced to sell those assets. To date, all of the Fed's lending programs have earned income for the Fed, except for Maiden Lanes I and II, whose assets have accrued unrealized capital losses. In 2009, the Fed's loan programs earned $5.5 billion, the Maiden Lane assets had fallen in value by a combined $2.3 billion, and the Fed's other assets had earned $48.8 billion, as seen in Table 3 . (The Maiden Lane losses will not be realized until the assets are sold, and the Fed has stated that it intends to hold the assets long term.) In the aggregate, the Fed earned higher profits and increased its remittances to the Treasury. The Fed could generate positive income from its programs but still operate those programs at a subsidy to the recipients. Subsidies would occur when the interest rates charged for loans or prices paid for assets are not high enough to fully compensate for the risks borne by the Fed in undertaking those transactions. In other words, the subsidy is equal to the difference between the price or interest rate the Fed received and what could have been received if the transaction had been made privately. CBO has estimated subsidies for each of the Fed's emergency programs, presented in Table 3 . In evaluating the program, that subsidy would need to be compared with the benefits to the broader economy from the program, which CBO does not attempt to do. CBO estimated that lending programs with high collateral requirements and done on a recourse basis (Term Auction Facility, repurchase agreements, central bank currency swaps, Primary Dealer Credit Facility, Term Securities Lending Facility) generated no subsidies. CBO also concluded that all asset purchases involved no subsidy, either because the purchases were made in the open market (e.g., purchases of Treasury and GSE-related securities) or because the Fed reported that purchases were made at market value (e.g., the Maiden Lane assets). The assumption that Maiden Lane assets were bought at prevailing market prices can be questioned because the rationale for the Fed's purchase was that these assets could not be sold in private markets at the time. CBO finds subsidies for loan facilities without recourse (the two commercial paper facilities and TALF) and for special assistance to systemically significant firms (AIG, Citigroup, and Bank of America). In total, CBO estimates that the Fed's emergency actions were done at a subsidy of $21 billion. This estimate would likely be smaller if re-estimated today, based on current information. For example, CBO finds a subsidy of $13 billion for TALF because TALF was expected to make loans of $200 billion; in reality, loans peaked at $48 billion. CBO also estimates subsidies on the asset guarantees to Citigroup and Bank of America, although those programs were ended with payments to the government and no payouts by the government. Although the Fed has taken steps to minimize the risk that recent activities will result in losses, Members of Congress have raised the question of whether taxpayers should be exposed to additional fiscal risks without congressional approval, particularly because some of the Fed's actions have similarities to those authorized under TARP. H.R. 4173 requires the Fed to issue policies and procedures for emergency lending that, among other things, ensure that "the security for emergency loans is sufficient to protect taxpayers from losses" by assigning a lendable value to collateral that is "consistent with sound risk management practices;" and prohibit lending to borrowers that are insolvent or establishing a lending program or facility for the purpose of helping a single and specific company to avoid bankruptcy. How Much Can the Fed's Balance Sheet Expand? Will the Fed Run Out of Money? As a result of the Fed's new facilities and activities, its balance sheet has increased significantly, from $874 billion on August 1, 2007, a date shortly before the financial system first experienced turmoil, to $2,312 billion at its peak on December 17, 2008, an increase of 165%. Table 4 shows the increase in the balance sheet by category over that period. Since the size of the balance sheet peaked in December 2008, the overall size of the balance sheet has remained relatively steady, but there have been large changes in the composition of the balance sheet. For example, there has been a significant increase in the Fed's holdings of mortgage backed securities and GSE debt, and a significant decrease in lending to primary dealers, holdings of commercial paper, and swaps with central banks. The Fed also began lending through the TALF in March 2009. When the Fed makes loans or purchases assets, the asset side of its balance sheet expands; this must be matched by an increase in its liabilities. As direct loans from the Fed multiplied, some observers questioned at what point the Fed's lending power will be exhausted. The Fed cannot "run out of money" to buy assets and extend loans because it controls its liabilities, the monetary base (federal reserve notes and bank reserves), through which it expands or contracts the amount of money outstanding. There are no statutory limits on the size of the money supply or currency outstanding and, thus, how much it can loan; the ultimate constraint on the Fed's willingness to expand the monetary base in order to expand its activities comes from the part of its congressional mandate requiring stable prices (i.e., a low and stable rate of price inflation). If the Fed allows the money supply to grow too rapidly, then price inflation will become uncomfortably high (discussed in the section below on " Stagflation? "). Sterilization of Lending Before September 2008 Earlier in the financial crisis, the Fed was concerned about inflation rising. For example, in the 12 months ending in August 2008, inflation (as measured by the consumer price index) had risen to 5.4%—significantly higher than the Fed's self-identified "comfort zone." To address that concern, the Fed initially sought to keep its balance sheet from growing in order to offset the effects of its activities on the money supply. One way to keep its balance sheet from growing would be by reducing its other assets. For example, it could "sterilize" its new loans or asset purchases through contractionary open market operations, namely, the sale of Treasury securities. In practice, before September 2008, the Fed kept the monetary base relatively constant by selling enough Treasury securities to offset the additional loans it made. (When the Fed sells Treasury securities, it removes the money it receives in the sale from circulation.) Thus, as loans outstanding rose, the Fed's holdings of Treasury securities initially declined, by $340 billion through December 17, 2008. In September 2007, 88% of its assets were Treasury securities held outright and less than 1% were loans to the financial system. On December 17, 2008, 28% of its assets were Treasury securities, 32% were loans, 17% were private securities (mostly commercial paper), and 25% were currency swaps with foreign central banks. If sterilization through the sale of Treasury securities had continued, the Fed would eventually have held too few Treasury securities to be able to conduct open market operations. As seen in Table 4 , the overall increase in the Fed's balance sheet at its peak was $1.4 trillion, more than the Treasury securities it held before the crisis started ($816 billion) or in September 2008 ($475 billion). The Treasury announced the Supplementary Financing Program on September 17, 2008 as an alternative method for the Fed to increase its assistance to the financial sector without increasing the amount of money in circulation. Under this program, the Treasury has temporarily auctioned more new securities than it needs to finance government operations and deposited the proceeds at the Fed. (The increase in the money supply does not affect inflation because the money received by the Treasury is held at the Fed and not allowed to circulate in the economy.) Ultimately, the program will not affect the Treasury's fiscal position, however, because it will increase the profits of the Fed, which are then remitted to the Treasury. By December 17, 2008, the Treasury had borrowed and increased its deposits at the Fed by $475 billion. From January to September 2009, Treasury deposits were between $200 billion and $300 billion, and were no longer large enough to offset the growth in the asset side of the Fed's balance sheet. Congress authorized this borrowing only indirectly by raising the statutory debt limit, in P.L. 110-343 and other subsequent legislation. In late 2009, Treasury withdrew its supplementary deposits at the Fed in order to finance government spending as the debt approached the statutory limit. Once the debt limit was increased, the Treasury increased its deposits back to around $200 billion. The fact that the Fed has been "sterilizing" the stimulative effects of its loans on the money supply (entirely until September 2008, and partially after then) limits the effects of those loans on financial conditions. In essence, the Fed has two methods for providing the financial system with liquidity—open market operations or direct loans. The Fed increased the role of direct loans to directly meet individual financial institutions' liquidity needs. But the Fed was offsetting the effects of the direct loans on the money supply to meet its goals for inflation. Thus, the loans did not provide additional overall monetary stimulus to the economy when sterilized. Since the Fed was sterilizing the loans because of its concerns with inflation, the utility of sterilization was fundamentally a question of whether the Fed had achieved the proper balance between stabilizing the financial sector and providing price stability, two topics that are discussed below. Quantitative Easing and Balance Sheet Growth Since September 2008 As commodity prices fell later in 2008, the inflation rate also fell. The Fed became less concerned about inflation rising, and more concerned about the further deterioration in financial and economic conditions. After September 2008, the Fed further increased its direct assistance to the financial system, but no longer fully sterilized those activities. As a result, the Fed's balance sheet and the monetary base have expanded rapidly, as demonstrated in Table 4 . The monetary base doubled from August to December 2008—an unprecedented rise. Because this increase went beyond what was needed to target the federal funds rate, it has been referred to as "quantitative easing." Normally, this would trigger a rapid increase in inflation. The main force preventing such an increase is the rapid increase in excess bank reserves held at the Fed during that period. Bank reserves increased from $44 billion in August 2008 to $802 billion on December 17, 2008, as banks preferred to hold the additional reserves created by the Fed's actions in order to shore up their balance sheets to avoid runs. In normal financial conditions, banks would lend out money they received from the Fed, and through a process referred to by economists as the "money multiplier," a $1 increase in the monetary base would lead to a much larger increase in the overall money supply. But if banks hold the money received from the Fed in bank reserves instead of lending it out, the money multiplier process will not occur, so the growth in the overall money supply will be smaller. Data from the Fed show that almost all of the increase in reserves has been through excess reserves, rather than required reserves, which is consistent with banks holding most of the increase in reserves instead of lending them out. Thus, the large increase in the monetary base since September 2008 has not been matched by a corresponding increase in the overall money supply. Initially, the balance sheet grew because of high private demand for borrowing from the Fed, and asset purchases were not needed. But between the weeks of December 17, 2008, and March 25, 2009, the Fed's direct lending to the financial sector decreased from a weekly average of $976 billion to $848 billion. The pattern of decline was steady over that period, and presumably stemmed from the fact that as financial conditions improved, there was less financial sector demand for Fed lending. With declining loan balances, the balance sheet would have shrunk, unless other assets were added to offset the fall in direct lending. On March 18, 2009, the Fed announced a commitment to purchase $300 billion of Treasury securities, $200 billion of Agency debt (later revised to $175 billion), and $1.25 trillion of Agency mortgage-backed securities. Since then, direct lending has continued to gradually decline, while the Fed's holdings of Treasury and Agency securities have steadily increased, as seen in Table 5 . The Fed's planned purchases of Treasury securities were completed by the fall of 2009 and planned Agency purchases were completed by the spring of 2010. By April 2010, direct lending outside of TALF and AIG was modest. Because other assets on the Fed's balance sheet (most notably, liquidity swaps with foreign central banks) have also declined over that period, the net result of these purchases has been to keep the overall size of the balance sheet relatively constant. Thus, the Fed's asset purchases have prevented liquidity from being removed from the financial system as Fed lending fell. But since the fall in lending was spurred by less demand among financial institutions, critics question if the level of liquidity needed in the crisis is still needed today. Purchases of Treasury securities could also stimulate the economy if private interest rates fall in response; a similar effect could occur with purchases of MBS, although those purchases should also more directly stimulate residential investment by reducing mortgage rates. Whether these purchases were more stimulative than the direct lending they replaced depends on their relative effects on financial conditions and interest rates. Future Concerns Once the financial outlook improves, banks may decide to use their reserve holdings to rapidly increase their lending. At that point, if the Fed found itself fighting inflationary pressures, it would have to find a way to prevent banks from lending those reserves in order to prevent a rapid increase in the money supply. The most straightforward method to achieve this would be to withdraw those reserves from the banking system, which would require the Fed to reduce both its assets and liabilities through asset sales. Some of the Fed's outstanding assets can be sold relatively quickly in theory, although there could be political resistance in reality. By April 2010, the Fed's balance sheet consisted predominantly of securities that could be sold in secondary markets. But the Fed has pledged to hold these assets long term. Given the Fed's concerns about the fragility of housing markets, it is not clear how these holdings could be reduced quickly if the Fed became concerned about rising inflation. (About $100 billion to $200 billion per year could be reduced by not replacing maturing assets, according to Chairman Bernanke. ) Another option would be to give banks incentives not to lend out reserves by raising the interest rate that the Fed pays on reserves, although it remains to be seen how interest-sensitive bank reserves are. To better prevent these reserves from being lent out if necessary, the Fed began offering "term deposits" with a one to six month maturity for bank reserves. The interest rate on these term deposits would be set through auction; banks would presumably be willing to bid for term deposits only if the interest rate exceeded the rate paid by the Fed on normal reserves. The Fed could also attempt to reduce liquidity by lending its assets out through "reverse repos." This would change the composition of liabilities on the Fed's balance sheet, replacing Federal Reserve notes or bank reserves with reverse repos. It is unlikely that reverse repos operations could be large enough to remove most of the new liquidity, however. Cash balances held at the Fed through the Treasury Supplemental Financing Program could also be used to tie up liquidity, but the size of this program is constrained by the statutory debt limit (since Treasury needs to borrow to acquire cash), and would be insufficient to significantly reduce liquidity without a large increase in the debt limit. With an eye to the potential long-run inflationary effects of the growth in the Fed's balance sheet, the Fed and Treasury announced in March 2009 that they would seek "legislative action to provide additional tools the Federal Reserve can use to sterilize the effects of its lending or securities purchases on the supply of bank reserves." Many analysts interpreted this statement to express the desire for the Fed to gain authority to issue its own bonds. Returning to the balance sheet in Table 4 , the Fed must match an increase in assets with an increase in liabilities. The only liability it can currently issue are federal reserve notes that increase the monetary base. If the Fed were granted new authority to issue bonds, they could then expand their liabilities without increasing the monetary base and increasing inflationary pressures. Then, there would no longer be any statutory limit or check on the Fed's ability to directly allocate credit, provided it met the broad guidelines of Section 13(3). To date, legislation to allow the Fed to do so has not been considered. With a federal funds rate of zero, unsterilized purchases of long-term assets could help further stimulate the economy by adding needed liquidity to the financial system reducing long-term interest rates (flattening the yield curve). But once the Fed decides to start raising rates, economic theory casts some doubt on the economic usefulness of maintaining a large balance sheet, but sterilizing its effects on the economy by paying interest on reserves, reverse repos, the Treasury Supplemental Program, or issuing Fed bonds. The large balance sheet has no positive effect on liquidity if it is offset by any of these actions that drain liquidity from the economy. And if investors have rational expectations, it is not clear how a large balance sheet could flatten the yield curve in the face of sterilization since the long end of the yield curve should be determined primarily by expectations of future interest rates, and sterilized purchases of assets in the present should not change those expectations, all else equal. Previous experience suggests that sterilized attempts to flatten the yield curve have failed to stimulate the economy. For example, a study by Ben Bernanke (before he was Fed Chairman) and other economists concluded that a similar policy in the 1960s called "Operation Twist" is "widely viewed today as having been a failure." Is the Fed Monetizing the Budget Deficit? Some commentators have interpreted the Fed's decision to make large scale purchases of Treasury securities as a signal that the Fed intends to "monetize the federal deficit," which is projected this fiscal year to reach its highest share of GDP since World War II. Monetizing the deficit occurs when the budget deficit is financed by money creation rather than by selling bonds to private investors. Hyperinflation in foreign countries has consistently resulted from governments' decisions to monetize large deficits. According to this definition, the deficit has not been monetized. Section 14 of the Federal Reserve Act legally forbids the Fed from buying newly issued securities directly from the Treasury, and all Treasury securities purchased by the Fed to date have been purchased on the secondary market, from private investors. Moreover, the size of the Fed's purchases of Treasury securities thus far is small relative to the overall deficit, which was $1.4 trillion in 2009. The Fed has announced and completed purchases of $300 billion thus far, although that amount can be altered at its discretion. Nonetheless, the effect of the Fed's purchase of Treasury securities on the federal budget is similar regardless of whether the Fed buys the securities on the secondary market or directly from Treasury. When the Fed holds Treasury securities, Treasury must pay interest to the Fed, just as it would pay interest to a private investor. These interest payments, after expenses, become profits to the Fed. The Fed, in turn, remits about 95% of its profits to the Treasury, where they are added to general revenues. In essence, the Fed has made an interest-free loan to the Treasury, because almost all of the interest paid by Treasury to the Fed is subsequently sent back to Treasury. The Fed could increase its profits and remittances to Treasury by printing more money to purchase more Treasury bonds (or any other asset). The Fed's profits are the incidental side effect of its open market operations in pursuit of its statutory mandate (to keep prices stable and unemployment low). If the Fed chose instead to buy assets with a goal of increasing its profits and remittances, it would be unlikely to meet its statutory mandate. Limits on the Fed's Ability to Address Problems in the Financial Sector The Fed's actions since 2007 have been primarily focused on restoring liquidity to the financial system—lending to financial firms to convert their illiquid assets into cash or U.S. Treasury securities. But as financial conditions deteriorated in spite of increasing Fed intervention, it became apparent that the problems facing financial firms were not exclusively related to liquidity. The crux of the firms' problem in the fall of 2008 stemmed from the large losses on some of their assets, particularly mortgage-related assets. This caused a number of problems for the firms related to capital adequacy , which is the difference between the value of their assets and the value of their liabilities. First, losses and write-downs associated with those assets have reduced the firms' existing capital. Second, in the current environment, investors and creditors are demanding that firms hold more capital relative to assets than before so that firms can better withstand any future losses. Third, at the peak of the crisis, firms were unable to raise enough new capital. Firms can raise new capital through retained earnings, which had been greatly reduced for many firms by the poor performance of their assets, or by issuing new capital (equity) and selling it to new investors. But during the crisis, investors were reluctant to inject new capital into struggling firms. Part of the explanation for this is that losses made the firms less profitable. But another part of the reason was that investors feared that there would be further losses in the future that would reduce the value of their investment, and perhaps even cause the firm to become insolvent. Uncertainty about future losses was partly caused by the opacity surrounding the assets that have been declining in value, which makes it hard for investors to determine which assets remain overvalued and which are undervalued. The result for companies such as Bear Stearns, Lehman Brothers, AIG, Washington Mutual, and Wachovia was a downward spiral in their stock price, which had two self-reinforcing characteristics. First, there was little demand for existing stock since its worth would either have been diluted by new capital (raised privately or through government intervention) or lost in insolvency. Second, new capital could not be attracted because the fall in stock value had left the market capitalization of the firms so low. If a firm's capital is completely depleted, there is no longer a buffer between its assets and liabilities, and it becomes insolvent. In 2009, financial firms were again able to issue capital to private investors, and many did so successfully. Many large financial firms, including the firms that have failed, are heavily dependent on short-term borrowing to meet their current obligations. As financial conditions worsened, some of the firms that had the problems described above had problems accessing short-term borrowing markets that in normal conditions could be taken for granted. In an atmosphere where creditors cannot perceive which firms have insufficient capital, they become unwilling to lend for even short intervals. This is the essence of the liquidity problem—although the firms' assets may exceed their liabilities, without access to short-term borrowing, the firm cannot meet its current obligations because it cannot convert its assets into cash quickly enough (at least not if it wishes to avoid "fire sale" prices). The Fed has always been the "lender of last resort" in order for banks to avoid liquidity problems during financial turmoil. To borrow from the Fed, a financial firm must post collateral. In essence, this allows the firm to temporarily convert its illiquid assets into cash, enabling the firm to meet its short-term obligations without sacrificing its assets. The Fed has always lent to commercial banks (depository institutions) through the discount window. As discussed above, it has extended liquidity to non-bank financial firms since 2008 through new lending facilities. Borrowing from the Fed increases liquidity but it does not change a firm's capital buffer since it now has a liability outstanding to the Fed. So borrowing from the Fed cannot solve the problems of undercapitalization that some firms faced. Indeed, the Fed will generally not lend to firms that are not creditworthy because it wants to provide liquidity only to firms that are solvent, and thus able to repay. H.R. 1424 , which was signed into law on October 3, 2008 ( P.L. 110-343 ), created the Troubled Asset Relief Program. The Treasury initially used TARP funds to address the capital adequacy problem directly by providing $250 billion in capital to banks directly through preferred share purchases by TARP. Some have asked whether there is any way the Fed could have addressed the financial firms' capital adequacy problems. All of the Fed's standing lending facilities involve collateralized lending, and as discussed above, any program involving collateralized lending would not change a firm's capital position. According to one legal analysis, there is no express statutory authority for the Fed to purchase corporate bonds, mortgages, or equity. But the Fed's assistance through the three Maiden Lane LLCs it has created has some similarities to TARP. In the case of Bear Stearns, the Fed created a limited liability corporation called Maiden Lane I, and lent Maiden Lane $28.82 billion. Maiden Lane I used the proceeds of that loan and another loan from JPMorgan Chase to purchase mortgage-related assets from Bear Stearns. (A similar arrangement with AIG led to the creation of Maiden Lane II and Maiden Lane III.) Thus, although the Fed created and controlled the Maiden Lanes, the assets were purchased and held by the Maiden Lanes, not the Fed. The Fed plans to hold the Maiden Lane assets until markets recover, and then sell the assets to repay its loans. The Maiden Lanes were created under the Fed's Section 13(3) emergency authority. H.R. 4173 forbids "a program or facility that is structured to remove assets from the balance sheet of a single and specific company." The Fed was presumably granted broad emergency powers under Section 13(3) so that it had the flexibility to deal with unforeseen circumstances. Nonetheless, too broad of a reading of its powers could provoke displeasure in Congress or legal challenges. Creating TARP within the Treasury through legislation rather than the Fed through emergency powers avoided the argument of whether such a program extended beyond the Fed's intended role. Lender of Last Resort, Systemic Risk, and Moral Hazard Since its early days, one of the Fed's main roles has been to act as a lender of last resort to the banking system when private sources of credit become unavailable. It does so by lending through the discount window and its new lending facilities. The lender of last resort function can be seen from the perspective of an individual institution or the financial system as a whole. From the perspective of the individual institution, discount window lending is meant to provide funds to institutions that are illiquid (cannot meet current obligations out of current cash flow) but still solvent (assets exceed liabilities) when they cannot access funds from the private market. Discount window lending was unable to end bank runs, however—bank runs did not cease until the creation of federal deposit insurance. The experience of the Great Depression suggested that bank runs placed intolerably high costs on the financial system as a whole, as they led to widespread bank failures. Fed lending is not meant to help insolvent institutions, with one exception explained below. Access to Fed lending facilities and deposit insurance creates moral hazard for financial institutions—they can take on more risk than the market would otherwise permit because of the government safety net. To limit moral hazard, institutions with depository insurance and access to the discount window are subject to a safety and soundness regulatory regime that includes capital requirements, reserve requirements, bank examinations, and so on. The exception to the rule that insolvent institutions cannot access Fed lending facilities is when the institution is deemed "too big to fail." Institutions that are too big to fail are ones that are deemed to be big enough that their failure could create systemic risk , the risk that the financial system as a whole would cease to function smoothly. For example, failure could lead to systemic instability through "contagion" effects where the losses to creditors and counterparties imposed by the bankruptcy system drove those creditors and counterparties into insolvency. A systemic risk episode could impose heavy costs on the overall economy, as the bank panics of the Great Depression demonstrated. Although too big to fail institutions are not offered explicit guarantees, it can be argued that they have implicit guarantees since the government would not be willing to allow a systemic risk episode. This accentuates the moral hazard problem described above. There is no official governmental classification of which financial institutions are too big to fail, presumably since maintaining uncertainty over which institutions are too big to fail could help reduce the moral hazard problem. But the lack of official designation arguably creates a vacuum in terms of policy preparedness. (Making the problem more complex, as one report described the situation, "Officials grimly concluded that while Bear Stearns isn't too big to fail, it was too interconnected to be allowed to fail in just one day." It is unclear how to judge which institutions are too interconnected to fail.) As the cases of Bear Stearns, Fannie Mae and Freddie Mac, and AIG illustrate, some of the modern-day financial institutions that are too big to fail are not depository institutions that fall under the strict regulatory umbrella that accompanies membership in the Federal Reserve system. Nevertheless, all received direct or indirect assistance from the Fed. This highlights the shift in financial activity from a bank-dominated financial system at the time of the Fed's creation to a system whose health now depends on many types of institutions. The Fed was set up to be a lender of last resort to only the banking system. In the current crisis, it has been able to extend its lender of last resort functions to non-bank financial institutions only because of its Section 13(3) emergency powers. A policy issue going forward is whether the extension of these functions should be made permanent, and if so, what types of regulatory safeguards should accompany it. Because Section 13(3) of the Federal Reserve Act is intended for responding to unanticipated emergencies, it grants authority that is broader and more open-ended than the Fed's normal authority. It is possible that part of the reason these institutions failed is because they took on excessive risks in the belief that they were too big to fail. Although that theory can be debated, it is clearer that the precedent of the Fed's role in the Bear Stearns acquisition may strengthen the perception of other institutions and investors that any financial firm, regardless of whether it is a depository institution, will be bailed out in the future if it is too big to fail, or merely too interconnected to fail. If so, it could be argued that the Bear Stearns episode may have increased moral hazard going forward. The government's decision not to intervene to prevent the failure of the investment bank Lehman Brothers in September 2008, but to subsequently assist AIG, Citigroup, and Bank of America may have created further market uncertainty regarding which institutions the government views as too big to fail. Lehman Brothers was larger than Bear Stearns and involved in similar business activities. Others have argued that the failure of Lehman Brothers set off a wave of unrest in money markets (see above), interbank lending markets, and the market for credit default swaps that would make the government unlikely to allow any large institution to fail in the future. The government assistance to Bear Stearns, Fannie Mae and Freddie Mac, and AIG all include clauses that significantly reduced the value of existing shareholder equity. This was partly justified in terms of reducing moral hazard—investors would be reluctant to buy equity in too big to fail companies that were taking excessive risks if the government demanded a reduction in existing shareholder value. But government assistance in all of these cases made creditors and other counterparties whole. In these cases, the moral hazard problem manifests itself in a willingness of creditors to lend to, and counterparties to transact with, a firm they know to be taking excessive risks, thereby potentially allowing the firm to take more risks. More recent government assistance to Citigroup and Bank of America was provided without similar measures to replace management or dilute shareholders. (Warrants to purchase some common stock were issued but have not yet been exercised.) Market participants may view this decision as a signal that the government is no longer placing emphasis on avoiding moral hazard. The current situation raises three broad points about systemic risk. First, risk is at the foundation of all financial intermediation. Policymakers may wish to curb excessive risk taking when it leads to systemic risk, but too little financial risk would also be counterproductive for the economy. (Indeed, some would argue that part of the underlying problem for the financial system as a whole at present is that investors are currently too risk averse.) Second, many analysts have argued that part of the reason that so much financial intermediation has left the commercial banking system is to avoid the costs of regulation. This point applies to future regulatory changes as well. An attempt to increase regulation on banks could lead more business to move to hedge funds, for example. Third, financial markets have become significantly more complex and fast-moving in recent years. Many of the financial instruments with which Bear Stearns, Lehman Brothers, and AIG were involved did not exist until recently. For regulation to be effective in this environment, it faces the challenge of trying to keep up with innovation. If used prudently, many of these innovations can reduce risk for individual investors. Yet the Bear Stearns example implies that innovation may also lead to more interconnectivity, which increases systemic risk. Going forward, policymakers must determine whether new regulation is needed to limit moral hazard because there may be no credible way to maintain a policy that prohibits the rescue of future institutions that are too big to fail even if such a policy were desired. The financial crisis has led to the passage of comprehensive regulatory reform in the House and Senate that address the "too big to fail" problem and the Fed's role as a regulator and lender of last resort. CRS Report R40877, Financial Regulatory Reform: Systemic Risk and the Federal Reserve , analyzes the effects of this legislation on the Fed and the "too big to fail" issue. Oversight, Transparency, and Disclosure of Emergency Programs Because profits and losses borne by the Fed ultimately get passed on to taxpayers (see " Cost to the Treasury "), some Members of Congress have argued that more information about the Fed's emergency activities should be made available to the public. The Fed has not been subject to many of the oversight and reporting requirements applied to the TARP, although the amount of direct assistance outstanding from the Fed at its peak exceeded the authorized size of TARP. Nonetheless, the Fed has publicly released a significant amount of information on its emergency actions. The Fed's financial statements are published weekly and audited by private sector auditors, with the results published in the Fed's annual report. The Fed has provided detailed information to the public on the general terms and eligibility of its borrowers and collateral by class for each crisis-response program. It has also provided a rationale for why each crisis program has been created, and an explanation of the goals the program is meant to accomplish. The Emergency Economic Stabilization Act ( P.L. 110-343 ) requires the Fed to report to the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee on its justification for exercising Section 13(3), the terms of the assistance provided, and regular updates on the status of the loan. Beginning in June 2009, the Fed began releasing a monthly report that listed the number of and concentration among borrowers by type, the value and credit-worthiness of collateral held by type, and the interest income earned for each of its facilities. Contracts with private vendors to purchase or manage assets are also posted on the New York Fed's website. But the Fed has kept confidential the identity of the borrowers from its facilities, the collateral posted in specific transactions, the terms of specific transactions, and the results of specific transactions (i.e., whether they resulted in profits or losses). As historical precedent, the Fed has had a longstanding policy of keeping the identity of banks that borrow from its discount window confidential. Those calling for more disclosure note that the new Fed programs place the Fed in a more expansive role and are potentially riskier than the discount window, and, unlike the discount window, were not explicitly endorsed by legislation (many were authorized under its emergency authority). The Fed has argued that allowing the public to know which firms are accessing its facilities could undermine investor confidence in the institutions receiving aid because of a perception that recipients were weak or unsound. A loss of investor confidence could potentially lead to destabilizing runs on the institution's deposits, debt, or equity. If institutions feared that this would occur, the Fed argues, then the institutions would be wary of participating in the Fed's programs, which, in the aggregate, would retard economic recovery. A historical example supporting the Fed's argument would be the Reconstruction Finance Corporation (RFC) in the Great Depression. When the RFC publicized to which banks it had given loans, those banks typically experienced depositor runs. A more recent example provides mixed evidence—disclosure of TARP fund recipients. At first, TARP funds were widely disbursed, and recipients included all the major banks. At that point, there was no perceived stigma to TARP participation. More recently, many banks have repaid TARP shares at the first opportunity, and remaining participants have expressed concern that if they did not repay soon, investors would perceive them as weak. Arguments about investor confidence are arguably less compelling when applied to publicly disclosing collateral held by the Fed. There are several different approaches to expanding disclosure or oversight: Congress could remove the Government Accountability Office's (GAO's) restrictions on conducting investigations of the Fed for Congress. While GAO has had longstanding authority to audit the Fed's non-monetary policy functions, the Federal Banking Agency Audit Act of 1978 (31 USC 714(b)) restricts GAO from auditing certain Fed activities: (1) transactions with foreign central banks or governments; (2) "deliberations, decisions, or actions on monetary matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;" and (3) "transactions made under the direction of the Federal Open Market Committee." While the act does not specifically mention activities taken under the Fed's emergency authority, those activities have been interpreted as falling under the restrictions. Also included in the Federal Banking Audit Act of 1978 are restrictions on GAO disclosure of confidential information about the financial firms subject to the Fed's policies. Thus, if audit restrictions were removed but these disclosure restrictions remained in place, GAO audits would not necessarily accomplish some policymakers' goal of disclosing the identities of borrowers from Fed lending facilities. S. 896 , which was signed into law on May 20, 2009 ( P.L. 111-22 ), allows GAO audits of "any action taken by the Board under ... Section 13(3) of the Federal Reserve Act with respect to a single and specific partnership or corporation." This would allow GAO audits of the Maiden Lane facilities and the asset guarantees of Citigroup and Bank of America, but would maintain audit restrictions on non-emergency activities and broadly-accessed emergency lending facilities, such as the Primary Dealer Credit Facility or the commercial paper facilities. In performing the audit under S. 896 , GAO must maintain the confidentiality of the private documents it accesses, but cannot withhold any information requested by Members of Congress on the committees of jurisdiction. H.R. 4173 allows GAO to audit emergency actions, discount window lending, and open market operations for operational integrity, accounting financial reporting, internal controls, collateral policies, favoritism, and third-party contracting policies. With the exception of the Maiden Lane facilities, GAO would be prohibited from releasing confidential information to Congress or the public about the transactions until the information was released by the Fed. H.R. 4173 also requires a GAO audit, according to the criteria listed above, of all lending between December 2007 and the date of enactment. It also requires a separate GAO audit to determine whether the selection of Federal Reserve regional bank presidents meets the criteria under Section 4 of the Federal Reserve Act, whether there are actual or potential conflicts of interest created by member banks choosing Fed regional bank directors, to examine the role regional banks played in the Fed's response to the crisis, and to propose reforms to regional bank governance. Congress could require the Fed to disclose more information on the identities of borrowers, the collateral accepted, or the terms and results of transactions. Congress requires the Fed to make some general policy reports, but does not typically require the Fed to disclose this type of specific information. Indeed, much of the information about monetary policy that the Fed currently makes public is done so on a voluntarily basis. H.R. 4173 requires the Fed to disclose the identities of borrowers and terms of borrowing to the committees of jurisdiction within seven days of a loan and allows for the information to be kept confidential if desired. It requires that the identities of borrowers and terms of borrowing be released to the public with up to a two year delay for the discount window and a one year delay after a facility has been terminated for other lending. It requires that the identities of counterparties and terms of sale be released to the public with up to a two year delay for open market operations. It requires that the identities of borrowers and borrowing terms be released to the public by December 1, 2010, for actions taken during the financial crisis. Congress could create specific oversight boards or committees that focus on the Federal Reserve. Currently, regular congressional oversight of the Fed is done at a general level through semi-annual hearings with the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee, as well as ad hoc hearings on more focused topics. There is no routine, specific oversight of the Fed's crisis-response actions, and no group with monetary policy expertise tasked with evaluating the Fed's actions for Congress. Greater disclosure and outside evaluation could potentially help Congress perform its oversight duties more effectively. The main argument against increasing Fed oversight would be that it could be perceived to reduce the Fed's operational independence from Congress. Chairman Bernanke has argued that "The general repeal of (the audit) exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed." Most economists believe that the Fed's independence to carry out day-to-day decisions about monetary policy without congressional input strengthens the Fed's credibility in the eyes of the private sector that it will follow policies that maximize price and economic stability. Greater credibility is perceived to strengthen the effectiveness of monetary policy on the economy. This independence is seen as consistent with the democratic process because the Fed's mandate to pursue price and economic stability has been given to it by Congress, and choosing the interest rate policies best able to achieve these goals is viewed as relatively technocratic and non-political in nature. The Fed's unprecedented response to the financial crisis moves it into new policy areas involving decisions that are arguably more political in nature, such as deciding which financial actors should be eligible to access Fed credit. While few policymakers argue for total independence or total disclosure and oversight, the policy challenge is to strike the right balance between the two. In February 2010 testimony, Chairman Bernanke has also advocated striking such a balance: we understand that the unusual nature of (the emergency credit and liquidity) facilities creates a special obligation to assure the Congress and the public of the integrity of their operation. Accordingly, we would welcome a review by the GAO of the Federal Reserve's management of all facilities created under emergency authorities. In particular, we would support legislation authorizing the GAO to audit the operational integrity, collateral policies, use of third-party contractors, accounting, financial reporting, and internal controls of these special credit and liquidity facilities…. We are also prepared to support legislation that would require the release of the identities of the firms that participated in each special facility after an appropriate delay. It is important that the release occur after a lag that is sufficiently long that investors will not view an institution's use of one of the facilities as a possible indication of ongoing financial problems, thereby undermining market confidence in the institution or discouraging use of any future facility that might become necessary to protect the U.S. economy. Effects on the Allocation of Capital In normal conditions, the Fed primarily influences economic conditions through the purchase and sale of U.S. Treasury securities on the secondary market. This enables the Fed to influence overall economic conditions without favoring any particular financial firm or asset, thus minimizing its effect on the market allocation of capital. As the Fed has shifted to an increasing reliance on more direct intervention in the financial system since 2008, its actions have had growing consequences for the allocation of private capital. Its actions can affect the allocation of capital by favoring certain classes or types of assets over others or by favoring certain financial firms or types of firms over others. As discussed above, assisting Bear Stearns and AIG after their mistakes may encourage inefficiently high risk taking by other firms that are deemed "too big to fail." Punitive conditions attached to the assistance mitigate but do not eliminate these effects. Allowing primary dealers to temporarily swap their illiquid assets for Treasuries protects those who invested poorly. The Fed has attempted to push down yields on certain assets that it feels have become inefficiently high (e.g., through the Term Asset Backed Securities Lending Facility), but it may be that at the height of the boom yields on these assets had become inefficiently low because investors underestimated their riskiness. The Fed's efforts could eventually reintroduce inefficient underpricing of risk. By purchasing commercial paper, the Fed has increased the relative demand for those assets, which confers an advantage to those firms that can access that market, which are generally large and have high credit ratings. Likewise, the Fed is purchasing GSE obligations and GSE-guaranteed MBS, but not similar securities issued by private firms. This increases the GSEs' funding advantage over private competitors. In a time when liquidity is scarce, access to Fed borrowing confers an advantage on banks and primary dealers over other types of institutions. It may also arguably retard the process of weeding out bad institutions, since reputation is needed to access private liquidity, but not Fed liquidity. On the other hand, during a panic both good and bad firms can be shut out of credit markets. Liquidity has positive externalities that means it would be underprovided by the private sector if it were not provided by the government. When financial markets are not functioning, credit allocation is an incidental but unavoidable side effect of liquidity provision. But some of the Fed's efforts, such as paying interest on bank reserves or possibly seeking to issue its own bonds, could be interpreted as signaling that the Fed intends to go beyond allocating credit for the sole purpose of providing liquidity because these initiatives allow the Fed to extend more credit than is needed for liquidity purposes. The Fed's short-term goal is to avoid the downward spiral in conditions that could lead to a panic, causing serious disruptions to the credit intermediation process for all firms, prudent or otherwise. But in the long run, once financial stability has been restored, these distortions to the market allocation of capital could result in economic inefficiencies. There is also a risk that the Fed's activities could "crowd out" private lenders and investors in specific markets, such as the markets for bank reserves, private-label MBS, and commercial paper, leading to less robust private markets. This risk seems greater since the Fed has suggested methods to keep its balance sheet large (such as paying interest on bank reserves or issuing "Fed bonds") even after the economy has returned to normal. As demand for Fed lending facilities has fallen as financial conditions have improved, the Fed has already decided to purchase more GSE debt and MBS, rather than scale back its balance sheet. Even if some of the Fed's current programs are allowed to expire, if investors believed that they would be revived during the next downturn, capital allocation and incentives would remain altered. Is the Economy Stuck in a Liquidity Trap? The Use of Quantitative Easing at Zero Interest Rates Although monetary policy is credited with having contributed to an unusual degree of economic stability since at least the mid-1980s, some economists argue that it has been rendered ineffective by the current outlook. The argument is that lower interest rates will not boost spending because the economy is stuck in a credit crunch in which financial institutions are unwilling to lend to creditworthy borrowers because of balance sheet concerns. Borrower demand may increase in response to lower rates, but as long as institutions are trying to rebuild their balance sheets, they will remain reluctant to extend credit. Following September 2008, banks greatly increased their holdings of excess reserves, which could potentially be a troubling sign that banks currently prefer extremely safe, liquid assets over lending. Further, the Fed has already reduced the federal funds rate to near zero, and cannot reduce it further. By some measures, the recession was deep enough that zero interest rates are not stimulative enough to move the economy back to full employment quickly. A scenario where monetary stimulus has no effect on the economy is sometimes referred to as a "liquidity trap." Liquidity traps are rare in modern times, but the decade of economic stagnation suffered by Japan in the 1990s after the bursting of its financial bubble is cited as an example. Interest rates were lowered to almost zero in Japan, and the economy still did not recover quickly. There are some problems with this line of reasoning at present. First, liquidity traps are most likely to occur when overall prices of goods and services are falling (called deflation ). When prices are falling, real interest rates are higher than nominal interest rates, so it is more likely that a very low nominal interest rate would still be too high in real terms to stimulate economic activity. Although prices fell at the end of 2008, they have been rising modestly since. Inflation would not be expected to be steady were the economy in a liquidity trap. Second, monetary policy always suffers lags between a reduction in interest rates and corresponding increases in economic activity. Most importantly, it would be wrong to conclude that the Fed has had no further policy options available to stimulate the economy since December 2008, when the Fed reduced the federal funds rate target to a range of 0% to 0.25%. At this point, the potential for further stimulus via traditional monetary policy channels had been exhausted, since the federal funds rate cannot be reduced below zero. But in a 2004 study, Ben Bernanke (a Fed governor at the time) and co-authors laid out policy options for how the Fed could further stimulate the economy once interest rates reached zero. In that study, the authors note that "nothing prevents the central bank from adding liquidity to the system beyond what is needed to achieve a policy rate of zero, a policy that is known as quantitative easing." By that definition, the Fed has engaged in "quantitative easing" since September 2008—instead of adjusting the monetary base to meet the interest rate target, the Fed has adjusted the monetary base to meet the financial sector's liquidity needs. But many different levels of Fed direct lending (and of the corresponding monetary base) are compatible with a zero federal funds rate. Once the federal funds rate hits zero, there is nothing stopping the Fed from further increases in lending that would have further expansionary effects on the economy. It could also engage in quantitative easing without direct lending by purchasing securities. From March 2009 to March 2010, the Fed purchased about $300 billion of longer-term Treasury securities, $1.25 trillion in MBS, and $175 billion of GSE obligations. Fed Vice Chairman Donald Kohn, while acknowledging great uncertainties, estimated that quantitative easing could increase nominal GDP by as much as $1 trillion over the next several years relative to a baseline forecast. The large increase in excess bank reserves casts doubt on the effectiveness of quantitative easing. Since the Fed has increased its balance sheet, excess reserves have averaged between $643 billion and $1,162 billion per month, compared with less than $2 billion before August 2007. The Fed can supply banks with unlimited liquidity, but if banks hold that liquidity at the Fed, the added liquidity will not stimulate economic activity. Even so, the Fed's actions may help bring down other interest rates in the economy, but this will be stimulative only if interest-sensitive spending is responsive to lower interest rates. This would occur through a flattening of the yield curve (i.e., pushing down long interest rates relative to short rates). Some economists argue that reductions in long-term rates are more stimulative than equivalent reductions in short-term rates. But past experience with the efficacy of this method is mixed. Research by the New York Fed concludes that the recent purchases were effective in lowering interest rates based on the immediate response of rates to official announcements about the purchases, although this research could be questioned on the grounds that the rate reductions must be long-lasting to be stimulative, and for some of the maturities in question, interest rates over the entire period rose, on balance. Interpreting the overall effect on interest rates during the life of the asset purchase program is clouded by the fact that other changes in economic conditions also influence interest rates. The authors also use time-series evidence to estimate that the purchase program reduced the yield on ten-year securities relative to short-term securities by 0.38 to 0.82 percentage points. This evidence may suffer from omitted variable bias, however—namely, the change in the risk-premium associated with MBS over the period in question, given the uncertainty prior to the purchase program caused by GSE conservatorship and the financial crisis. Another study by outside economists found small effects of the Fed's MBS purchases on interest rates after adjusting for prepayment and default risk, with the effect mainly occurring at the time the program was announced—before purchases had begun. Although a liquidity trap cannot be ruled out, it is premature to conclude the economy is stuck in one at this point in time. Liquidity traps are a threat when monetary policy has been kept too tight, but the Fed has eased monetary policy aggressively since the crisis began. Stagflation? Other critics have argued that the Fed has created the opposite problem of a liquidity trap—rising inflation due to excessive liquidity. They argue that the economy will enter a period of stagflation, where falling or negative economic growth is accompanied by high or rising inflation. Typically, one would expect an economic slowdown to be accompanied by a decline in the inflation rate. Excess capacity in the capital stock and rising unemployment would force firms and workers to lower their prices and wage demands, respectively. But critics believe the economy is in a situation where a modest but persistent increase in inflation in recent years has led individuals to come to expect higher inflation, and factor that expectation into their price and wage demands. Further driving up inflationary expectations, critics believe that individuals will observe the large increase in the budget deficit and monetary base and conclude that the government will inflate its way out of the crisis. Couple those higher inflation expectations with rising commodity prices, and critics argue that inflation will rise even if the economy slows. They point to the experience of the 1970s, when inflationary expectations became so ingrained that inflation continued to rise despite a fairly deep recession, as a potential parallel to the current situation. Data suggest that the fear of stagflation is premature—inflation remains relatively low at present. There is a consensus among economists that in the long run inflation is primarily a monetary phenomenon, and if the Fed's recent monetary stance were maintained for too long, it would not be consistent with stable inflation. But in the near term, a large amount of unemployment and excess capacity has removed most inflationary pressure. This can be seen in the example of Japan, where the Bank of Japan allowed the monetary base to increase by more than 10% per year after 2001, without inflation ever reaching high levels because of economic sluggishness. Furthermore, commodity prices fell in the second half of 2008, leading to a brief period of falling prices. Since then, inflation has been stable. Ironically, if the Fed's actions succeed in reviving the economy, then the probability that its actions would boost inflation would increase. Under normal conditions, the doubling of the monetary base between August and December 2008 would have led to a sharp increase in inflation, but this did not occur because of the even greater increase in bank reserves held at the Fed that led to only a moderate increase in broader measures of the money supply. If banks responded to improved economic conditions by lending out the reserves they are now holding, the money supply and inflation would rise rapidly. The key to maintaining a stable inflation rate is finding the proper balance between the disinflationary pressures of the slowdown and the inflationary pressures of quantitative easing. The large amounts of liquidity that the Fed has added to the system must be removed soon enough that inflation does not rise, but not so soon that a nascent economic recovery is stubbed out. Removing all of the liquidity is complicated by the fact that the Fed has created some of it by buying assets it has pledged to hold long term. Given the uncertainty facing policymakers at present, finding the proper balance is extremely difficult. Concluding Thoughts While turmoil plagues financial markets periodically, the current episode is notable for its breadth, depth, and persistence. It is difficult to make the case that the Fed has not responded to the current turmoil with alacrity and creativity. The slow financial and economic recovery is not necessarily a sign that the Fed's policy decisions have been wrongheaded—the Fed has provided the financial sector with unprecedented liquidity, but it cannot force institutions to use that liquidity to expand their lending or investing. The Fed's response has raised statutory issues that Congress may wish to consider in its oversight capacity. Namely, the Fed's role in the Bear Stearns acquisition, the assistance to AIG, Citigroup, and Bank of America, the creation of the Primary Dealer Credit Facility (a sort of discount window for a group of non-member banks), and its intervention in the commercial paper market involved emergency authorities that had not been used in more than 70 years. This authority was needed because the actions involved financial institutions that were not member banks of the Federal Reserve System (i.e., depository institutions). But because the authority is broad and open-ended, the Fed's actions under this authority are subject to few legal parameters. The authority allows lending to non-member banks, but some of the loans in the Bear Stearns and AIG agreements were to LLCs that the Fed created and controls, and have been used to purchase Bear Stearns' and AIG's assets. These actions raise an important issue—if financial institutions can receive some of the benefits of Fed protection, in some cases because they are "too big to fail," should they also be subject to the costs that member banks bear in terms of safety and soundness regulations, imposed to limit the moral hazard that results from Fed and FDIC protections? H.R. 4173 attempts to limit future emergency lending to broadly available, collateralized facilities to avoid assistance to failing firms. Some policymakers have questioned whether an institution largely independent from the elected branches of government should be able to (indirectly) place significant taxpayer funds at risk by providing the financial sector with hundreds of billions of dollars of assistance through use of its emergency powers. This raises the policy issue of how to balance the needs for congressional transparency and oversight against the economic benefits of Fed independence. H.R. 4173 removes most GAO audit restrictions and requires disclosure of the identities of borrowers with a delay. Furthermore, without congressional input, hundreds of billions of dollars of borrowing by the Treasury (through the Treasury Supplementary Financing Program) has allowed the Fed to increase its lending capacity without detrimental effects on inflation. But as long as there is no government program to systematically manage financial difficulties at too big to fail institutions, the Fed is the only institution that can step in quickly enough to cope with problems on a case-by-case basis. While some had believed TARP provided the type of systemic approach that would allow the Fed to return to a more traditional role, the Fed's subsequent creation of lending facilities to support the commercial paper market, mortgage market, and asset-backed securities market suggests that TARP cannot cover all unforeseen contingencies. Furthermore, TARP is scheduled to expire in October 2010 and is limited in size, although Fed and TARP money have been coupled in order for TARP to have an impact beyond the $700 billion authorized by Congress. The Fed's actions have resulted in an unprecedented expansion in its balance sheet and the portion of the money supply it controls. Normally, this would be highly inflationary, but inflation has remained low because of the financial crisis. As the economy improves, the Fed will need to contain this monetary expansion to prevent inflation from rising, but not so fast that it causes the financial system to destabilize again. The increase in the balance sheet could have already been automatically reversed by the decline in the Fed's direct lending, but the Fed has chosen to offset it through large-scale purchases of assets to maintain a high level of liquidity in the economy. The Fed views paying interest on bank reserves (authorized by P.L. 110-343 ) as an effective way to prevent inflation from rising.

The Federal Reserve (Fed) has been central in the policy response to the financial turmoil that began in August 2007. It has sharply increased reserves to the banking system through open market operations and lowered the federal funds rate and discount rate on several occasions. Since December 2008, it has allowed the federal funds rate to fall close to zero. As the crisis deepened, the Fed's focus shifted to providing liquidity directly to the financial system through new policy tools. Through new credit facilities, the Fed first expanded the scale of its lending to the banking system and then extended direct lending to non-bank financial firms. The latter marked the first time since the Great Depression that firms that are not banks or members of the Federal Reserve System have been allowed to borrow directly from the Fed. After the crisis worsened in September 2008, the Fed began providing credit directly to markets for commercial paper and asset-backed securities. All of these emergency facilities had expired by the end of June 2010, but central bank liquidity swap lines were reopened in May 2010 in response to the crisis in Greece. The Fed also provided emergency assistance to Bear Stearns, AIG, and Citigroup over the course of the crisis; the Fed still holds assets from and loans to AIG and assets from Bear Stearns. These programs resulted in an increase in the Fed's balance sheet of $1.4 trillion at its peak in December 2008, staying relatively steady since then. The Fed's authority and capacity to lend is bound only by fears of the inflationary consequences, which have been partly offset by additional debt issuance by the Treasury. High inflation has not materialized yet because most of the liquidity created by the Fed is being held by banks as excess reserves, but after the economy stabilizes, the Fed may have to scale back its balance sheet rapidly to avoid it. Asset sales could be disruptive, but the Fed has argued that it can contain inflationary pressures through the payment of interest on bank reserves, which it was authorized by Congress to do in 2008. The statutory authority for most of the Fed's recent actions is based on a clause in the Federal Reserve Act to be used in "unusual or exigent circumstances." All loans are backed by collateral that reduces the risk of losses. Any losses borne by the Fed from its loans or asset purchases would reduce the income it remits to the Treasury, making the effect on the federal budget similar to if the loans were made directly by Treasury. It is highly unlikely that losses would exceed its other income and capital, and require revenues to be transferred to the Fed from the Treasury. To date, the Fed's crisis activities have increased its net income. Two policy issues raised by the Fed's actions are issues of systemic risk and moral hazard. Moral hazard refers to the phenomenon where actors take on more risk because they are protected. The Fed's involvement in stabilizing Bear Stearns, AIG, and Citigroup stemmed from the fear of systemic risk (that the financial system as a whole would cease to function) if they were allowed to fail. In other words, the firms were seen as "too big (or too interconnected) to fail." The Fed regulates member banks to mitigate the moral hazard that stems from access to government protections. Yet Bear Stearns and AIG were not under the Fed's regulatory oversight because they were not member banks. Some Members of Congress have expressed concern that certain details of the Fed's lending activities are kept confidential. H.R. 4173 (P.L. 111-203) adds conditions to the Fed's emergency lending authority, removes most GAO audit restrictions, and requires disclosure of the identities of borrowers with a delay. It also changes the Fed's role in the financial regulatory system (see CRS Report R40877, Financial Regulatory Reform: Systemic Risk and the Federal Reserve).

Overview of the Bill The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ) revises and extends the Adoption Incentives program (under Section 473A of the Social Security Act) for five years, authorizes states to claim additional federal funds for certain child welfare purposes and adds new requirements for receipt of federal child welfare dollars. These changes are primarily designed to better ensure the well-being of children in foster care, to increase support for permanent living arrangements outside of foster care, to better support the transition of older foster youth to independent living, and to enable tribes to directly access federal support for foster care, kinship care, and adoption assistance provided to Indian children under their authority. Financing Changes P.L. 110-351 enacts the broadest changes to federal financial support for child welfare programs under Title IV-E of the Social Security Act, since that part of the law was created by the Adoption Assistance and Child Welfare Act of 1980 ( P.L. 96-272 ). Among those changes, the bill permits states to claim open-ended federal reimbursement for a part of all eligible state costs related to providing kinship guardianship assistance; permits states to claim open-ended federal reimbursement for a part of the cost of making maintenance payments on behalf of eligible children who are in foster care beyond their 18 th birthday (until their 21 st birthday), provided those youths are in school, working, or engaged in a related activity (effective with FY2011); authorizes direct access for tribes to open-ended federal reimbursement for the costs of operating a foster care, adoption assistance, and kinship guardianship assistance program on behalf of children under tribal authority, provided those tribes meet substantially the same requirements made of states receiving these funds (effective with FY2010); expands federal support for adoption assistance by de-linking, over time (FY2010-FY2018), eligibility for that program from income and other criteria that were a part of the prior law cash welfare program, Aid to Families with Dependent Children (AFDC); and phases-in (FY2009-FY2013) authorization for states to claim open-ended federal reimbursement for a larger share of their short-term training costs for staff of state licensed or approved (private) child welfare agencies and to receive reimbursement, at this same increased rate, for eligible short-term training costs of current or prospective relative guardians and certain court or court-related personnel who handle child abuse and neglect cases. In addition, P.L. 110-351 provides $15 million annually (FY2009-FY2013) for Family Connection Grants to support kinship navigator programs, family group decision making meetings, intensive family-finding efforts, and residential treatment centers for families (under Title IV-B of the Social Security Act). And it appropriates $3 million annually (FY2009 and every succeeding fiscal year) for technical assistance and implementation grants related to improving outcomes for Indian children (under Title IV-E). New Requirements Apart from expanding child welfare funding options for states, P.L. 110-351 establishes new requirements for receipt of federal child welfare funding by public child welfare agencies. The bill requires these agencies (under Title IV-E or Title IV-B) to provide assurance that each school-age child receiving federal foster care, adoption, or guardianship assistance is enrolled in school; work with other appropriate public agencies to reduce unnecessary school moves for all children in foster care and, separately, to coordinate and ensure access to health care for them, including mental health services and dental care; make "reasonable efforts" to place siblings together, whether in foster care, adoption, or guardianship; notify the adult relatives of children entering foster care of their options to participate in the care and placement of the child; no more than 90 days before a youth's exit from the foster care system (due to age rather than placement with a permanent family) develop with the youth a specific plan for his or her transition to independent living; negotiate "in good faith" with a tribe in the state that requests an agreement with the state to receive federal (Title IV-E) funds in return for that tribe's administration of some or all of the Title IV-E foster care, adoption assistance, and kinship guardianship assistance program for Indian children under its authority; and inform prospective adoptive parents of foster children of their potential eligibility for the federal adoption tax credit. P.L. 110-351 makes additional child welfare financing, policy, or related program changes, which are detailed below. Finally, and unrelated to child welfare policy, it amends the federal tax code's uniform definition of child (for purposes of claiming a variety of credits or deductions) and it makes changes to certain investment rules for the Treasury Department. Those specific policy changes, together with savings projected from the implementation of guardianship assistance and the school enrollment requirement, are estimated by the Congressional Budget Office (CBO) to fully offset the federal cost of the increased spending authorized by the bill over the next 5 and 10 years. All of the child welfare policy changes in P.L. 110-351 are made to programs or parts of the law that are administered by the Administration for Children and Families (ACF), within the U.S. Department of Health and Human Services (HHS), and are expected to be implemented by ACF. This report begins with a more detailed and topical summary of the provisions of H.R. 6893 , as enacted, including some legislative background and context. It continues by reviewing the cost estimates for the provisions, as projected by CBO, and then discusses the legislative origins of the enacted bill and Administration views of provisions included in related predecessor bills ( H.R. 6307 and S. 3038 ). It closes with a section-by-section description of the bill's provisions. New and Expanded Assistance or Activities Related to Permanence The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ) makes a number of financing and policy changes that are designed to encourage and support children's placement in a permanent family—whether through strengthened or re-established connections with biological kin or through federal support and incentives to support children's adoption out of foster care. Permanence via Family Connections The enacted bill permits states to claim federal support for kinship guardianship assistance (under Title IV-E of the Social Security Act), makes other policy changes expected to promote or facilitate relative placement, authorizes and provides funding for Family Connection Grants, and requires states to make reasonable efforts to place siblings together. Kinship Guardianship Assistance The enacted bill permits states to claim open-ended reimbursement under Title IV-E for kinship guardianship assistance provided on behalf of eligible children who leave foster care for placement in a legal guardianship with a relative. As amended by the Adoption and Safe Families Act of 1997 (ASFA, P.L. 105-89 ), federal statute defines "legal guardianship" (for purposes of Title IV-E and Title IV-B of the Social Security Act) as "a judicially created relationship between child and caretaker which is intended to be permanent and self-sustaining as evidenced by the transfer to the caretaker of the following parental rights with respect to the child: protection, education, care and control of the person, custody of the person, and decisionmaking." States are entitled to claim federal reimbursement for the cost of providing kinship guardianship assistance payments on behalf of eligible children at their Federal Medical Assistance Percentage (FMAP), which may range from a low of 50%, in states with higher per capita income, to 83%, in those with lower per capita income. States opting to provide such payments may also claim reimbursement of eligible general administrative costs at a 50% federal reimbursement rate, and for program-related training costs at 75% federal reimbursement, (although some of these eligible training costs will initially be reimbursed at a lower rate; see " Federal Support for Training and Other Changes " below). Since the middle 1990s, close to 40 states have implemented some kind of subsidized guardianship program for children leaving foster care. However, many of those programs were not statewide and not all have been maintained. Under child welfare "waivers," as many as 11 of those states have experimented with subsidized guardianship programs using federal Title IV-E funds. Some of those earliest experiments found that providing guardianship subsidies increased exits to permanence for children in foster care and that on a range of safety and well-being measures, children placed in subsidized guardianship settings fared at least as well as did children placed in other permanent settings. In May 2004, the Pew Commission on Children in Foster Care recommended federal support of subsidized guardianship (under Title IV-E of the Social Security Act) as part of a broader package of child welfare financing reform measures. In July 2007, citing evidence that the subsidies "could help states increase the number of permanent homes available to African American and other children in foster care," the Government Accountability Office (GAO) recommended that Congress consider authorizing federal subsidies for legal guardianship. In its report approving guardianship assistance provisions similar to those that became a part of the final legislation, the Senate Finance Committee cited both the child welfare waivers and academic research to assert that children in kinship placements, including relative guardianships, have improved well-being; that guardianship is a good permanency option for children in foster care; and that provision of a state option to receive federal support for guardianship assistance under Title IV-E is expected to reduce federal costs under Title IV-E (by reducing the need for federal reimbursement of case planning and case review activities on behalf of children moved permanently from foster care to guardianship). Changes to Promote or Facilitate Relative Placement The option to use federal Title IV-E funds to support children in kinship guardianship is only one of a number of changes included in P.L. 110-351 that seek to strengthen children's connections to their families and to create more opportunity for kinship placements (whether guardianship or otherwise). These include a new plan requirement (under Title IV-E) that states "exercise due diligence" to identify grandparents and other adult relatives of a child, within 30 days of removing the child from the custody of his/her parents, and to notify those relatives of the child's removal and the relatives' options for participating in the care and placement of the child, including information about foster family home licensing and, as applicable, guardianship assistance; codification of existing guidance (regarding a Title IV-E state plan requirement) that provides that when applying the state's foster family home licensing standards to the home of a relative caregiver, the state may—on a case-by-case basis and for a specific child only—waive any "non-safety" licensing requirement; a mandated study and report (by HHS) on the use of licensed and unlicensed relative foster family homes, including information on the frequency and kind of non-safety standards waived by states and recommendations for actions that might increase the number of children in foster care who are safely placed in licensed relative foster family homes; and authorization for HHS to make comparisons of names submitted by child welfare agencies to information in the Federal Parent Locator System (FPLS), which may aid in identifying or locating relatives. Family Connection Grants Further, the bill establishes a new competitive grant program, under Title IV-B, Subpart 1 of the Social Security Act named Family Connection Grants. Under this program, public child welfare agencies (state, local or tribal), and non-profit private organizations may seek federal funding to help children—whether they are in foster care or at-risk of entering foster care—connect (or reconnect) with birth parents or other extended kin. Specifically, the funds must be used to establish or support one or more of the following: kinship navigator programs , which through information referral systems and other means, assist kinship caregivers in learning about, finding, and using programs and services to meet their own needs and those of the children they are raising; intensive family-finding efforts that use search technology to locate biological kin of children and then work to reestablish relationships and to explore permanent family placements for these children; family group decision-making meetings that enable families to develop plans that nurture children and protect them from abuse and neglect, and, when appropriate, must safely facilitate connecting children exposed to domestic violence to relevant services and reconnecting them with the abused parent; and residential family treatment centers that enable parents and children to live together in a safe environment for not less than six months and that provide, onsite or by referral, a full range of services to meet the needs of the family, including substance abuse treatment, early childhood intervention, family counseling, mental health services, medical care, and other services. HHS is permitted to award up to 30 new Family Connection Grants each year and may not award a grant for a period of less than one year nor more than three years. Grantees are required to provide matching funds equal to no less than 25% of the total approved grant program costs in years one and two of a grant and no less than 50% in year three. The enacted bill appropriates $15 million for the Family Connection Grants in each of FY2009-FY2013, of which $5 million must be used annually to support kinship navigator programs. Reasonable Efforts to Place Siblings Together Finally, unless the state documents that doing so would be contrary to the safety or welfare of a sibling, the bill requires states (under the Title IV-E state plan) to make "reasonable efforts" to place siblings together, whether in foster care, kinship guardianship assistance, or adoption. It further stipulates that, whenever a joint placement is not made, the state must make "reasonable efforts" to provide for "frequent visitation or other ongoing interaction" between the siblings, unless the state documents that the facilitated contact is contrary to the safety or well-being of any one of the siblings. Permanence via Adoption P.L. 110-351 also expands eligibility for federal adoption assistance to children with special needs, revises and extends the Adoption Incentives program, and requires states to provide information to prospective adoptive parents concerning the adoption tax credit. Phasing Out Income Eligibility and Related Rules for Adoption Assistance The enacted bill phases out (FY2010-FY2018) the use of income tests as part of determining eligibility for federal adoption assistance. This change will provide more federal support to special needs children who leave foster care for adoption. States must continue to pay a part of the cost of providing this support but are required to use any state funds that would be saved because of this expanded federal eligibility for adoption assistance on child welfare purposes. Federal adoption assistance was established in 1980 ( P.L. 96-272 ) for children determined by their state to have "special needs." The vast majority of these children, then and now, are children adopted out of foster care. The 1980 law also stipulated that to be eligible for federal adoption assistance a child must either be eligible for Supplemental Security Income (SSI) or have been removed from the home of birth parents in which he or she met the income and other eligibility criteria of the federal cash welfare program (Aid to Families with Dependent Children, AFDC). AFDC was repealed in 1996 by the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA, P.L. 104-193 ). However, federal eligibility for Title IV-E assistance continues to be linked to AFDC eligibility rules as those rules existed (on July 16, 1996) prior to the program's repeal. Beginning in FY2010 (and continuing through FY2018), P.L. 110-351 will phase out this link for adoption assistance, which the Senate Finance Committee describes as "an inappropriate eligibility factor for Federal Adoption Assistance." (As included in the enacted bill, the revised eligibility rules for federal adoption assistance also eliminate any income- or resource-related eligibility requirements that apply to special needs children who have physical or medical disabilities that qualify them for Supplemental Security Income, SSI.) The revised eligibility rules will become effective in FY2010, but only for children who are age 16 or older when their adoption assistance agreement is finalized. With each new fiscal year, this age will be lowered (by two years) so that by FY2018 any child with special needs may qualify for federal adoption assistance under the revised rules. In addition, beginning in FY2010, any child who has been in foster care for 60 continuous months may qualify for federal adoption assistance under the revised eligibility rules (regardless of age) and any sibling of a child who is eligible under the revised rules (whether due to age or length of stay in care) may also qualify under those criteria. Throughout this eight-year phase-in period, the eligibility criteria that applied prior to the passage of H.R. 6893 , including the link to AFDC eligibility, will continue to apply to any child who does not qualify for eligibility determination under the revised rules (at the time his or her adoption assistance agreement is finalized). Reauthorization of the Adoption Incentives Program Apart from the expanded support for federal adoption assistance, the Fostering Connections to Success and Increasing Adoptions Act of 2008 continues incentives to states for increased adoptions from foster care by revising and extending the Adoption Incentives program. This program was created by ASFA ( P.L. 105-89 ) and was initially extended in 2003 by P.L. 108-145 . A state earns a bonus for each eligible adoption out of foster care that is above its baseline number of adoptions. States earn an award for increases in total adoptions, increases in adoption of older children (age 9 and above) and, they may also receive an award for increases in the number of adoptions of children with special needs who are under the age of 9. For adoptions finalized in FY2007 (most recent year for which awards were made), 21 st ates earned a total of $11.1 million in bonus funds. States are permitted to spend this award money to provide any service to children or families, including post-adoption services, that is authorized by the major federal child welfare programs (under Title IV-B or Title IV-E of the Social Security Act). P.L. 110-351 continues, through FY2013, the current annual funding authorization of $43 million for the Adoption Incentive program. It doubles the incentive amounts states may earn for each increase in the number of older children adopted from foster care (from $4,000 to $8,000) and for children with special needs, under age 9, who are adopted from foster care (from $2,000 to $4,000). The incentive award for any increase in the total number of children adopted from foster care was not changed and remains at $4,000. The enacted bill also makes other changes to the incentive structure of the program, which are intended to ensure that states (even those with declining overall foster care caseloads) continue to have a fiscal incentive to increase adoptions. These changes include fixing each state's baseline adoption numbers at the numbers achieved in FY2007 and allowing (provided sufficient appropriations) a new incentive payment for states that increase the rate of children adopted from foster care. To earn an award for an increased rate of adoptions, the state must increase the share of children adopted out of its foster care caseload (that is its foster child adoption rate) above the highest such rate it previously achieved, in any year, beginning with FY2002 and ending with the year just prior to the award year. The amount of the award is $1,000 times the increased number of adoptions achieved by the state that are attributed to the increased adoption rate. The increased incentive payment amounts and the incentives for states increasing the rate at which children are adopted out of their foster care caseload, will be used to calculate awards earned by states for adoptions finalized in FY2008. Those awards are expected to be announced in September 2009. Finally, P.L. 110-351 also ensures that states have a full 24 months to spend any adoption incentive funding awarded. Information on Adoption Tax Credit As part of supporting the goal of increasing permanence for foster children through adoption, P.L. 110-351 requires states (under Title IV-E), to provide notice to any individual who is adopting a child out of foster care (or who the state learns is considering such an adoption) of the individual's potential eligibility for the federal adoption tax credit. The credit is adjusted annually for inflation and for tax year 2008 equals $11,650 for individuals who adopt children with "special needs." Support for Older Foster Youth and Transition to Independent Living The Fostering Connections to Success and Improving Adoptions Act of 2008 ( P.L. 110-351 ) also seeks to strengthen support for children whose permanency outcome is "independent living." These are youth who "emancipate" from foster care; that is, they are released from state foster care custody because they have reached the state age of majority (typically age 18) rather than because they have been placed with a permanent family. At least since the middle 1980s ( P.L. 99-272 ), Congress has sought to better aid the transition of these youth from foster care to independent living. With the Chafee Foster Care Independence Act of 1999 ( P.L. 106-169 ), Congress significantly expanded support for services to youth both before and after they "age-out" and in 2001 ( P.L. 107-133 ), it authorized funds for Education and Training Vouchers for these youth. Even so the number of children leaving foster care via emancipation continues to grow—reaching close to 27,000 youth in FY2006—and, in general, their school, work, and other important life outcomes continue to be poor. Option to Extend Support for Youth Remaining in Care to Age 21 P.L. 110-351 takes a new tack in responding to this longstanding concern by permitting states, as of FY2011, to provide continued federal foster care maintenance payments on behalf of eligible children even after they have reached their 18 th birthday. Under current law, federal Title IV-E assistance ends with a child's 18 th birthday, (or, possibly, the 19 th if the child is still completing high school). Specifically, the enacted bill permits states to continue to seek open-ended federal reimbursement for a part of the cost of providing maintenance payments to eligible children who remain in foster care after their 18 th birthday, provided those children have not yet reached their 21 st birthday and are either enrolled in school, employed at least 80 hours a month, or participating in an activity designed to promote or remove barriers to employment. States may exempt a youth from these requirements so long as the youth has a medical condition making him or her incapable of participating in the activity, and this incapacity is supported by regularly updated information in his or her case plan. P.L. 110-351 also permits continued support to youth in foster care (age 18 or older) who are living independently in a supervised setting and it stipulates that HHS must define, in regulation, what qualifies as such a setting. New Transition Planning Requirement Separately, the bill requires each state (as part of its mandatory case review system) to have a procedure that ensures every child leaving foster care has a transition plan created on his or her behalf. The transition plan must be created with the youth by a caseworker and, as appropriate, other representative(s) of the child—no earlier than 90 days before the child's 18 th birthday (or at whatever later age chosen by the state to end foster care assistance). It must address specific options for the youth with regard to housing, health insurance, education, local opportunities for mentors and continuing support services, as well as workforce supports and employment services. Option to Extend Support for Youth Leaving Care for Permanent Home After Reaching Age 16 With limited exceptions, monthly federal (Title IV-E) assistance has not generally been available for a child who has reached his or her 18 th birthday and who left foster care for a permanent family via adoption or kinship guardianship. However, P.L. 110-351 permits states, as of FY2011, to choose to continue federally supported subsidies on behalf of eligible children who leave foster care after their 16 th birthday for adoption or kinship guardianship so long as those youth have not yet reached their 21 st birthday , and are enrolled in school, employed at least 80 hours a month, or participating in an activity designed to promote or remove barriers to employment. (States may exempt a child from these school, work or other engagement requirements if the child has a medical condition that makes him or her incapable of participating in the activity, and this incapacity is supported by regularly updated information in the child's case plan.) In addition, a state is allowed to continue federal adoption assistance or kinship guardianship assistance up to the 21 st birthday on behalf of any child, regardless of the age at which the child left foster care, if the state determines that "the child has a mental or physical handicap that warrants the continuation of assistance." (This was and remains true with regard to adoption assistance; P.L. 110-351 will also extend it, as of FY2011, to kinship guardianship assistance.) Services For Youth Leaving Foster Care After Reaching Age 16 Finally, the enacted bill expands the purposes of the Chafee Foster Care Independence Program to provide that any of the activities or services provided in support of independent living for youth who are expected to age out of foster care without a permanent family, may also be provided to youth who leave foster care at age 16 or older, to either adoption or guardianship. The bill also extends eligibility for Education and Training Vouchers (which are valued at $5,000 annually and may be used for the cost of attending college or an equivalent training program) to youth who leave foster care for guardianship after their 16 th birthday. (Children who leave foster care for adoption after their 16 th birthday continue to be eligible for these vouchers as was true under prior law.) Well-Being of Children in Foster Care The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ) makes new requirements of states that focus on ensuring and enabling stable enrollment in school for children in foster care and on their access to needed and appropriate health care, including mental health services and dental care. For more then a decade, the primary goals of federal child welfare policy have commonly been expressed as achieving safety, permanency, and well-being for children. However, the health- and education-related requirements included in P.L. 110-351 are among the first federal statutory requirements of child welfare agencies that focus specifically on the well-being of children in foster care—as distinct from their need for safety and permanence. Education Stability and Enrollment Specifically, P.L. 110-351 requires state child welfare agencies—as part of the Title IV-E case plan requirements that apply to each child in foster care—to work with relevant state and local education authorities to ensure that a child remains in the same school in which he or she is enrolled at the time of foster care placement, or, if this is not in the best interests of the child, to ensure immediate and appropriate enrollment for the child in a new school. To help support this requirement, the enacted bill permits states to claim federal funding for the cost of transporting children to their "school of origin" at the same reimbursement rate that is provided for foster care maintenance payments. (That rate ranges from 50%-83%, with states with higher per capita incomes receiving a lower federal reimbursement rate and vice versa. ) Separately (under the Title IV-E plan), P.L. 110-351 requires states to assure that children who have reached the minimum age for mandatory school attendance in their state, and who are receiving federal foster care maintenance payments, adoption assistance, or kinship guardianship assistance, are enrolled in school or have completed high school. Health Care Oversight Further (under Title IV-B, Subpart 1), the new law requires each state to develop a coordinated strategy and oversight plan to ensure access to health care, including mental health services and dental care, for all children in foster care. This coordinated strategy and oversight plan must be a collaborative effort between the state child welfare agency and the state agency that administers Medicaid (in consultation with pediatric and other health care experts, as well as experts in, or recipients of, child welfare services). Among other things, the strategy and plan must outline: a schedule for initial and follow-up health screens; how the health needs identified by those screens will be monitored and treated; how medical information for children in care will be updated and appropriately shared; steps to ensure continuity of health care services; and oversight of prescription medicines. These new health- and education-related requirements are unique in federal child welfare policy because they look beyond the safety and permanence needs of children in foster care and focus instead on measures of well-being that are considered relevant to any child in the nation. Safety and permanence are also critical to the well-being of all children. However, by definition, they are issues of immediate and special concern for children in foster care. Accordingly, federal child welfare policy has long focused on ways to better achieve and ensure them. Notably, the Adoption Assistance and Child Welfare Act of 1980 ( P.L. 96-272 ) recognized the critical need for permanence by providing new incentives for case planning for each child in foster care and by authorizing federal support for adoption assistance to children leaving foster care. Further, more than a decade ago, ASFA ( P.L. 105-89 ) asserted the primacy of safety in all child welfare decisions and reinvigorated attention to permanence for children in foster care by establishing new case planning and case review timetables and requirements, and by establishing the Adoption Incentives program. Direct Federal Support to Tribal Programs The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ) seeks to improve the child welfare services and supports available to Indian children by granting tribes (as of FY2010) the same authority that states have to seek federal reimbursement of a part of all their eligible foster care, adoption, and kinship guardianship assistance costs. Indian children may currently be eligible for Title IV-E assistance if they are in the care and placement responsibility of a state. However, children under the care and placement responsibility of a tribe may not receive this assistance unless the tribe's responsibility of the child is "supervised" by the state via a state-tribal cooperative agreement. Explaining their approval of direct tribal access to federal Title IV-E support—which has been a goal of tribal child welfare advocates for many years and has been proposed in every Congress since at least the 105 th (1997)—the Senate Finance Committee stated that "tribes, tribal consortia, and tribal organizations may provide higher quality and more culturally appropriate care for Indian children." To receive Title IV-E funds, a tribe, tribal organization, or tribal consortium must submit a plan for approval to HHS and, with specific and limited exceptions, must meet all the requirements for receipt of this funding "in the same manner" as they are required of states. The bill also permits tribes (as of FY2010) to apply to HHS and receive a direct federal allotment of Chafee Foster Care Independence and/or Education and Training Voucher funds. In addition, it stipulates that current "cooperative agreements"—agreements between a tribe and state, which permit a tribe to receive federal Title IV-E funds via the state—must continue unchanged, unless either party with the right to revoke or change the agreement elects to do so. P.L. 110-351 provides for calculation of a tribe-specific federal matching rate for foster care maintenance payments, adoption assistance payments, and kinship guardianship assistance payments (a "tribal FMAP"). Tribes with an approved Title IV-E plan are to receive this reimbursement rate directly from the federal government. If a tribe has a cooperative agreement or contract with a state to administer Title IV-E payments, that state is to receive reimbursement at the tribal FMAP for the portion of its Title IV-E foster care maintenance, adoption assistance or kinship guardianship assistance payments that are made under the state-tribal agreement or contract. Further, as of FY2010, P.L. 110-351 requires a state to negotiate "in good faith" with any eligible tribal entity in the state if that tribal entity requests to enter into an agreement with the state under which the state would provide Title IV-E funds to the tribe for it to administer all or part of the program on behalf of children under tribal authority. A state will similarly be required to negotiate in good faith with any tribal entity in the state that is not receiving a direct federal allotment of Chafee Foster Care Independence Program and/or Education and Training Voucher funds and which requests an agreement or contract that would allow it to receive funds from the state to administer the program(s) on behalf of Indian children under its authority. Finally, to help ensure these new provisions result in improved outcomes for Indian children, the bill appropriates $3 million (for FY2009 and every succeeding year) for technical assistance to tribes and states and for implementation grants to tribes that are preparing to submit a Title IV-E plan for approval to HHS. These implementation grants may be worth as much as $300,000. A tribal entity may receive this grant only once and it must agree to submit a Title IV-E plan to HHS for approval no later than 24 months after receiving the grant funding. If the plan is not submitted within 24 months the tribe must repay the entire grant amount. However, HHS must waive this repayment requirement if the tribe's failure to submit it within 24 months was a result of a "circumstances beyond the control" of the tribe. Federal Support for Training and Other Changes Over five years, P.L. 110-351 phases in an increased federal reimbursement rate for states that offer short-term training to workers at private, licensed child welfare agencies—provided this training is related to the Title IV-E foster care, adoption, and kinship guardianship program. The enacted bill also permit states to claim Title IV-E training reimbursement for certain short-term training of current and prospective relative guardians and for court and related personnel (including attorneys) who handle child abuse and neglect cases. The bill sets the federal matching rate for costs of providing short-term training to private agency workers, current and prospective relative guardians, and for certain court or court-related personnel handling abuse and neglect cases at 55% in FY2009, rising 5% annually until it reaches 75% in FY2013. (Title IV-E training costs that were reimbursed at 75% before passage of H.R. 6893 will continue to be reimbursed at that same level throughout this phase-in period.) P.L. 110-351 makes several changes that are unrelated to child welfare policy. These include clarifying the uniform definition of child that is used for a variety of federal tax code purposes. It also amends the law to permit the Treasury Department to invest excess operating cash for 90 days in repurchase agreements. These non-child welfare-related provisions—together with savings projected from the implementation of kinship guardianship assistance and the school enrollment requirement—are estimated by the Congressional Budget Office (CBO) to fully offset the cost of the bill to the federal treasury over the next five and 10 years. Finally, the bill prohibits any interpretation of its provisions that would "alter" any current "prohibitions on Federal payments to individuals who are unlawfully present in the United States." Effective Date Unless otherwise stipulated, the provisions of the Fostering Connections to Success and Increasing Adoptions Act of 2008 became effective on its date of enactment (October 7, 2008). However, a state may have limited additional time to comply with any of the new requirements of the bill, if HHS determines that the state must enact legislation (other than legislation to appropriate funds) in order to meet that requirement(s). As discussed above, the bill stipulates delayed and/or phased in effective dates for its provisions related to removing income eligibility criteria from the federal adoption assistance program (i.e., de-link), extending Title IV-E assistance to eligible youth beyond age 18, providing direct access to tribal entities for federal Title IV-E funding, and providing new or increased federal reimbursement for certain short-term training costs. Congressional Budget Office Estimates27 Although H.R. 6893 , as enacted, authorizes significant expansions in federal support for state and tribal child welfare programs, CBO projects a combined change in federal spending and revenues from the overall bill that is roughly budget neutral over ten years (FY2009-FY2018). Specifically, CBO projects that the bill will reduce the federal budget deficit by $15 million over those ten years. This positive effect (i.e. reduction in federal budget deficit) is projected to be much larger in the first five years of the bill's enactment ($449 million), in part because a number of the bill's provisions that are expected to increase federal spending are made effective a year or two after enactment and because the full effect of other provisions is phased in over five or more years. Projected Savings and Increased Revenue As interpreted by CBO, four major provisions of the bill are projected to produce significant savings (and/or increase revenues) to the federal treasury over five (FY2009-FY2013) and 10 (FY2009-FY2018) years. These are as follows: authorization of federal Title IV-E support for kinship guardianship assistance (projected to save $60 million over five years and a total of $791 million over 10 years); making school enrollment a condition of federal eligibility for foster care, adoption assistance, and kinship guardianship assistance under Title IV-E (projected to save $213 million over five years and a total of $484 million over 10 years); new authority to the Treasury Department related to investment of operating cash (projected to save $50 million over five years and a total of $100 million over 10 years); and changes to the tax code's uniform definition of qualifying child ($628 million in savings plus $123 million in increased revenue over five years and a total of $1.402 billion in savings plus a total of $307 million in increased revenue over 10 years). Projected Increases in Federal Spending As interpreted by CBO, seven major provisions of the bill are projected to have costs to the federal treasury over the next five (FY2009-FY2013) and 10 (FY2009-FY20018) years. A delayed or phased-in implementation of a number of these provisions helps to reduce their projected cost during these time periods. These provisions are as follows: annual appropriation of $15 million for Family Connection Grants (projected to increase federal spending by $59 million over five years and by a total of $75 million over 10 years); option for states to provide federal Title IV-E assistance up to age 21 for otherwise eligible children remaining in foster care after their 18 th birthday and for those who left foster care for adoption after attaining age 16 (effective with FY2011 and projected to increase federal spending by $186 million between that year and FY2013 and by a total of $735 million between that year and FY2018); expanded child welfare training claims and/or increase in their federal reimbursement rate (the increased reimbursement rate is phased in over FY2009-FY2013 and is projected to increase federal spending by $138 million over those years and by a total of $412 million over the 10-year period); increased oversight of access to health care for children in foster care (projected to increase federal spending by $75 million over 5 years and by a total of $150 million over ten years; authority for tribes to apply for and receive direct federal Title IV-E funding (effective with FY2010 and expected to increase federal spending by $30 million between that year and FY2013 and by a total of $237 million through FY2018); annual appropriation of $3 million for technical assistance and implementation grants related to improving outcomes for Indian children generally, and implementing tribal access to Title IV-E, specifically (projected to increase federal spending by $12 million over 5 years and by a total of $27 million over 10 years); and phase out of income (and related) eligibility criteria for federal adoption assistance (phase-out begins with FY2010 and is expected to increase federal spending by $126 million between that year and FY2013 and by a total of $1.432 billion between that year and FY2018). Origins of the Enacted Bill and Views The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( H.R. 6893 ) was introduced by Representative Jim McDermott, with Representative Jerry Weller, on September 15, 2008, and passed the House (under suspension of the rules and by voice vote) on September 17, 2008. The bill then went to the Senate where it was passed (by unanimous consent) on September 22, 2008. Enacted on October 7, 2008 as P.L. 110-351 , the final legislation represented a compromise between bills that were earlier acted on by the House and by the Senate Finance Committee. These bills are the Improved Adoption Incentives and Relative Guardianship Support Act of 2008 ( S. 3038 ) and the Fostering Connections to Success Act ( H.R. 6307 ). S. 3038 was introduced by Senator Grassley in May 2008, and the Senate Finance Committee approved the "Chairman's Mark" version of that bill on September 10, 2008 ( S.Rept. 110-467 ). H.R. 6307 was introduced by Representative McDermott with Representative Weller in June 2008, and it passed the House on June 24, 2008. Both Representative McDermott and Representative Weller described the final bill, H.R. 6893 , as the product of bipartisan and bicameral legislative work and they cited the importance of Senator Max Baucus and Senator Grassley in this effort. Congressional Activities During the first session of the 110 th Congress, the Income Security and Family Support Subcommittee of the House Ways and Means Committee held a number of hearings to review challenges facing the child welfare system overall, and, in particular, challenges faced by older youth leaving foster care without a permanent family. Following these hearings, in February 2008, Representative McDermott, who chairs that subcommittee, introduced the Invest in KIDS Act ( H.R. 5466 ) to address a number of these challenges. Some of the provisions incorporated in H.R. 5466 , as well as provisions subsequently included in S. 3038 , H.R. 6307 , and ultimately those that were included in H.R. 6893 , were inspired by, or introduced in, other bills during this and earlier Congresses. From the 110 th Congress, these bills include the Kinship Caregiver Support Act ( S. 661 , introduced by Senator Hillary Clinton with Senator Olympia Snowe / H.R. 2188 , introduced by Representative Danny Davis); the Adoption Equality Act ( S. 1462 , introduced by Senator Jay Rockefeller / H.R. 4091 , introduced by Representative Jim Cooper); the Tribal Foster Care and Adoption Access Act ( S. 1956 , introduced by Senator Max Baucus / H.R. 4688 , introduced by Representative Earl Pomeroy); the Foster Care Continuing Opportunities Act ( S. 1512 , introduced by Senator Barbara Boxer); and a bill to increase reimbursement under Title IV-E for short-term training of private agency workers ( H.R. 2314 , by Representative Weller). HHS Views In providing its view on aspects of earlier bills ( H.R. 6307 and the Chairman's Mark of S. 3038 ), that were subsequently included in the final enrolled bill ( H.R. 6893 ), the U.S. Department of Health and Human Services (HHS) strongly supported revising and extending the Adoption Incentive program but disagreed with (1) the specific ways in which states will now be permitted to seek open-ended federal reimbursement for a part of the cost of providing guardianship subsidies to eligible children leaving foster care; (2) the creation of Family Connection grants; and (3) the approach taken in providing access to federal Title IV-E support for tribes. In letters sent to Congress regarding H.R. 6307 and the Chairman's Mark of S. 3038 , HHS, however, did not provide any specific comments related to the expansion of federal eligibility for Title IV-E adoption assistance, the option for states to continue providing federal Title IV-E foster care assistance to eligible youth after their 18 th birthday, nor regarding the provisions related to increased federal reimbursement for certain child welfare training costs. With regard to the state option to provide guardianship assistance under Title IV-E, HHS wrote: "Moving children to permanent homes as expeditiously as possible is an important goal. However, we oppose creating a new entitlement under the title IV-E program for subsidized relative guardians." HHS noted that under the Child Welfare Program Option it has proposed, states would have the "flexibility to support guardianship agreements if they choose." HHS also noted its support for direct federal support to tribes for child welfare programs but, again, it preferred the approach that would be provided to tribes under the Child Welfare Program Option. (The Bush Administration's proposed program option would permit federally recognized tribes to receive child welfare funds from a fixed sum that would be set aside for that purpose.) The Department wrote that it had "serious concerns" that the bills would "weaken [child protection] requirements placed on Tribes in comparison to those placed on States." Finally, in the letter regarding H.R. 6307 , HHS pointed out that the activities allowed under the Family Connection Grants could already be funded under existing Title IV-B programs (Child Welfare Services, and Promoting Safe and Stable Families) and also that the Department does not support any new "authorization of activities outside the President's Budget." Bill Advocates and Support The act responds to a variety of issues that have been raised for many years (and some for more than a decade) by public child welfare administrators; child welfare, youth, adoption, and tribal advocates; and children and youth who have been (or still are) in foster care; and/or by public child welfare administrators. Enactment of the Fostering Connections to Success and Increasing Adoptions Act of 2008 was urged by many groups, including a coalition of 581 national, state, and local entities (representing organizations in all 50 states) that advocate on behalf of children and youth, as well as by the National Conference of State Legislators (NCSL) and the Conference of Chief Justices and Conference of State Court Administrators. Section-by-Section Description of the Bill The Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ) is divided into six titles, most with multiple sections, and makes the following changes. Title I: Connecting and Supporting Relative Caregivers Section 101: Kinship Guardianship Assistance Payment For Children Permits states to claim federal reimbursement (under Title IV-E) for a part of the cost of providing kinship guardianship assistance to every eligible child who leaves foster care for placement with a grandparent or other relative who has chosen to become the child's legal guardian. Requires that to be eligible for federal kinship guardianship assistance a child must have been eligible to receive federal foster care maintenance payments while living for no less then six consecutive months in the home of his or her prospective relative guardian (this effectively requires that the prospective relative guardian has met the state foster family home licensing standards and prospective foster parent background checks). Stipulates the following additional conditions of federal eligibility for kinship guardianship assistance: The state must determine that (1) the child has been removed from his or her home through a voluntary placement agreement or because a judge found that home contrary to the child's welfare; (2) neither being reunited with his or her parents nor adoption are appropriate permanency options for the child; (3) the child demonstrates a strong attachment to the prospective relative guardian and the relative guardian has a strong commitment to caring permanently for the child; and (4) any child age 14 or older was consulted before being placed in the kinship guardianship arrangement. Provides also that the state must have specific background check procedures for relative guardians, including fingerprint-based checks of national crime databases and child abuse and neglect registry checks, which must be conducted before a relative guardian may receive kinship guardianship assistance payments on behalf of an eligible child. Permits states to place a sibling(s) of an eligible child in the same kinship guardianship arrangement and to make kinship guardianship assistance payments on behalf of the sibling(s). Establishes that a kinship guardianship assistance payment made on behalf of an eligible child must not be more than the amount the child would receive as a foster care maintenance payment if he or she remained in a foster family home. Ensures continued categorical Medicaid eligibility for children receiving federal kinship guardianship assistance. Provides that to receive federal reimbursement for kinship guardianship assistance payments, the state must enter into a written and binding kinship guardianship agreement with the prospective relative guardian , which must stipulate that it will remain in effect without regard to the state in which the relative guardian lives and must include (1) the amount of, and manner in which, the kinship guardianship assistance payments will be made on the child's behalf, including the manner in which the amount may, in consultation with the relative guardian, be adjusted periodically based on the circumstances of the relative and the needs of the child; and (2) the additional services and assistance the child and relative will be eligible for under the agreement, including the procedure the relative guardian may use to apply for additional services as needed. Entitles each state to claim federal reimbursement for the cost of providing kinship guardianship assistance payments on behalf of an eligible child at the same federal reimbursement rate that is provided for adoption assistance (i.e., ranges from 50%-83%, based on each state's Federal Medical Assistance Percentage, FMAP); and entitles state to claim federal reimbursement of 50% for (non-training) administrative costs related to providing kinship guardianship assistance to eligible children. Further stipulates that the kinship guardianship assistance agreement must provide that the state will pay the total nonrecurring expenses associated with obtaining legal guardianship of the child, or $2,000 of those expenses, whichever is less . For any child in foster care whose permanency plan is placement with a relative guardian and receipt of kinship guardianship assistance payments, requires states to describe in the child's written case plan the (1) steps the agency has taken to determine that it is not appropriate for the child to be returned home or adopted; (2) reasons why a permanent placement in a kinship guardianship assistance arrangement is in the child's best interests; (3) reasons for any separation from siblings during the placement; (4) efforts the state has made to discuss adoption with the relative foster parent, and, if adoption is not chosen by the relative foster parent, documentation of reasons why this is so; and (5) efforts made by the state to discuss with the child's parent or parents, the kinship guardianship arrangement or reasons why the efforts were not made; and (6) the ways in which the child meets the eligibility criteria for kinship guardianship assistance. At the termination of any state child welfare demonstration project (waiver) that is related to guardianship and was authorized by the U.S. Department of Health and Human Services (HHS) under Section 1130 of the Social Security Act, provides that the state's costs of providing assistance or services to any child being served under such a demonstration project, as of September 30, 2008, continue to be eligible for federal reimbursement under Title IV-E—but only to the extent that the services and assistance are provided to such a child under the same terms and conditions that applied during the demonstration project. Authorizes states to use federal funds under the Chafee Foster Care Independence Program to provide independent living services and other supports to youth who—after reaching their 16 th birthday—leave foster care for adoption or placement in kinship guardianship and permit youth leaving foster care for kinship guardianship after reaching their 16 th birthday to be eligible for Education and Training Vouchers. (Children who leave foster care for adoption after their 16 th birthday continue to be eligible for Education and Training Vouchers.) Section 102: Family Connection Grants Appropriates mandatory funding of $15 million (for each of FY2009-FY2013) for Family Connection Grants (to be awarded on a competitive basis to public (state, local, or tribal) child welfare agencies or eligible private, non-profit organizations) for the support of one or more of the following: kinship navigator programs, intensive family-finding efforts that utilize search technology to find biological relatives, family group decision-making meetings , which, when appropriate, must safely address issues of domestic violence; and residential family treatment centers that enable parents and children to live together in a safe environment for no less than six months and that provide a full range of services to meet the family's needs (onsite or by referral), including substance abuse treatment services, children's early intervention services, family counseling, medical and mental health services, nursery and pre-school, and other services designed to support the family. Requires HHS to annually award no less than $5 million of the Family Connections Grants funds to support kinship navigator programs , that, through information referral systems and other means, assist kinship caregivers in learning about, finding, and using programs and services to meet their own needs and those of the children they are raising, and promote effective partnerships among public and private agencies to ensure these kinship caregiver families are served. Requires HHS to set aside no less than 3% of the total annual funding for Family Connection grants for evaluation of grantee activities; and permits HHS to set-aside 2% of total funding for the grants for technical assistance to grantees. Provides that HHS may make no more than 30 new Family Connection grants each year; may not award these grants for less than one year nor more than three years; and that it must provide 75% of the funding for a grantee's approved program costs in the first and second year of the grant and 50% in the third year. Renames Title IV-B, Subpart 1 of the Social Security Act (which is now named "Child Welfare Services") as the "Stephanie Tubbs Jones Child Welfare Services Program." Section 103: Notification of Relatives Requires states (under Title IV-E), within 30 days of removing a child from the custody of his or her parent(s) to exercise due diligence to identify all adult grandparents and other adult relatives of the child and to provide them with (1) notice of the child ' s removal from parental custody; (2) an explanation of their options for participating in the care and placement of the child; (3) a description of the requirements that must be met to be a licensed foster family home and the additional services and support for children placed in licensed homes; and (4) if state has opted to provide kinship guardianship assistance, a description of how the relative can enter into a kinship guardianship assistance agreement; this requirement is subject to exceptions due to family or domestic violence. Section 104: Licensing Standards for Relatives Codifies (under Title IV-E) existing federal guidance permitting states to waive " non-safety " licensing standards (as determined by the state) for relative foster family caregivers , but only on a case-by-case basis and for a specific child in care. Requires HHS to prepare and submit to the Senate Finance Committee and the House Ways and Means Committee a report on licensing of relative foster family homes, including (1) the number and percentage of children living in licensed relative foster family homes and those living in unlicensed relative foster family homes; (2) the frequency with which states grant waivers of "non-safety" standards and the type of non-safety standards waived; (3) an assessment of how the use of such waivers have affected safety, permanence, and well-being outcomes for children in foster care; (4) a review of any reasons why relative foster family homes may remain unlicensed despite this waiver authority; and (5) recommendations for administrative or legislative actions to increase the share of relative foster family homes that are licensed while ensuring the safety of foster children and improving their permanence and well-being. Section 105: Authority for Comparisons and Disclosures of Information in the Federal Parent Locator Service Permits state child welfare agencies more direct access to the Federal Parent Locator Service. Title II: Improving Outcomes for Children in Foster Care Section 201: State Option for Children in Foster Care, and Certain Children in An Adoptive or Guardianship Placement, After Attaining Age 18 Permits states (as of October 1, 2010) to extend federal (Title IV-E) assistance to an eligible child after his or her 18 th birthday if the child is in foster care under the responsibility of the state or if the child left foster care for federal adoption or guardianship assistance after reaching his or her 16 th birthday, provided the child has not yet reached his or her 21 st birthday and is in school, employed (at least 80 hours a month), in another activity designed to promote, or remove barriers to employment , or is incapable of participating in any of those activities because of a documented medical condition. Except in the case of the individuals described above, defines the term " child " as an individual under the age of 18 for all federal child welfare programs included in the Social Security Act (i.e., Child Welfare Services, Promoting Safe and Stable Families, Foster Care and Adoption Assistance, and Chafee Foster Care Independence Program). Also permits children in foster care who are age 18 or older to retain eligibility for federal foster care maintenance payments while living independently in a supervised setting (as must be defined in regulations by HHS). Further permits states to continue federal kinship guardianship assistance up to age 21 for a child who has a mental or physical handicap that the state determines warrants this continued assistance (This was previously, and continues to be, the law with regard to provision of federal adoption assistance.) Prohibits payment of federal kinship guardianship assistance payments to a relative guardian if the relative guardian is no longer legally responsible for support of the child (who is under age 18) or if the state determines that the child is no longer receiving support from the relative guardian. (This was previously, and continues to be, the law with regard to adoptive parents and children receiving federal adoption assistance.) Makes October 1, 2010, the effective date for all the amendments made in this section (Section 201). Section 202: Transition Plan for Children Aging Out of Foster Care Requires states (under Title IV-E) to have procedures to ensure that 90 days before a child in foster care reaches his or her 18 th birthday (or 90 days before the later birthday up to which a state elects to provide Title IV-E foster care assistance), the child ' s caseworker and other representatives (as appropriate) must work with the child to develop a personal transition plan that includes specific options on housing, health insurance, education, local opportunities for mentors and continuing support services, and workforce supports and employment services. Section 203: Short-term Training for Child Welfare Agencies, Relative Guardians, and Court Personnel Allows states to claim federal reimbursement of the costs of providing short-term training —related to carrying out the Title IV-E foster care, adoption and kinship guardianship assistance program— to current or prospective relative guardians, staff of state-licensed or state-approved (private) child welfare agencies, and for certain court or court-related personnel handling abuse and neglect cases.Phases in a 75% federal reimbursement rate for these relative guardian, private child welfare agency workers, and court or court-related personnel training claims beginning at 55% in FY2009 and rising by 5% annually (until the reimbursement rate reaches 75% for all Title IV-E eligible training costs in FY2013). Section 204: Educational Stability Restates current requirement (under Title IV-E) that the state must assure that a child's foster care placement takes into account the appropriateness of the child's current educational setting and the proximity of that placement to the school in which the child is enrolled at the time. Requires states to assure that they have coordinated with appropriate local educational agencies to ensure that the child remains in the school in which he or she is enrolled at the time of the placement, or, if this is not in the child's best interests, to assure (with the local educational agencies) that the child will be immediately and appropriately enrolled in a new school with all of the education records of the child provided to the school. Permits a state to claim federal reimbursement at the state's Federal Medical Assistance Percentage or FMAP, which ranges from 50%-83% based on state per capita income) for the cost of transporting a child to the school in which he or she was enrolled at the time of foster care placement.Requires a state to provide assurances that each school-age child who receives federal (Title IV-E) assistance (whether in foster care, kinship guardianship or adoption ) is enrolled in school full-time, or has already completed high school. Section 205: Health Oversight and Coordination Plan Requires each state (under Title IV-B)—working through the state child welfare agency and the state agency that administers Medicaid and in consultation with pediatricians, other health care experts, and experts in, and recipients of, child welfare services— to create a plan to ensure oversight and coordination of health care, for children in foster care; the plan must include a strategy to identify and respond to the health care needs of children in foster care, including their mental health and dental health needs , and provide an outline of (1) the schedule for initial and follow-up health screens; (2) how health needs identified in these screens will be monitored and treated; (3) how medical information for children in care will be updated and appropriately shared, which may include development of an electronic health record; (4) steps to ensure continuity of health care services, which may include establishment of a medical home for every child in care; (5) oversight of prescription medicines; and (6) how the state actively consults with and involves physicians and other appropriate medical or non-medical professionals in assessing the health and well-being of children in foster care and in determining appropriate medical treatment for them. Stipulates that this requirement must not be understood to reduce or limit responsibility of the state Medicaid agency to administer and provide care and services to children served by the state child welfare agency under the Child Welfare Services program (Title IV-B, Subpart 1). Section 206: Sibling Placement Requires each state (under Title IV-E) to make reasonable efforts to place siblings removed from their home in the same foster care, kinship guardianship, or adoptive placement , unless the state can document that joint placement is contrary to the safety or well-being of any of the siblings. In the case of siblings who are not jointly placed, requires states to provide for " frequent visitation or other ongoing interaction between the siblings, " unless the state documents that this would be contrary to the safety or well-being of any of the siblings. Title III: Tribal Foster Care and Adoption Access Section 301: Equitable Access for Foster Care and Adoption Services for Indian Children in Tribal Areas Permits (as of October 1, 2009) an Indian tribe, tribal organization, or tribal consortium with an approved Title IV-E plan to make claims for federal reimbursement of eligible foster care maintenance, adoption assistance, or kinship guardianship assistance payments and for related child placement and administrative costs (including those for data collection and training) made on behalf of eligible children who are under tribal responsibility. For purposes of defining the tribal entities that may apply for direct federal Title IV-E funding, generally defines "Indian tribe" as any federally recognized tribe and a "tribal organization" as the recognized governing body of any such tribe; and describes a tribal consortium as any two or more Indian tribes or tribal organizations that together submit a single Title IV-E plan for approval. With limited and specific exceptions, requires tribes seeking direct federal support under Title IV-E to meet all the requirements of Title IV-E " in the same manner " as they must be met by a state receiving these funds. Provides for calculation of a tribe-specific federal matching rate for foster care maintenance payments, adoption assistance payments, and kinship guardianship assistance payments (a "tribal FMAP"); provides that tribes with an approved Title IV-E plan receive this reimbursement rate directly from the federal government; also provides that if the tribe has a cooperative agreement or contract with a state to administer IV-E payments, the federal government must pay the state the tribal matching rate for the payments made under that agreement. Stipulates that any currently existing cooperative agreement or contract entered into between a tribe and state for the administration or payment of funds under Title IV-E must remain in effect after the enactment of this bill, subject to the right of either party to revoke or modify the terms of the agreement or contract, and, further, that states and tribes may continue to enter into agreements or contracts under Title IV-E. Permits tribal entities seeking to administer independent living services for eligible Indian children and youth to apply to HHS for an allotment of funds under the Chafee Foster Care Independence Program (and/or for an allotment of Education and Training Voucher funds); and provides that successful tribal applicants are to receive an allotment amount(s) out of the state's allotment for the program(s) that is based on the share of all children in foster care in that state who are under the authority of that tribal entity. Stipulates specific parameters within which tribes with an approved Title IV-E plan may (for a limited time—unless extended by regulation or law) claim federal reimbursement, under that plan, for in-kind expenditures from third-party sources; requires HHS (no later than September 30, 2011) to issue regulations related to this kind of Title IV-E claiming by tribes. Requires (as of October 1, 2009) a state , under its Title IV-E state plan, to negotiate in good faith with any tribal entity in the state that seeks an agreement with the state to administer all or part of the Title IV-E program on behalf of the Indian children who are under the authority of the tribal entity; and similarly requires as of that date a state, under the Chafee Foster Care Independence Program, to negotiate in good faith with any tribal entity in the state that does not receive a direct federal allotment of Chafee funds if that tribal entity seeks an agreement or contract with the state to administer, supervise, or oversee the program on behalf of eligible Indian children under the tribal entity's authority. Require HHS , in consultation with tribal entities and affected states, to issue interim final regulations no later than October 7, 2009, to implement the tribal access provisions; provides further that these regulations must ensure that a transfer of responsibility for the placement and care of a child from a state child welfare agency to a tribal child welfare agency effects neither the child's eligibility for Title IV-E or Medicaid nor the services or payments provided to the child under those parts of the law; (adds that the regulations must ensure this is the case whether the child is transferred to a tribe that is operating its program under an approved Title IV-E plan or under a cooperative agreement with a state). Makes October 1, 2009 (first day of FY2010) the effective date for most provisions in this section (Section 301). However, requirements in this section related to HHS regulations and certain "rules of construction" were effective with the date of enactment, October 7, 2008. Section 302: Technical Assistance and Implementation To improve services and permanency outcomes for Indian children and their families, requires HHS to provide technical assistance to tribes and states regarding tribal administration of child welfare programs and required state-tribe interactions related to serving Indian children; and implementation grants to tribes that are preparing a Title IV-E plan for approval , which must not be valued at more than $300,000 and must be used to develop data collection systems, cost allocation plans, agency and tribal court procedures necessary to meet the case review requirements, or any other costs attributable to meeting any other requirement necessary for approval of a Title IV-E plan. Stipulates that an implementation grant must only be made to a tribal entity one-time and that as a condition of receiving the grant the tribal entity must agree to repay the total amount of the grant if it does not submit a Title IV-E plan to HHS for approval within 24 months of receiving the funds; (the repayment requirement must be waived by HHS if "circumstances beyond the control" of the tribe prevent its submission of a plan within 24 months). Appropriates $3 million annually (beginning with FY2009) for this technical assistance and implementation grants and permits HHS to provide this assistance and service either directly or through a grant or contract with a public or private organization knowledgeable in Indian tribal affairs and child welfare. Title IV: Improvement of Incentives for Adoption Section 401: Adoption Incentives Program Extends funding authority for Adoption Incentives for five years (FY2009-FY2013) at $43 million annually; resets the base number of adoptions a state needs to finalize to earn an incentive award (in each of FY2008-FY2012) to the number it finalized in FY2007; raises the incentive amount available for an increase in the number of older child adoptions (from $4,000 to $8,000) and for special needs (younger than age nine) adoptions (from $2,000 to $4,000); continues prior law incentive payment amount of $4,000 for increase in overall number of children adopted from foster care; and ensures that states have 24 months to spend any Adoption Incentive awards earned. Requires that any appropriated Adoption Incentive funds not needed to make awards for an increase in the number of adoptions finalized, must be paid as incentive awards for any state that increases the rate at which children are adopted from foster care ; to earn this award for adoptions finalized in any of FY2008 through FY2012 a state must achieve a "foster child adoption rate" that exceeds its previous "highest ever foster child adoption rate" (beginning with FY2002); the amount of the award is $1,000 times the increased number of adoptions achieved by the state that are attributed to the increased adoption rate. Section 402: Promotion of Adoption of Children with Special Needs Phases in (based on age, length of stay in care and membership in sibling group) elimination of all income, resource, and family structure tests associated with eligibility for federal Title IV-E adoption assistance , including such tests that were established as part of the prior law cash aid program, which was known as Aid to Families with Dependent Children (AFDC). Begins the phase in of these revised adoption assistance eligibility criteria in FY2010 for any child who is age 16 or older at the time his or her adoption assistance agreement is finalized (in that or a later year) and gradually lower this age, until FY2018, when the new eligibility rules will apply to a child of any age. Provides that as of FY2010 the revised adoption assistance eligibility criteria also applies to any child who has been in care for 60, or more, consecutive months at the time the adoption assistance agreement is finalized, without regard to the child's age at that time. Further stipulates that as of FY2010 the revised adoption assistance eligibility criteria also apply to any child who is a sibling of a child for whom the new eligibility rules are effective (whether because of that child's age or length of stay in care), provided that the sibling will be placed in the same adoptive home as the child for whom the new eligibility rules apply. Section 403: Information on Adoption Tax Credit Requires states to provide information to individuals who are adopting a child from foster care, and to those who the state learns are considering such an adoption, of their potential eligibility for the federal adoption tax credit. Title V: Clarification of Uniform Definition of Child and Other Provisions [Sections 501 and 502 in this Title are not a part of federal child welfare policy but are changes made to other parts of federal law, including the tax code, to offset costs of increased federal child welfare spending authorized in the previous titles of the enacted bill.] Section 501: Clarification of Uniform Definition of Child Clarifies the uniform definition of qualifying child under the Internal Revenue Code (1) for purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit, and head of household filing status, to ensure that such an individual is unmarried and is younger than the taxpayer claiming the individual on his/her tax return; (2) for purposes of the child credit, provide that a qualifying child must be the dependent of the taxpayer claiming the credit; and (3) provide that if a taxpayer claiming a qualifying child is not the parent of the individual so claimed, he or she must have an adjusted gross income that is higher than either of the child's parents. Section 502: Investment of Operating Cash In addition to the current investment options, permits the Treasury Department to invest excess operating cash for 90 days in repurchase agreements. Section 503: No Federal Funding to Unlawfully Present Individuals Prohibits any interpretation of the bill that would "alter" any current "prohibitions on Federal payments to individuals who are unlawfully present in the United States." Title VI: Effective Date Unless a different date is stipulated in the Fostering Connections to Success and Increasing Adoptions Act of 2008, the effective date of the amendments made by the bill is October 7, 2008 (date of its enactment); for any state, permits a time-limited exception to the effective date of any requirement added by this bill (under Title IV-B or Title IV-E) if HHS determines that the state must enact legislation (other than legislation to appropriate funds) to comply with a new requirement.

The Fostering Connections to Success and Increasing Adoptions Act of 2008 (H.R. 6893) is an omnibus child welfare bill designed to ensure greater permanence and improve the well-being of children served by public child welfare agencies. The legislation received strong support in Congress and, beyond revising and extending the Adoption Incentives program, responds to a range of issues and concerns that have been raised (some for more than a decade) by public child welfare administrators; youth, adoption, tribal, and child welfare advocates; and by children and youth who have been (or still are) in foster care. The bill passed the House of Representatives, by voice vote (under suspension of the rules), on September 17, 2008, and the Senate, by unanimous consent, on September 22, 2008. It was signed into law by the President on October 7, 2008 (P.L. 110-351). The final bill represented a compromise between earlier bills acted on in the House (H.R. 6307) and in the Senate Finance Committee (S. 3038). As enacted, it revises the Adoption Incentives program and extends its funding authorization for five years (FY2009-FY2013). It makes significant changes to federal funding for child welfare programs, which include authorizing new federal support for states that provide kinship guardianship assistance to eligible children leaving foster care; expanding eligibility for federal adoption assistance (by phasing out, over FY2010-FY2018, income and other eligibility criteria that are based on dated cash welfare program rules); extending, as of FY2011, eligibility for federal foster care assistance to youth who remain in care beyond their 18th birthday, up to age 21; and phasing in additional support to states for child welfare related training. Additionally, the bill authorizes tribal child welfare agencies, as of FY2010, to directly access federal funds for foster care, adoption, and guardianship assistance under the Title IV-E program, provided the tribes meet substantially the same requirements made of states. The bill also appropriates $15 million in annual funding, for five years, for a new competitive grant program, Family Connection Grants. Apart from these financing changes, P.L. 110-351 establishes new requirements for receipt of federal child welfare funding by public child welfare agencies. These include several that focus exclusively on the health and education status of children in foster care and others intended to ensure, or enable, sibling and other kinship connections for children in, or entering, foster care, and those leaving to adoption or guardianship. The bill also requires states to make new efforts related to planning for the transition of older children leaving foster care for independent living and requires states to inform prospective adoptive parents of foster children of their potential eligibility for the adoption tax credit (under the federal tax code). Many of the changes included in the new law are projected by the Congressional Budget Office (CBO) to increase federal spending for child welfare. However, the increases are projected to be fully offset (over the next five and ten years) by savings or increased revenues to the federal treasury that CBO expects to be produced by other changes in the bill (both related and unrelated to child welfare policy). This report may be updated if warranted by issues related to implementing the new law.

Federal Rulemaking The most significant piece of rulemaking legislation from the past century was the Administrative Procedure Act of 1946. The APA established standards for the issuance of rules using formal rulemaking and informal rulemaking procedures. Informal rulemaking, also known as "notice and comment" rulemaking or "Section 553" rulemaking, is the most common type of rulemaking. For informal rulemaking under the APA, agencies are required to publish a notice of proposed rulemaking (NPRM) in the Federal Register , take comments on the NPRM, publish a final rule in the Federal Register , and provide for a 30-day waiting period before the rule can become effective. The APA specifically authorizes federal agencies to dispense with its requirements for notice and comment if the agency for good cause finds that the use of traditional procedures would be "impracticable, unnecessary, or contrary to the public interest." The APA also provides a good cause exception for the 30-day waiting period between the publication of a final rule and its effective date. While the notice-and-comment procedures in the APA provide the general structure of the rulemaking process, a number of other requirements have been added to the process in the decades since the APA. The Paperwork Reduction Act (PRA) established a process under which agencies have to consider the paperwork burden associated with regulatory and other actions. The Regulatory Flexibility Act (RFA) requires regulatory impact analyses for rules that will have a "significant economic impact on a substantial number of small entities" and establishes other requirements. Title II of the Unfunded Mandates Reform Act (UMRA) added requirements for agencies to analyze and reduce costs associated with federal mandates upon state, local, and tribal governments and the private sector. The Congressional Review Act (CRA) established a mechanism through which Congress could overturn federal regulations and required that agencies submit their rules to both houses of Congress and the Government Accountability Office (GAO) before the rules can take effect. The Information Quality Act (IQA) required OMB to create guidance for agencies "for ensuring and maximizing the quality, objectivity, utility, and integrity of information" disseminated by agencies and required agencies to establish their own guidelines on information quality. In addition to the current statutory requirements for the rulemaking process, Presidents also have issued executive orders and OMB has produced documents providing requirements and guidelines for agencies to follow when issuing rules. Executive Order 12866, issued by President Clinton in 1993, calls for OIRA to review "significant" regulatory actions at both the proposed and final rule stage. Furthermore, agencies are required to assess potential costs and benefits for "significant" rules, and, for those deemed as "economically significant" regulatory actions, agencies are required to perform a cost-benefit analysis and assess the costs and benefits of "reasonably feasible alternatives" to the planned rule. Under E.O. 12866, agencies generally must "propose or adopt a regulation only upon a reasoned determination that the benefits" of the rule "justify its costs." To provide guidance to agencies on what to include and consider in their cost-benefit analyses of rules, OMB issued OMB Circular A-4, a document that describes "best practices" of agencies' economic analyses. OMB, under President George W. Bush, also provided guidelines for agencies to follow when issuing guidance documents. The combination of statutory requirements, executive orders, and OMB directives comprises the bulk of the current, generally applicable requirements agencies must follow when issuing regulations. The RAA would change or enact into law a number of the requirements mentioned here. Additionally, particular agency statutes may add requirements specific to that agency, and there is a substantial body of case law interpreting existing rulemaking requirements that would be affected by the RAA. The remainder of this report will examine the main provisions of the bill and compare the changes the bill proposes with the current, generally applicable requirements and case law, where appropriate. This report examines each section of the bill in the order that they are included in the bill. When possible, numbers and letters are included in each section of the report to help clarify what part of the bill coincides with each section of the report. The Regulatory Accountability Act and Independent Regulatory Agencies As a preliminary matter, the RAA uses the APA's definition of an agency, meaning that the RAA would impose additional requirements on independent regulatory agencies, which have been exempted from certain statutory and executive order mandates. For example, the parts of E.O. 12866 that concern centralized review of regulations by OIRA do not apply to statutorily designated "independent regulatory agencies." However, other parts of E.O. 12866 do apply to independent regulatory agencies—such as the requirements that each agency (1) "prepare an agenda of all regulations under development or review" and (2) "prepare a Regulatory Plan … of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form in that fiscal year or thereafter." E.O. 12866's lack of a requirement for the review of regulations promulgated by independent regulatory agencies provides an element of independence from presidential control for these specified agencies, although some of these agencies may choose to submit their rules to OIRA anyway. Rules promulgated by independent agencies, such as the Social Security Administration, are included in OIRA's review processes under E.O. 12866. Certain statutes applicable to the rulemaking process also exempt independent regulatory agencies from particular requirements. For example, UMRA requires agencies other than independent regulatory agencies to write regulatory impact statements when a rule "may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year." While the RAA would not extend the application of UMRA to independent regulatory agencies, similar requirements in the RAA, if enacted, would apply to independent regulatory agencies. Definitions (Section 2 of the RAA) The RAA contains a number of definitions, some of which do not currently exist in statute. These definitions are significant since they may trigger various requirements in the rulemaking process, as it would be amended by the RAA's proposals, if enacted. "Major" Rule The APA presently does not distinguish between "major" and other rules in the rulemaking process. Under the APA, all rules are promulgated according to the same procedures, regardless of their potential impacts. If enacted, the RAA would impose additional procedures on "major" rules (such as advance notices of proposed rulemaking, lengthier comment periods, retrospective review requirements, time periods for the completion of interim rulemaking proceedings, and automatic grants of petitions for certain hearings) that differ from the procedures for other rules. For example, an agency issuing a "major" rule would need to issue an advance notice of proposed rulemaking (ANPRM) 90 days before issuing an NPRM. The RAA defines a "major rule" as: any rule that the Administrator of the Office of Information and Regulatory Affairs [OIRA] determines is likely to impose— (A) an annual cost on the economy of $100,000,000 or more, adjusted annually for inflation; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, local, or tribal government agencies, or geographic regions; (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of the United States-based enterprises to compete with foreign-based enterprises in domestic and export markets; or (D) significant impacts on multiple sectors of the economy. This definition uses some of the same terminology as the definition of a "major rule" under the CRA, but (A) in the RAA focuses on an annual cost instead of an annual effect (which could include benefits and costs) on the economy of $100 million or more. Additionally, the RAA would also adjust this amount for inflation. However, (B) and (C) are nearly identical to the definition of a "major rule" under the CRA. Additionally, a "major rule" under the RAA would include a rule that is likely to impose "significant costs on multiple sectors of the economy," which could potentially capture many rules not currently deemed to be "major rules" under the CRA. Both the RAA and the CRA determinations of what constitutes a "major rule," and thus what triggers additional procedures, are made by the OIRA Administrator. Determinations by the OIRA Administrator as to what constitutes a "major rule" in the CRA are not judicially reviewable. The RAA is silent as to whether determinations by the OIRA Administrator are judicially reviewable. Subsection (A) of the RAA's definition of a "major rule" is also somewhat similar to portions of the definition of an economically significant regulatory action in E.O. 12866, which include actions that are "likely to result in a rule that may: (1) [h]ave an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities." Like the CRA, E.O. 12866 references "effects," which can include costs and benefits, instead of just costs under the RAA. Executive Order 12866 also includes factors such as the "environment, public health or safety," which are not included in either the RAA or the CRA. As indicated earlier in this report, under E.O. 12866, economically significant regulatory actions must contain cost-benefit analyses and assess the costs and benefits of "reasonably feasible alternatives" to the planned rule. "High-Impact" Rule Defining "high impact" rules is a new concept that does not appear in the APA or the CRA. The RAA defines "high-impact" rules as those that the OIRA Administrator determines are "likely to impose an annual cost on the economy of $1,000,000,000 or more, adjusted annually for inflation." The RAA is silent as to whether determinations by the OIRA Administrator are judicially reviewable. Under the RAA, "high-impact" rules, like major rules, would be required to be issued under procedures in addition to those required for other, non-high-impact rules. These additional procedures include the issuance of an ANPRM, retrospective review requirements, time periods for the completion of interim rulemaking proceedings, and formal rulemaking procedures under 5 U.S.C. Sections 556 and 557, unless the formal rulemaking hearing is "waived by all participants in the rule making other than the agency." Presently, formal rulemaking is a rarely used process, and its requirements are only triggered when Congress explicitly requires that the rulemaking proceed "on the record." "Guidance" The RAA defines guidance documents as "agency statement of general applicability and future effect, other than a regulatory action, that sets forth a policy on a statutory, regulatory or technical issue or an interpretation of a statutory or regulatory issue." Although the APA does not define the term "guidance," guidance documents generally are considered to be a particular type of agency rule, known as a "general statement of policy." The RAA's definition of "guidance" is the same as the definition of "guidance document" in now-revoked E.O. 13422 and is essentially the same as the definition of "guidance document" in OMB's Final Bulletin on Agency Good Guidance Practices. "Major" Guidance As the APA does not define "guidance," it also does not distinguish between "major guidance" and other guidance. The RAA defines a "major guidance" as: any guidance that the Administrator of [OIRA] finds is likely to lead to— (A) an annual cost on the economy of $100,000,000 or more, adjusted annually for inflation; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, local or tribal government agencies, or geographic regions; (C) 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; or (D) significant impacts on multiple sectors of the economy. While the RAA definition of "major guidance" contains some similarities to the definition of a "significant guidance document" in OMB's Final Bulletin on Agency Good Guidance Practices, subsection (A) in the above proposed definition focuses on an annual cost instead of an annual effect (which could include benefits and costs) on the economy of $100 million or more. Additionally, the RAA would adjust this amount for inflation. Subsection (B) also focuses on "a major increase in costs or prices" for consumers, industries, government agencies, and geographic regions, while the OMB Bulletin definition uses language for similar groups that the significant guidance document may "adversely affect in a material way." Subsection (A) of the RAA's definition of a "major guidance" is also somewhat similar to portions of the definition of an "economically significant guidance document" in the OMB Bulletin, which include "significant guidance document[s] that may reasonably be anticipated to lead to an annual effect on the economy of $100 million or more or adversely affect in a material way the economy or a sector of the economy, except that economically significant guidance documents do not include guidance documents on Federal expenditures and receipts." Under the OMB Bulletin, economically significant guidance documents are supposed to be issued in draft form for notice and comment, with certain exceptions. The OMB Bulletin definition of a "significant guidance document" also includes documents that may reasonably be anticipated to "adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities." Subsection (C) in the RAA includes some similar factors to the OMB Bulletin definition, such as employment, investment, innovation, and the ability of the United States based enterprises to compete with foreign-based enterprises, does not include factors such as the "environment, public health or safety." Additionally, subsection (D) in the RAA definition would include a rule that is likely to impose "significant impacts on multiple sectors of the economy," which could potentially capture many guidance documents, as there is no definition of "significant" in the context of impacts. A "major guidance" under the RAA and a "significant guidance document" under the OMB Bulletin require additional procedures for their issuance. Under the RAA, such procedures include an identification of costs and benefits, including costs that would be considered under a rulemaking; a description of alternatives to the guidance and the costs and benefits of such alternatives; required consultations with the OIRA Administrator; and publication by "by electronic means and otherwise." Under the OMB Bulletin, such procedures include agency approval of their issuance, a prohibition on the use of mandatory language unless describing statutory or regulatory requirements or addressing agency staff, and procedures for public access and comment. The RAA is silent as to whether determinations by the OIRA Administrator, as to what constitutes a "major guidance," are judicially reviewable. Rulemaking (Section 3 of the RAA) If enacted, the RAA would require agencies to follow several new steps in the preliminary stages of the rulemaking process (including determinations with regard to legal authorities and statutory considerations), perform various cost-benefit analyses, and examine regulatory alternatives. It would also add other requirements, such as hearings for high-impact rules and a requirement for OIRA to issue guidelines for agency compliance with rulemaking procedures. The following sections discuss the requirements in Section 3 of the RAA, which would essentially replace the typical "notice-and-comment" rulemaking procedures under the APA. (b) Rule Making Considerations The proposed RAA contains several "Rule Making Considerations" that agencies are required to consider when promulgating regulations. Specifically, the bill stipulates that agencies "shall make all preliminary and final determinations based on evidence and consider, in addition to other applicable considerations, the following…" Although relevant rulemaking statutes such as the APA, RFA, and UMRA do not contain required "considerations" during the rulemaking process, E.O. 12866 does contain a similar section. Section 1(b) of the executive order is entitled "The Principles of Regulation," and it says that "To ensure that the agencies' regulatory programs are consisted with the philosophy set forth above, agencies should adhere to the following principles, to the extent permitted by law and where applicable." This section of the report compares the "Rule Making Considerations" of the proposed RAA with the "Principles of Regulation" from E.O. 12866. Provisions in other statutes that require agencies to conduct regulatory impact analyses and meet other requirements are excluded since they explicitly require agency action, not just "considerations." Requirements for agency actions, such as cost-benefit analyses, are discussed later in the report. (1) Legal Authority The RAA would require agencies to consider "[t]he legal authority under which a rule may be proposed, including whether a rule making is required by statute, and if so, whether by a specific date, or whether the agency has discretion to commence a rulemaking." While such requirements to consider the legal authority for a rulemaking are not explicitly delineated in the APA, it is likely that agencies already consider their legal authority in determining whether to issue a rule, and the APA requires agencies to reference the legal authority for the rule in the NPRM. As a general matter, the Supreme Court has stated that "an administrative agency's power to regulate in the public interest must always be grounded in a valid grant of authority from Congress." Agencies may use their discretion in determining whether to initiate a rulemaking, and may issue rules based on a general grant of rulemaking authority, which is "limited to the authority delegated by Congress." Agencies may also issue rules based on a specific statutory requirement to promulgate a rule, which may or may not include a deadline for the rule's issuance. (2) Other Statutory Considerations The RAA also would require agencies to consider "[o]ther statutory considerations applicable to whether the agency can or should propose a rule or undertake other agency action." Such statutory considerations could appear in many forms, such as a directive for an agency to issue a rule, advisory opinion, or guidance document for a particular issue. Statutory considerations as to whether the agency should propose a rule or take other action could also include an appropriations rider stating that an agency may not use funds to finalize certain provisions of a proposed rule. Although not quite a comparable directive to that in the RAA, E.O. 12866 contains principles to which the agencies "should adhere … to the extent permitted by law and where applicable" in its section on "The Principles of Regulation." Additionally, the E.O. requires agencies to seek views of, assess the effects of regulations on, and minimize burdens that uniquely affect state, local, and tribal governments. E.O. 12866 also calls for the harmonization of federal regulations, as appropriate, with state, local, and tribal regulations and mandates that agencies draft rules in a manner that makes them "easy to understand" and minimizes the "potential for uncertainty and litigation arising from uncertainty." (3) Nature of Problem to Be Addressed The proposed RAA states that agencies should consider the "specific nature and significance of the problem" the rule intends to address, as well as "whether the problem warrants new agency action." This is similar to the language in Section 1(b)(1) E.O. 12866, which says that "Each agency shall identify the problem that it intends to address." (4) Existing Regulations The fourth rulemaking consideration in the proposed RAA says that agencies should consider "Whether existing rules have created or contributed to the problem the agency may address with a rule and whether those rules could be amended or rescinded to address the problem in whole or in part." Similarly, Section 1(b)(2) of E.O. 12866 says that "Each agency shall examine whether existing regulations (or other law) have created, or contributed to, the problem that a new regulation is intended to correct and whether those regulations (or other law) should be modified to achieve the intended goal of regulation more effectively." In addition, Section 1(b)(10) instructs that "Each agency shall avoid regulations that are inconsistent, incompatible, or duplicative with its other regulations or those of other Federal agencies." (5) Regulatory Alternatives The fifth rulemaking consideration in the RAA would require agencies to consider "any reasonable alternatives" to a rule. This includes alternatives such as no federal response; amending or repealing existing rules; regulatory responses at the state or local level; and other potential responses that would specify performance objectives, establish economic incentives, inform choices made by the public, or incorporate other "innovative alternatives." Similar guidance found in E.O. 12866 (Section 1(b)(8)) says that agencies should consider "alternatives forms of regulation" and that they should "specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt." In addition, E.O. 12866 Section 1(b)(3) says that agencies shall "identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public." Executive Order 13563 contains an identical provision in Section 1(b)(5), stressing that agencies should consider "alternatives to direct regulation." (6) Costs and Benefits, Cost-Effectiveness, and Incentives The final consideration that agencies would be required to take into account when regulating pertains to the costs of rules. When performing cost-benefit analyses, which are required in later provisions of the bill, agencies would be expected to consider the items listed in this section. Under the RAA, agencies would be required to consider "the potential costs and benefits associated with potential alternative rules and other responses considered," including "direct, indirect, and cumulative costs and benefits and estimated impacts on jobs (including an estimate of the net gain or loss in domestic jobs), economic growth, innovation, and economic competitiveness." They would also be required to consider "means to increase the cost-effectiveness" of a rule, as well as "incentives for innovation, consistency, predictability, lower costs of enforcement and compliance (to government entities, regulated entities, and the public), and flexibility." The language in the proposed RAA is similar in some respects to the language in E.O. 12866 Section 1(b)(5), which requires an agency to "design its regulations in the most cost-effective manner to achieve the regulatory objective" and to "consider incentives for innovation, consistency, predictability, the costs of enforcement and compliance (to the government, regulated entities, and the public), flexibility, distributive impacts, and equity." Section 1(b)(6) requires agencies to "assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs." Finally, Section 1(b)(11) requires agencies to "tailor [their] regulations to impose the least burden on society," while "obtaining the regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations." Section 1(b)(2) of E.O. 13563 also encourages agencies to "tailor [their] regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations;" and to "select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity)." Perhaps one of the main differences between the RAA's consideration of costs and the current considerations found in executive orders is that the RAA has no comparable suggestion that agencies consider "distributive impacts" or "equity." OMB Circular A-4, which provides best practices and guidance to agencies on how to perform cost-benefit analysis, states that "those who bear the costs of a regulation and those who enjoy its benefits often are not the same people. The term 'distributional effect' refers to the impact of a regulatory action across the population and economy, divided up in various ways (e.g., income groups, race, sex, industrial sector, geography)." Under OMB Circular A-4, agencies are supposed to provide a separate description of distributional effects so that "decision makers can properly consider them along with the effects on economic efficiency … you should be alert for situations in which regulatory alternatives result in significant changes in treatment or outcomes for different groups." It is not entirely clear how or whether OIRA would harmonize Circular A-4 with new guidance that it would be required to issue under the RAA or whether OIRA would continue to direct agencies to consider the distributional effects of a rule. In sum, many of the "considerations" that the RAA would add to the regulatory process are similar to considerations already in place. However, they would appear to be used differently. Since the most comparable requirement for the RAA's considerations is the "The Principles of Regulation" section of E.O. 12866, which was subsequently reinforced by E.O. 13563, which does not cover independent regulatory agencies. However, many of those independent regulatory agencies may have their own requirements for considerations in their own establishing statutes. (c) Advance Notice of Proposed Rulemaking (ANPRM) for Major Rules, High-Impact Rules, and Rules Involving Novel Legal or Policy Issues The APA does not require an ANPRM for any rule, although some statutes do require ANPRMs for specific agencies. The RAA would add an ANPRM requirement for major rules, high-impact rules, and rules involving "novel legal or policy issue[s] arising out of statutory mandates." The RAA does not define what would constitute a rule that involves a "novel legal or policy issue arising out of statutory mandates," and as a result, this phrase could conceivably capture many rules that an agency promulgates. ANPRMs for novel legal or policy issue rules would also be required to identify "the nature of and potential reasons to adopt the novel legal or policy position upon which the agency may base a proposed rule." As the RAA does not specify whether its requirements for ANPRMs would apply "notwithstanding any other provision of law," it is possible that major, high-impact, or novel legal or policy rules that are issued by an agency with separate statutory requirements for an ANPRM would have to adhere to both sets of requirements. Additionally, the RAA's requirements for an ANPRM would apply if an agency chose to conduct a negotiated rulemaking for a major, high-impact, or novel legal or policy issue rule. Negotiated rulemaking, in brief, is a collaborative process that uses a committee with interested persons and agency representatives, which, if it achieves a consensus on a proposed rule, then transmits a report with its proposed rule to the agency. The RAA-required ANPRM would need to be published in the Federal Register a minimum of 90 days before the agency publishes an NPRM in the Federal Register . Additionally, the bill would add a 60-day minimum time period for comment on the ANPRM. The RAA delineates what agencies must include in these ANPRMs, such as a written statement of the "nature and significance of the problem," "data and other evidence and information on which the agency expects to rely," the "legal authority" for the rule, whether it is statutorily mandated or whether the agency has discretion to start the rulemaking process, whether the rule has a deadline, and preliminary information about the other RAA-specified rulemaking considerations. The RAA would not require an ANPRM before the publication of an NPRM, if, in its "determination of other agency course" under the RAA's NPRM requirements, the agency "makes a determination to amend or rescind an existing rule." (d) Notices of Proposed Rule Making (NPRM); Determinations of Other Agency Course The RAA would expand and change the requirements for the notice and comment procedures currently found in the APA. NPRM: Publication Requirement The APA presently requires that NPRMs be published in the Federal Register unless the person subject to the rule is personally served or has actual notice of the rule. The RAA, unlike the APA, does not specifically require the publication of NPRMs in the Federal Register . The RAA states that "the agency shall publish" but does not specify where the agency should publish its NPRM. Under the RAA, the agency would not be able to publish an NRPM until after the agency issued its ANPRM (if so required because the rule is a major rule, a high-impact rule, or a rule involving novel legal or policy issues arising out of statutory mandates) and after the agency consults with the OIRA Administrator. NPRM: OIRA Review/Consultation The RAA requires that before an agency issues a proposed rule, and after the issuance of an ANPRM, if necessary, the agency shall consult with the Administrator of OIRA. Currently, under E.O. 12866, agencies (other than independent regulatory agencies) are required to submit "significant" proposed rules and final rules to OIRA, along with an assessment of costs and benefits. "Significant" rules are defined in the executive order as follows: Any regulatory action that is likely to result in a rule that may (1) have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive order. Thus, if enacted, the RAA would change the current requirement for the submission of information to OIRA during the rulemaking process in three ways. First, the requirement would no longer be to provide rules and related materials to OIRA, but it would be to consult with OIRA. Second, the bill would require consultation with OIRA for all rules, not just the rules deemed to be "significant." Third, the bill would require all agencies, including independent regulatory agencies, to consult with OIRA (as mentioned previously, the independent regulatory agencies are not currently covered by the requirement to consult with OIRA). It is unclear how this requirement to "consult" with OIRA would be interpreted. Currently, agencies send their rules and cost-benefit analyses to OIRA for review under the requirements in E.O. 12866. If OIRA suggests changes to those rules or the analyses, agencies generally comply and make the suggested changes. If OIRA does not approve of a rule or the accompanying cost-benefit analysis and wants to attempt to put a stop to the rule, it may issue a "return letter" to the agency, returning the rule to an agency for "reconsideration." Generally, if a return letter is issued, agencies will not proceed with issuing the rule. Whether the RAA would enact into law the authority of OIRA essentially to put a stop to rulemaking proceedings is unclear. However, if a President were to interpret this provision as granting OIRA the authority to put a stop to a rulemaking proceeding, this provision could result in an increased level of presidential control over agency rulemaking. Furthermore, if a President were to interpret the provision as granting OIRA the authority to put a stop to a rulemaking proceeding, there could also be significant implications for the independent regulatory agencies. As previously discussed, those agencies are not currently covered by the executive order requirements for OIRA review. By extending OIRA review to those agencies and giving OIRA (and by extension, the President) the potential authority to put a stop to rulemaking proceedings, that provision could decrease the independence of those agencies. NPRM: Notice Requirement The RAA's proposed requirements for the notice portion of the NPRM mirror some of the existing requirements under the APA. For example, the APA requires, and the RAA would require NPRMs to include a statement of the time, place, and nature of the rulemaking proceedings and references to the legal authority for the proposed rule. The APA allows an NPRM to contain "either the terms or substance of the proposed rule or a description of the subjects and issues involved," but the RAA would require the NPRM to include the terms of the proposed rule. Most agencies currently publish the language of the proposed rule, and courts will evaluate whether the agency's notice was adequate "by determining whether it would fairly apprise interested persons of the 'subjects and issues' before the agency." The RAA's NPRM requirements also would include a description "of information known to the agency on the subject and issues of the proposed rule," and a "reasoned preliminary determination of need for the rule" based on such information. Such a description of information known to the agency about the rulemaking considerations previously outlined could be quite broad, and the RAA requires this description for four types of information: (i) a summary of information known to the agency concerning the rulemaking considerations that the RAA would require, (ii) a summary of additional information the agency provided to and obtained from interested persons under the ANPRM requirements of the RAA, (iii) a summary of any preliminary risk assessment or regulatory impact analysis performed by the agency, and (iv) information specifically identifying all data, studies, models, and other evidence or information considered or used by the agency in connection with the determination by the agency to propose the rule. With regard to the RAA's requirement that the agency publish a summary of any regulatory impact analysis by the agency, the RFA requires the publication of the agency's initial regulatory flexibility analysis, or a summary, in the Federal Register when the agency publishes its NPRM. An NPRM under the RAA also would state whether the rule is mandated by statute. NPRM: Costs and Benefits Like the requirements for interaction with OIRA, the RAA would broaden the requirements for cost-benefit analysis. The RAA would extend the requirements to all rules, not just rules deemed to be "significant," as is the current policy under E.O. 12866. Second, the RAA would also extend the requirement for cost-benefit analysis to the independent regulatory agencies. The independent regulatory agencies are not currently covered under the cost-benefit analysis requirements of E.O. 12866, which contains the most broadly applicable cost-benefit analysis requirements. In addition, the RAA contains specific information about what cost-benefit analysis would involve and how it would be used (see section on " (b) Rule Making Considerations " entitled " (6) Costs and Benefits, Cost-Effectiveness, and Incentives "). The relevant text from the RAA reads that an agency shall include in its notice of proposed rule making "(F) a reasoned preliminary determination that the benefits of the proposed rule meet the relevant statutory objectives and justify the costs of the proposed rule (including all costs to be considered under subsection (b)(6) [potential costs and benefits of alternative rules]), based on the information described under subparagraph (D) [information known to the agency on the subject]." Section 6(a)(3)(B) of E.O. 12866 requires covered agencies to assess costs and benefits for "significant" regulatory actions. Specifically, agencies are required to provide to OIRA a general "assessment of the potential costs and benefits of the regulatory action." Section 6(a)(3)(C) requires agencies to perform a full cost-benefit analysis for "economically significant" rules. This requirement for "economically significant" rules is for a more detailed analysis of costs and benefits. Agencies are required to provide to OIRA: (i) An assessment, including the underlying analysis, of benefits anticipated from the regulatory action (such as, but not limited to, the promotion of the efficient functioning of the economy and private markets, the enhancement of health and safety, the protection of the natural environment, and the elimination or reduction of discrimination or bias) together with, to the extent feasible, a quantification of those benefits; (ii) An assessment, including the underlying analysis, of costs anticipated from the regulatory action (such as, but not limited to, the direct cost both to the government in administering the regulation and to businesses and others in complying with the regulation, and any adverse effects on the efficient functioning of the economy, private markets (including productivity, employment, and competitiveness), health, safety, and the natural environment), together with, to the extent feasible, a quantification of those costs; and (iii) An assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, identified by the agencies or the public (including improving the current regulation and reasonably viable nonregulatory actions), and an explanation why the planned regulatory action is preferable to the identified potential alternatives. In addition to the requirements to consider costs and benefits at the proposed rule stage under E.O. 12866, agencies are also required to carry out regulatory impact analyses, which look at the potential impacts of rules and may be similar to cost-benefit analyses under the Regulatory Flexibility Act and the Unfunded Mandates Reform Act. The RFA requires federal agencies to assess the impact of their forthcoming regulations on "small entities," which the act defines as including small businesses, small governmental jurisdictions, and some small not-for-profit organizations. Under the RFA, which applies to Cabinet departments and independent agencies as well as independent regulatory agencies, agencies have to consider whether a rule is expected to have a "significant economic impact on a substantial number of small entities." If the agency makes such a determination, the agency must prepare a "regulatory flexibility analysis" when formulating a proposed rule. A summary of the initial regulatory flexibility analysis must be published in the Federal Register when the proposed rule is published. There is a similar requirement for a regulatory flexibility analysis at the final rule stage. UMRA requires agencies to publish impact statements with their proposed rules as well. UMRA's requirements apply when an agency is promulgating a rule containing a mandate that may result in the expenditure of $100 million or more in any one year by the private sector, or by state, local, and tribal governments in the aggregate. When that qualification is triggered, UMRA requires agencies (Cabinet departments and independent agencies, but not independent regulatory agencies) to prepare a written statement containing among other things a "qualitative and quantitative assessment of the anticipated costs and benefits ... as well as the effect of the Federal mandate on health, safety, and the natural environment." Agencies are required to include this information when issuing a proposed (or final) rule. NPRM: Regulatory Alternatives If enacted, the RAA would require agencies to include in their notice of proposed rulemaking a detailed discussion of the alternatives to the proposed rule. The discussion would be required to include the costs and benefits of those alternatives (including direct, indirect, and cumulative costs and benefits); whether each of the alternatives would meet the statutory objectives; and why the agency did not select any of those alternatives. This requirement is similar to some requirements in statute and executive orders for agencies to consider alternative regulatory options. However, the RAA provision would apply more broadly than any of the current requirements for those considerations. It appears that the RAA would require agencies to include more detailed information than is currently required when discussing alternative options. Currently, under E.O. 12866, covered agencies are required to provide to OIRA: An assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, identified by the agencies or the public (including improving the current regulation and reasonably viable nonregulatory actions), and an explanation why the planned regulatory action is preferable to the identified potential alternatives. In addition, for rules that an agency determines may have a "significant economic impact on a substantial number of small entities," the RFA requires that in their initial flexibility analyses, agencies include "a description of any significant alternatives to the proposed rule which accomplish the states objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities." Section 205(a) of UMRA requires agencies, when promulgating a rule that contains a mandate that may result in the expenditure of $100 million or more in any one year by the private sector, or by state, local, and tribal governments in the aggregate, to "identify and consider a reasonable number of regulatory alternatives and from those alternatives select the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule." NPRM: Existing Regulations In agencies' notices of proposed rulemaking, the RAA would require agencies to include "a statement of whether existing rules have created or contributed to the problem the agency seeks to address with the proposed rule." If the agency determines that situation to be the case, then the agency must also explain whether and why the agency proposes to amend or rescind those rules. Currently, the "considerations" of E.O. 12866 instruct covered agencies to look at existing regulations and whether they contribute to or create the problem that the regulation is attempting to solve. However, E.O. 12866 does not have a comparable requirement to the RAA's requirement of publication of a statement along with its proposed rule. NPRM: Disclosure Requirements in Connection with an Agency's Determination to Propose a Rule The RAA would change the current procedures for disclosure by changing the requirements for publication of information on consultations between OIRA and an agency. Executive Order 12866 requires OIRA to disclose certain information about its regulatory reviews, including information about meetings and communications exchanged during the review process. It also imposes transparency requirements upon the agencies, including requirements to make its cost-benefit information public and identify changes made to the rule. The RAA would require the agency to make public all information used in the formulation of the NPRM. However, the RAA would give the President and the Administrator of OIRA substantial discretion over what information is provided with regard to consultation between OIRA and the agency: All information provided to or considered by the agency, and steps to obtain information by the agency, in connection with its determination to propose the rule, including any preliminary risk assessment or regulatory impact analysis prepared by the agency and other information prepared or described by the agency under subparagraph (D) and, at the discretion of the President or the Administrator of [OIRA], information provided by that Office in consultations with the agency, shall be placed in the docket for the proposed rule and made accessible to the public by electronic means and otherwise for the public's use when the notice of proposed rule making is published. The RAA contains a similar provision on the disclosure of information pertaining to the agency's determination to issue a proposed rule as well as the agency's determination of "other agency course," should an agency decide not to proceed with the issuance of a rule. In addition, similar language later in the bill would create a requirement for the agency to disclose "all documents and information prepared or considered by the agency during the proceeding." In each variation on this provision, the OIRA Administrator is granted discretion over what to include in the docket pertaining to communications between OIRA and the agency. If the OIRA Administrator chose to use that discretion to exclude from the docket information about OIRA's communications with the agency, this provision could be considered to result in a lack of transparency in the rulemaking process. NPRM: Determination of Other Agency Course Under the RAA, if the agency decides not to issue an NPRM and instead chooses "other agency course," the agency is required to publish (after consultation with OIRA) a "notice of determination of other agency course," which "shall include information required by paragraph (1)(D) [information known to the agency on the subject, including information and costs and benefits] to be included in a notice of proposed rule making and a description of the alternative response the agency determined to adopt." Currently, if an agency chooses not to move forward with a proposed rule, there is no comparable requirement for issuing a notice (though an agency may choose to do so). NPRM: Amending or Repealing Rules If an agency decides to amend or repeal a rule, under the RAA, the requirements for an ANPRM would not apply. However, an agency determination to amend or rescind an existing rule would still necessitate an NPRM, as is currently the case under the APA. Given the RAA's exception for publication of an ANPRM in this instance, it appears that the RAA places more priority on advance notice for "new" rules and less on rulemaking that would change or eliminate a rule. NPRM: Disclosure Requirements in Connection with an Agency's Determination of Other Agency Course The requirements for agencies to disclose information in connection with their determination of "other agency course" are similar to those discussed above in the section entitled " NPRM: Disclosure Requirements in Connection with an Agency's Determination to Propose a Rule ." The agency must disclose information used in its decision to choose "other agency course," and OIRA and the President have discretion over which communications between the agency and OIRA to include in the docket. Even if an agency decides not to move forward with a rule, it is still required to publish "all information provided to or considered by the agency, and steps to obtain information by the agency … including but not limited to any preliminary risk assessment or regulatory impact analysis prepared by the agency and all other information" along with its determination of "other agency course." Comment Period Requirement and Duration of Comment Period If enacted, the RAA would add minimum time periods for comment—120 days for major or high-impact rules and 60 days for all other rules, which would appear to include rules involving "a novel legal or policy issue arising out of statutory mandates." This would be a significant change from the APA, which does not have a minimum time period for comments. However, individual statutes may require minimum time periods and Executive Orders 12866 and 13563 both specify that agencies generally should provide a comment period of at least 60 days. These executive orders do provide agencies with flexibility, however, as E.O. 12866 qualifies its recommendation with the phrase "in most cases," and E.O. 13563 states that "to the extent feasible and permitted by law," agencies shall allow for a comment period "that should generally be at least 60 days." Comments: Opportunity for Oral Presentations The APA grants agencies discretion as to whether the comment period should include an opportunity for oral presentation. Under the RAA, a member of the public may petition, under existing APA hearing procedures, for a hearing "to determine whether any evidence or other information upon which the agency bases the proposed rule fails to comply with the Information Quality Act." If the agency decides not to exclude the evidence in question, the agency must "grant any such petition that presents a prima facie case that evidence or other information upon which the agency bases the proposed rule fails to comply with the [IQA]" and hold a hearing within 30 days of receiving the petition. In such instances, under the RAA, the agency must offer an opportunity for comments in the form of oral presentations pursuant to the required hearing. Similarly, if a hearing under the RAA would be required because the proposed rule is a high-impact rule, then an opportunity for comments in the form of oral presentations would be offered pursuant to that hearing. Formal Rulemaking Under the APA, "when rules are required by statute to be made on the record after opportunity for an agency hearing," the formal rulemaking requirements of 5 U.S.C. Sections 556 and 557 apply. When formal rulemaking is required, the agency must engage in trial-like procedures. The agency, therefore, must provide a party with the opportunity to present his case through oral or documentary evidence and conduct cross-examinations. Formal rulemaking proceedings must be presided over by an agency official or Administrative Law Judge who traditionally has the authority to administer oaths, issue subpoenas, and exclude "irrelevant, immaterial, or unduly repetitious evidence." Formal rulemaking procedures also prohibit ex parte (off-the-record) communications between interested persons outside the agency and agency officials involved in the rulemaking process. The agency or proponent of the rule has the burden of proof, and such rules must be issued "on consideration of the whole record … and supported by … substantial evidence." Executive Order 12866 specifically excludes rules issued under formal rulemaking proceedings from its requirements. Under the RAA, if formal rulemaking is required by a statute that calls for a rulemaking "on the record" or if the agency chooses to conduct a formal rulemaking, then the procedures for a petition for an IQA hearing, which would be in accordance with 5 U.S.C. Section 556 formal rulemaking hearing procedures, would not apply. Additionally, the requirements of high-impact rule hearings "to receive comment outside of" formal rulemaking procedures would not apply, although the RAA's proposed Section 553(e) does not appear to discuss the receipt of comments outside of formal rulemaking procedures for high-impact rules hearings. Finally, under the RAA, a high-impact rule hearing is limited to several issues of fact, including "upon petition by an interested person who has participated in the rulemaking, other issues relevant to the rulemaking." If a formal rulemaking was conducted, such RAA-established petition procedures would not be applicable. Petition for Information Quality Act Hearing Presently, the IQA requires federal agencies to create "administrative mechanisms allowing affected persons to seek and obtain correction of information maintained and disseminated by the agency that does not comply with guidelines" issued by OMB on the quality, objectivity, utility, and integrity of information. A 2002 OMB Memorandum on Information Quality Guidelines provides that agency websites should explain how a person may file a request for correction and information on administrative appeals of the agency's response to the request. The memorandum notes that current APA public comment procedures "provide well-established procedural safeguards that allow affected persons to contest information quality on a timely basis [and that] agencies may use those procedures to respond to information quality complaints," but that agencies "should respond sooner where needed to avoid the potential for actual harm or undue delay." Additionally, the OMB memorandum notes that agencies should issue a written response within 60 calendar days to complaints and appeals. As to judicial review under the IQA, the IQA's statutory language does not explicitly mention judicial review and courts have stated that "Congress did not intend the IQA to provide a private cause of action." The RAA does not mention existing agency mechanisms for corrections of information. The bill would allow for petitions under existing APA hearing requirements in 5 U.S.C. Section 556, within 30 days of an NPRM, "to determine whether any evidence or other information upon which the agency bases the proposed rule fails to comply with the" IQA. Under the RAA, the agency would either (1) "exclude from the rulemaking the evidence or other information that is the subject of the petition," (2) grant the petition if it "presents a prima facie case" that such evidence or information does not comply with the IQA, or (3) "deny any petition that [the agency] determines does not present such a prima facie case." If the agency excludes the information, it may, "if appropriate," withdraw the proposed rule and publish its determination. If the agency grants the petition, it must hold the hearing within 30 days of receiving the petition, allow for cross-examination, and "decide the issues presented by the petition" within 60 days of receiving the petition. The agency must also publish a notice in the Federal Register of a hearing on the petition at least 15 days before the hearing, indicating the time, place, proposed rule, and issues to be considered. The RAA's 60-day decision timeframe is similar to OMB's suggested response time of 60 calendar days for complaints and appeals. The RAA would provide for judicial review of agency dispositions of issues "considered and decided or determined" with regard to whether the petition presents a prima facie case and the issues presented by the petition, but not until judicial review of the agency's final action (such as the issuance of a final rule). The RAA also provides that if the agency decides to withdraw a proposed rule "on the basis of the petition," that there is no judicial review of such agency determinations. However, if an individual does not petition for an IQA hearing in the first place, judicial review would not be precluded under the RAA for "any claim based on" the IQA. (e) Hearings for High-Impact Rules As the APA does not distinguish or define "high-impact" rules, no hearing requirements or other procedures exist under the APA (or other statutes or executive orders) for such rules. Executive Order 12866 specifically excludes rules issued under formal rulemaking proceedings from its requirements. The RAA would create new hearing requirements for high-impact rules, based upon existing APA formal rulemaking requirements under 5 U.S.C. Sections 556 and 557, discussed above under " Formal Rulemaking ." The RAA would require agencies to hold a hearing under Sections 556 and 557 after an NPRM, the receipt of comments, and an IQA hearing (if one is held), unless the high-impact rule hearing "is waived by all participants in the rulemaking other than the agency." The agency must publish notice of the hearing at least 45 days before the hearing indicating the time, place, proposed rule, and issues to be considered at the hearing. The high-impact rule hearing must be limited to six issues of fact, but "participants may waive determination of any such issue": (1) "Whether the agency's asserted factual predicate for the rule is supported by the evidence"; (2) whether an alternative to the rule "would achieve the relevant statutory objectives at a lower cost"; (3) which alternative, if there is more than one, "would achieve the relevant statutory objectives at the lowest cost"; (4) "Whether, if the agency proposes to adopt a rule that is more costly than the least costly alternative," the "additional benefits of the more costly rule exceed the additional costs of the more costly rule"; (5) "Whether the evidence and other information upon which the agency bases the proposed rule meets the requirements of" the IQA; and (6) "other issues relevant to the rulemaking," if an interested person who participated in the rulemaking petitioned and the agency did not "determine[] that consideration of the issues at the hearing would not advance consideration of the rule or would … unreasonably delay completion of the rulemaking." The agency would have 30 days to grant or deny such a petition. (f) Final Rules Final Rules: OIRA Review/Consultation The RAA would require agencies, including independent regulatory agencies, to "consult" with OIRA before adopting a final rule. The RAA requires that "the agency shall adopt a rule only following consultation with the Administrator of the Office of Information and Regulatory Affairs to facilitate compliance with applicable rule making requirements." Currently, as in the case for proposed rules, covered agencies are required under E.O. 12866 to submit their significant final rules for OIRA review. Thus, the RAA would substantially expand the requirements for OIRA review in two respects: first, it would require consultation with OIRA for all agencies, including independent regulatory agencies, which are not covered in that section of E.O. 12866. Second, the consultation requirement would extend to all agency rules, not just rules deemed to be "significant." Final Rules: Scientific Basis The RAA also would require that agencies "shall adopt a rule only on the basis of the best reasonably obtainable scientific, technical, economic, and other evidence and information concerning the need for, consequences of, and alternatives to the rule." Although there is not a specific requirement in statute for agencies to adopt rules based upon scientific evidence, the proposed language in the RAA is almost identical to language from the "Principles of Regulation" section of E.O. 12866: "Each agency shall base its decisions on the best reasonably obtainable scientific, technical, economic, and other information concerning the need for, and consequences of, the intended regulation." Similarly, E.O. 13563 also contains language saying that "our regulatory system … must be based on the best available science." Final Rules: Requirement for Least Costly Rule The RAA would require agencies to adopt the "least costly" rule that meets "relevant statutory objectives" unless the benefits justify additional costs: Except as provided in subparagraph (B), the agency shall adopt the least costly rule considered during the rule making (including all costs to be considered under subsection (b)(6)) that meets relevant statutory objectives. The agency may adopt a rule that is more costly than the least costly alternative that would achieve the relevant statutory objectives only if the additional benefits of the more costly rule justify its additional costs and only if the agency explains its reason for doing so based on interests of public health, safety or welfare that are clearly within the scope of the statutory provision authorizing the rule. Thus, a determination first would need to be made regarding what the "relevant statutory objectives" are. Then an agency is directed to choose the least costly option for accomplishing these objectives. Agencies could deviate from this presumption, but must justify that deviation as explained in the provision. Because statutes sometimes have goals that are vague or that may not be explicitly laid out in the statute, this decision rule would appear to allow for the use of discretion in some cases in determining the relevant statutory objectives. It is not clear how agencies would use such discretion, or whether OIRA may have authority or may attempt to influence agencies' determinations of relevant statutory objectives. In its "Principles of Regulation" section, E.O. 12866 calls for agencies to tailor their regulations to impose the "least burden on society," although it also instructs agencies to "select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach." E.O. 13563 contains similar language. The APA does not contain such a requirement, although for rules expected to require the expenditure of $100 million or more in any one year by the private sector, or by state, local, and tribal governments in the aggregate, UMRA requires that agencies select the "least costly, most cost-effective or least burdensome alternatives that achieves the objectives of the rule." The requirement for agencies to choose a regulatory alternative that is the least costly would shift the current presumption that agencies are required to select regulatory alternatives that maximize net benefits to the presumption that the decision would instead be based primarily on costs. For analysis on some of the potential implications from the requirement for agencies to choose the least costly rule, see the section below entitled " Requirement for Choosing Least Costly Rule ." Final Rules: Publication Requirement The RAA would introduce a number of items that agencies must include with the publication of a final rule in the Federal Register . Currently, under the APA, agencies are required to publish along with the final rule a "concise general statement of their basis and purpose." Under the RAA, agencies would be required to include several detailed explanations along with the final rule. As under the APA, agencies would be required to include "a concise, general statement of the rule's basis and purpose." In addition to that requirement, agencies would be required to include an explanation of the need for a rule, including a statement of the statutory requirement and a summary of any "final risk assessment or regulatory impact analysis prepared by the agency." Agencies would also be required to include an explanation that the benefits "meet the relevant statutory objectives and justify the rule's costs." They must also include a detailed statement on the alternatives that the agency did not select, along with a justification for selecting the alternative that was chosen. In addition, they must discuss the state of existing rules on the particular topic and what they intend to do with those existing rules, if anything. Finally, agencies must include a determination that the evidence and information used in its formulation and selection of the rule is in accordance with the Information Quality Act. In some limited instances, agencies are required under current law to publish other items along with the final rules and the statement of basis and purpose, but not to the extent of the RAA's proposed requirements. For rules covered under the RFA, for example, agencies are required to "make copies of the final regulatory flexibility analysis available to members of the public and shall publish in the Federal Register such analysis or a summary thereof." Similarly, for rules covered under UMRA, the requirement is as follows: "In promulgating a general notice of proposed rulemaking or a final rule for which a statement under subsection (a) [an impact analysis] is required, the agency shall include in the promulgation a summary of the information contained in the statement." Final Rules: Retrospective Review Requirements Under the RAA, agencies would be required to publish along with final major or high-impact rules a plan for retrospective review of the rules. The review must take place "no less than every ten years" and must determine whether the rule is still necessary, whether the rule is achieving its objectives, whether the benefits still justify the costs, and whether the rule should be modified or rescinded. For rules that are covered under the RFA (rules that have a "significant economic impact on a substantial number of small entities"), agencies must publish plans for similar retrospective reviews to ensure that the rule is still necessary, how the rule interacts with other existing rules, what changes may be necessary to the rule, and other similar elements. Although no similar requirement exists in executive orders for the agencies to include a retrospective review plan with each individual rule they publish, Executive Orders 12866, 13563, and 13579 all implemented a general requirement for the government-wide retrospective review of rules. The spirit of those retrospective reviews appears to be similar to that in the RAA: to ensure that the rules currently in place are necessary and that the benefits still justify the costs of those rules. (g) Exceptions from Notice and Hearing Requirements This section discusses two exceptions to the APA's notice and comment procedures that the RAA would modify: (1) interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice; and (2) good cause. The APA provides exceptions to the notice-and-comment rulemaking procedures for "interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice." The RAA would still require such rules to adhere to its requirements for rulemaking considerations, but would exempt such rules from its ANPRM requirements, NPRM requirements, and high-impact rule hearing requirements, unless notice or hearing was required by statute. The RAA would also exempt such rules from its requirements for final rules, such as consultation with the OIRA Administrator; adoption of the rule on the basis of the best reasonably obtainable scientific, technical, economic, or other evidence and information; adoption of the least costly rule; and the requirements for the notice of final rulemaking. However, the RAA would retain its requirement that "interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice" include "a concise, general statement of the rule's basis and purpose." Additionally, the APA contains a good cause exception that allows an agency to issue a rule without notice and comment. To issue a rule without notice and comment under the APA, the agency must "for good cause find[] (and incorporate the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." Each of these three terms or phrases has a specific meaning. Whether the agency's use of the good cause exception is proper is a fact-specific inquiry, and courts have traditionally held that this exception will be "narrowly construed and reluctantly countenanced." A common use of the good cause exception is in the issuance of interim or interim final rules, which are considered final rules with the force and effect of law. Such rules are used by agencies to promulgate rules under the APA without providing the public with notice and an opportunity to comment before publication of the final rule, while reserving the right to modify the rule through a post-promulgation comment period. The RAA also includes a modified good cause exception for interim rules. The RAA's good cause exception applies to its requirements for ANPRMs for major rules, high-impact rules, and rules involving novel legal or policy issues; for NPRMs; hearings for high-impact rules; and for final determinations on issues such as the rule's benefits "meet the relevant statutory objectives and justify the rule's costs" in the publication of the final rule. Like the APA's good cause exception, the RAA's good cause exception would apply if the agency finds that compliance "is impracticable or contrary to the public interest." The RAA creates a new procedure for the "unnecessary" exception, discussed below, and adds an exception for "interests of national security." As is true with an agency's use of good cause for interim rules under the APA, judicial review of an agency's use of the good cause exception would be available immediately upon "the agency's publication of an interim rule." The RAA provides that the record for the court to consider "shall include all documents and information considered by the agency and any additional information presented by a party that the court determines necessary to consider to assure justice." The RAA would add a new requirement to address agencies' use of interim final rules. Under the RAA, "immediately upon publication of the interim rule," agencies would need to comply with the RAA's requirements for NPRMs, hearings for high-impact rules, and for final determinations in the publication of the final rule. The RAA indicates that the interim rule may be treated as an NPRM, and that the agency "shall not be required to issue supplemental notice other than to complete full compliance with" the RAA's NPRM requirements. If the agency does not complete such steps and either adopt a final rule or rescind the interim rule within 270 days of publication of the interim rule, or 18 months if the interim rule was a major or high-impact rule, then "the interim rule will cease to have the effect of law." Under the APA, the rescission of a rule, even an interim final rule, also requires a rulemaking, so agencies may choose to allow the time clock to run out (and let the interim rule cease to have effect), rather than conduct a rulemaking and incur the associated costs in order to rescind the interim rule. Like the APA, the RAA provides for the use of the good cause exception if the agency finds that notice and comment are "unnecessary," but the RAA would codify examples of a good cause finding that notice and comment are "unnecessary"—a rulemaking "undertaken only to correct a de minimis technical or clerical error in a previously issued rule or for other noncontroversial purposes." The RAA would codify a modified version of "direct final" rulemaking, a process that agencies use to quickly and efficiently finalize rules that the agency views as "routine or noncontroversial." Under direct final rulemaking, the agency publishes a proposed rule in the Federal Register , with language providing that the rule will become effective as a final rule on a specific date unless adverse comment is received by the agency. If even a single adverse comment is received, as recently occurred with a Coast Guard rule, the proposed rule is withdrawn and the agency may issue its proposed rule under the APA's notice-and-comment requirements. The RAA would enable agencies to publish a final rule upon a good cause finding that notice and comment is unnecessary, but would require the agency to receive "significant adverse comment within 60 days after publication of the rule." While the RAA does not define "significant adverse comment," if such comment(s) are received, the agency's final rule would be treated as an NPRM and the rule would be subject to the bill's NPRM, high-impact rule hearing, and final rule determination requirements. (h) Additional Requirements for Hearings Under the RAA, if a high-impact rule hearing is required, or if such a hearing is "otherwise required by statute or at the agency's discretion before adoption of a rule," the agency must follow formal rulemaking requirements in 5 U.S.C. Sections 556 and 557 and comply with the requirements for promulgating final rules. As previously mentioned, there are no comparable requirements in the APA or executive orders for such rules. (i) Date of Publication of Rule The RAA retains the APA's requirement that a final rule be published a minimum of 30 days before its effective date, which "afford[s] persons affected a reasonable time to prepare for the effective date of the rule." The RAA also maintains the APA's exceptions that allow an agency to dispense with the 30-day delayed effective date requirement for "substantive rule[s] which grant or recognizes an exemption or relieves a restriction," "interpretative rules and statements of policy," and rules for which the agency finds good cause to dispense with the 30-day waiting period. (j) Right to Petition The RAA would keep the APA's provision that allows for interested persons to "petition for the issuance, amendment, or repeal of a rule." (k) Rule Making Guidelines The RAA enacts into law authority for OIRA to issue guidance on how to assess costs and benefits. In addition, according to the RAA, "the rigor of cost-benefit analysis required by such guidelines shall be commensurate, in the Administrator's determination, with the economic impact of the rule." Under E.O. 12866, agencies are required to assess costs and benefits for "significant" rules, and they are required to perform a complete cost-benefit analysis for "economically significant" rules. From one point of view, the RAA's provision could be considered to be somewhat consistent with current practice. However, it appears that OIRA could use substantial discretion in how it defines and applies the term "rigor." It is not clear how OIRA would use that authority, but it is conceivable that OIRA could establish standards for rigor that would constitute changes from past practice. The document that OMB previously has issued to provide guidance to agencies on how to perform cost-benefit analyses is OMB Circular A-4. In essence, the circular provides "best practices" for agencies on how they should prepare their economic analyses of rules. The RAA would enact into law OIRA's authority to issue these guidelines and would also require the OIRA Administrator to regularly update the guidelines. Agencies would be required under the RAA to comply with OIRA's guidelines. Both OIRA's guidelines and the OIRA Administrator's determination as to whether an agency complied with its guidelines would be "entitled to judicial deference." In addition, OIRA would be required to issue a number of other guidelines for other topics, including on the coordination, simplification, and harmonization of rules, so as to avoid the duplication of or inconsistencies with other agencies' regulations. OIRA would also be required to issue guidelines to agencies as to how to conduct rulemakings under the RAA's procedures if the agency's rulemaking is conducted under procedures other than normal APA procedures. This would appear to affect hybrid rulemaking statutes, which typically place additional procedural requirements on agencies that may be found in the adjudicative context, but fall short of mandating that an agency engage in the APA's formal rulemaking process. This provision would appear to affect many other statutes as well, as it requires that OIRA's guidelines ensure that rulemakings affected by other statutory requirements "conform to the fullest extent allowed by law with" the RAA's notice and comment procedures. Under the RAA, OIRA would be required to issue guidelines for the conduct of IQA hearings and high-impact rule hearings, and agencies also must adopt rules for the conduct of these hearings, consistent with the OIRA guidelines. Additionally, OIRA must issue guidelines pursuant to the IQA to apply in both informal and formal rulemakings. (l) Inclusion in the Record of Certain Documents and Information Section 553(l) of the RAA stipulates that the agency shall provide all the information it used in its rulemaking proceedings in the rulemaking docket. As noted earlier in a similar provision, the proposed legislation also would give to OIRA and the President substantial discretion over what materials were included in the docket from their communications with the agency during the rulemaking proceedings. (m) Monetary Policy Exemption The RAA would provide an exception from certain cost-benefit requirements for rules "that concern monetary policy proposed or implemented by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee." While the APA does exempt certain rules from its informal rulemaking requirements, such as rules involving "military or foreign affairs function[s] of the United States" or rules "relating to agency management or personnel or to public property, loans, grants, benefits, or contracts," the APA does not contain an exemption for rules concerning monetary policy. The RAA would exempt such rules from the following requirements: (1) Rulemaking considerations of the "potential costs and benefits associated with potential alternative rules;" "means to increase the cost-effectiveness of any Federal response;" and "incentives for innovation, consistency, predictability, lower costs of enforcement and compliance …, and flexibility." (2) "A reasoned preliminary determination that the benefits of the proposed rule meet the statutory objectives and justify the costs of the proposed rule," and "a discussion of" "alternatives to the proposed rule," "costs and benefits of those alternatives," "whether those alternatives meet relevant statutory objectives," and "why the agency did not propose any of those alternatives." (3) Hearings for high-impact rules. (4) Requirements that the agency adopt the least costly rule considered during the rulemaking or that the agency may adopt a more costly rule "only if the additional benefits of the most costly rule justify its additional costs and only if the agency explains its reason for doing so based on interests of public health, safety, or welfare that are clearly within the scope of the statutory provision authorizing the rule." The RAA also states that it would exempt monetary policy rules from "subparagraphs (C) and (D) of subsection (f)(5)," however, there is no subsection (f)(5) in the RAA. It appears, based on the other exemptions from discussions of costs and the least costly alternative, that the RAA may have intended to exempt such rules from subparagraphs (C) and (D) of subsection (f)(4), which require "the agency's reasoned final determination that the benefits of the rule meet the relevant statutory objectives and justify the rule's costs," and "the agency's reasoned final determination not to adopt any of the alternatives to the proposed rule" including a determination "that no alternative considered achieved the relevant statutory objectives with lower costs" or a determination that the agency's "adoption of a more costly rule" complies with other RAA requirements for such adoption. Agency Guidance; Procedures to Issue Major Guidance; Presidential Authority to Issue Guidelines for Issuance of Guidance (Section 4 of the RAA) The RAA would explicitly incorporate guidance documents into the APA and also create specific statutory requirements that "major guidance" and guidance "involving a novel legal or policy issue arising out of statutory mandates" would be required to follow prior to issuance, including the identification of costs and benefits and a consultation with the OIRA Administrator. The following sections discuss the requirements in Section 4 of the RAA. Procedures to Issue Presently, agency documents that are merely general statements of policy, such as guidance documents, are not required to undergo APA notice-and-comment procedures. Current APA notice-and-comment requirements do not apply to "interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice." These types of agency action, while technically defined as rules, are generally referred to as nonlegislative rules, as they do not have the force and effect of law. However, OMB's Final Bulletin on Agency Good Guidance Practices provides for notice and comment of an "economically significant guidance document," as well as additional procedures for "significant guidance documents," which include agency approval of their issuance, a prohibition on the use of mandatory language unless describing statutory or regulatory requirements or addressing agency staff, and procedures for public access and comment in the OMB Bulletin. See the " Definitions (Section 2 of the RAA) " section above for a discussion of the differences between "significant" and "economically significant" guidance documents under the OMB Bulletin and the RAA's definition of "major" guidance. The RAA would require major guidance and guidance "that involves a novel legal or policy issue arising out of statutory mandates" to undergo new procedures before the agency could issue such documents. The agency would be required to "make and document a reasoned determination that—(A) assures that such guidance is understandable and complies with relevant statutory objectives and regulatory provisions (including any statutory deadlines for agency action); (B) summarizes the evidence and data on which the agency will base the guidance"; (C) identify costs and benefits, including costs that would be considered under a rulemaking "of conduct conforming to such guidance and assure[] that such benefits justify such costs"; and (D) describe alternatives to the guidance and the costs and benefits of such alternatives and "why the agency rejected those alternatives." The agency must publish the documentation required for these four requirements "by electronic means and otherwise." Presently, OMB's Bulletin discusses consultations with the OIRA Administrator in the context of exempting significant guidance documents from the Bulletin's requirements and addressing public comments on economically significant guidance documents. The RAA would include a consultation requirement with the OIRA Administrator "on the issuance of such guidance" to assure that the guidance is "reasonable, understandable, consistent with relevant statutory and regulatory provisions and requirements or practices of other agencies," and the RAA also separately provides such goals for guidance documents. Additionally, the RAA would create a new requirement related to costs and benefits—that agencies confer with the OIRA Administrator to assure that the guidance "does not produce costs that are unjustified by the guidance's benefits, and is otherwise appropriate." Binding Nature The RAA also states legal concepts regarding guidance that appear in case law and most agency guidance documents, such as the fact that agency guidance documents are not legally binding. Currently, if a general statement of policy is implemented in a manner that is binding on the agency and/or outside parties, a reviewing court would likely regard it as a legislative rule that should be deemed invalid for failing to comply with APA notice-and-comment procedures. The question of whether a general statement of policy or a nonlegislative rule is in fact a legislative rule required to be issued under APA notice-and-comment procedures is a fact-specific one that courts will examine on a case-by-case basis. Presidential Authority to Establish Guidelines for Agency Issuance of Guidance While there is no specific authority in existing executive orders for OIRA to issue guidelines on guidance documents, E.O. 12866 recognized OIRA as "the repository of expertise on regulatory issues." OMB has previously issued its Final Bulletin on Agency Good Guidance Practices, based on the now-revoked E.O. 13422, and that executive order discussed OMB's authority with regard to guidance documents. Additionally, specific statutory provisions, such as the IQA, have directed OMB to issue guidance. The RAA would grant the OIRA Administrator the authority to issue guidelines on agencies' issuance of major and other guidance documents, and the bill prescribes several requirements for these guidelines. The RAA would require the guidelines to "assure that each agency avoids issuing guidance documents that are inconsistent or incompatible with, or duplicative of, the law, its other regulations, or the regulations of other Federal agencies." This requirement for the guidelines are similar to the RAA's directive that agencies shall avoid the issuance of such guidance, discussed above, although the directive to the OIRA Administrator indicates agencies must avoid issuing guidance that is "inconsistent or incompatible with, or duplicative of" other agencies' rules. Such guidelines also must assure that an agency "drafts its guidance documents to be simple and easy to understand, with the goal of minimizing the potential for uncertainty and litigation arising from uncertainty." This RAA requirement for guidance is nearly identical to E.O. 12866's Section 1(b)(12) "Principles of Regulation," which states that "Each agency shall draft its regulations to be simple and easy to understand, with the goal of minimizing the potential for uncertainty and litigation arising from such uncertainty." Hearings; Presiding Employees; Powers and Duties; Burden of Proof; Evidence; Record as Basis of Decision (Section 5 of the RAA) If enacted, the RAA would institute various changes in the hearing process to allow for greater public access to transcripts and requests filed in a hearing proceeding, to incorporate information that is part of the rulemaking proceedings into the record for IQA hearings and high-impact rule hearings, and exempt rules on monetary policy from the bill's provision on petitions for hearings for rules. The following sections discuss the requirements in Section 5 of the RAA. 5 U.S.C. Section 556(e) The APA's current 5 U.S.C. Section 556(e), which discusses transcripts of testimony and exhibits, makes such transcripts and requests filed in a proceeding available to the parties, "on payment of lawfully prescribed costs." The RAA would modify this subsection to make transcripts and requests available, electronically, to the parties and the public. Transcripts and requests would still be made available in other than electronic form "upon payment of lawfully prescribed costs." Hearings Under the RAA, if the agency conducts a either an IQA hearing or a hearing on a high-impact rule, the record for decision "shall also include any information that is part of the record of proceedings under" 5 U.S.C. Section 553, which includes both of these hearings as well as the RAA's expanded rulemaking requirements. Under the RAA, if the agency conducts a rulemaking under 5 U.S.C. Sections 556 and 557 (a formal rulemaking) "directly after concluding proceedings upon" an ANPRM under the RAA's requirements for ANPRMs, then the "matters to be considered and determinations to be made shall include … the matters and determinations" in the RAA's additions with regard to rulemaking considerations and final rule determinations. Generally speaking, these considerations and determinations concern costs and benefits. Grants or Denials of Petitions for Hearings/Rules on Monetary Policy If a person petitioned for a hearing regarding a major rule, under the RAA's amendments to 5 U.S.C. Section 556, the agency would be required to grant the petition "unless the agency reasonably determines that a hearing would not advance consideration of the rule or would, in light of the need for agency action, unreasonably delay completion of the rulemaking." The agency's decision, with regard to granting or denying the petition must be published under the RAA, along with "an explanation of the grounds for decision." The RAA would require the information in the petition to be included in the administrative record. As indicated earlier, while the APA exempts certain rules, such as military and foreign affairs rules, from its requirements, the APA does not contain an exemption for rules concerning monetary policy. The RAA would provide an exception from its provision on petitions for hearings for rules "that concern monetary policy proposed or implemented by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee." Actions Reviewable (Section 6 of the RAA) As a general matter, there is a "strong presumption that Congress intends judicial review of administrative action." The APA provides that "final agency action for which there is no other adequate remedy in a court [is] subject to judicial review." As mentioned above, with regard to judicial review under the IQA, the IQA's statutory language does not explicitly provide for judicial review and courts have examined the issue in cases brought under the IQA or APA. H.R. 3010 and S. 1606 differ significantly in their modifications to the APA's provision on judicial review of agency actions. H.R. 3010 would keep the current APA provision on actions reviewable under the APA's judicial review provisions, and add a new provision on what constitutes a "final agency action" with regard to the IQA. H.R. 3010 would provide that the following agency actions are "final agency actions" subject to judicial review: (1) denials of correction requests, (2) denials of appeals under an administrative mechanism that each agency is required to establish pursuant to the IQA, and (3) an agency's failure to grant or deny a request or appeal within 90 days. S. 1606 does not contain this provision on what constitutes a "final agency action" with regard to the IQA. H.R. 3010 and S. 1606 also would provide for immediate judicial review of interim rules published by the agency "without compliance with" H.R. 3010 's requirements for ANPRMs, NPRMs, hearings for high-impact rules, or requirements to render final determinations in the agency's final rule. H.R. 3010 and S. 1606 's provision of judicial review essentially allows a person with standing to challenge the agency's finding of good cause (that compliance with such procedures is "impracticable or contrary to the public interest") for "abuse of discretion," which is one of the APA's scope of review provisions. H.R. 3010 and S. 1606 codify judicial review of such agency good cause determinations in both the " (g) Exceptions from Notice and Hearing Requirements " discussed above, and in the APA's judicial review provisions. Under H.R. 3010 and S. 1606 , agency determinations of good cause made in the issuance of an interim rule that are based on "interests of national security" are not judicially reviewable. S. 1606 would prohibit judicial review of compliance with certain sections of S. 1606 for rules other than major or high impact rules under what would be the new 5 U.S.C. Section 706(a)(2)(A). This provision addresses the scope of review under which a reviewing court must "hold unlawful and set aside agency action, findings, and conclusions found to be—(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." S. 1606 would prohibit judicial review for rules other than major and high-impact rules for compliance with provisions on rulemaking considerations of the potential costs and benefits associated with potential alternative rules, "the means to increase the cost-effectiveness of any Federal response," and "incentives for innovation, consistency, predictability, lower costs of enforcement and compliance (to government entities, regulated entities, and the public), and flexibility." S. 1606 also would prohibit judicial review for rules other than major and high-impact rules for compliance with provisions that a "reasoned preliminary determination that the benefits of the proposed rule meet the relevant statutory objectives and justify the costs of the proposed rule" and "a discussion of the alternatives to the proposed rule," "the costs and benefits of those alternatives," "whether those alternatives meet relevant statutory objectives," and "why the agency did not propose any of those alternatives," should be included in an NPRM. Additionally, S. 1606 would prohibit judicial review for rules other than major or high-impact rules of an agency's adoption of the least costly rule and the agency's reasoned final determinations, including that the rule's benefits "meet the relevant statutory objectives and justify the rule's costs," and that "no alternative considered achieved the relevant statutory objectives with lower costs." However, S. 1606 explicitly provides for judicial review of determinations of whether a rule is a not a high-impact rule or a major rule "within the meaning of 551(19)(A)," which is a rule that the OIRA Administrator "determines is likely to impose—(A) an annual cost on the economy of $100,000,000 or more, adjusted annually for inflation." Scope of Review (Section 7 of the RAA) Scope of Review The APA provides standards of judicial review of agency action that a court will use to evaluate whether an agency's action is valid. The RAA would modify the APA's provision that states: "The reviewing court shall … hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law," by adding "(including the Information Quality Act)." As the RAA also would add a new provision stating that agency denials of information correction requests, denials of administrative appeals, and agency failures to grant of deny a request or appeal under the IQA are "final agency actions," the RAA would appear to provide for judicial review of the agency's actions under the APA. Courts grant varying levels of deference to agency interpretations of statutes when examining questions such as whether an agency's action is in excess of its delegated statutory authority. Deference to Agency Interpretations of Agency Rules and Determinations The RAA would add a new requirement to the APA's scope of review provision that would prohibit judicial deference to several agency interpretations and determinations. Judicial deference is the degree to which a court will uphold and respect the validity of an agency's interpretation of a statutory or regulatory provision during judicial review of the agency's decisions. Courts grant varying levels of deference to agency interpretations. The RAA's potential impacts on case law and the types of judicial deference to agency actions are discussed below. Additionally, the RAA would provide that agency denials of petitions for extending the issues in a high-impact rule hearing to "other issues relevant to the rulemaking" and any other petition for a hearing under the APA formal rulemaking provisions (5 U.S.C. §§556 and 557) for abuse of discretion. First, the RAA would prohibit judicial deference to an agency's interpretation of its rule "if the agency did not comply with" informal or formal rulemaking procedures "to issue the interpretation." Judicial deference to agency interpretations of the agency's own rule is addressed in case law. Under one type of judicial deference to agency action, known as Auer deference: "An administrative rule may receive substantial deference if it interprets the issuing agency's own ambiguous regulation." Under Auer deference, the Court will "accept the agency's position unless it is 'plainly erroneous or inconsistent with the regulation.'" However, in what has been termed the "anti-parroting" cannon of Gonzales v. Oregon , the Court found "that Auer deference is inapplicable where an agency seeks deference for its interpretation of a regulation that merely parrots the statute." The RAA's prohibition on judicial deference to agency interpretations of agency rules unless the agency used informal or formal rulemaking procedures would appear to eliminate Auer deference for other agency interpretations. To receive deference under the RAA, agency interpretations of their own rules also would appear to be required to be issued as rules. Second, under the RAA, courts could not defer to agency cost-benefit determinations or "other economic or risk assessment of the action, if the agency failed to conform to" OIRA-established guidelines. The RAA's prohibition on judicial deference to such determinations due to procedural noncompliance could potentially result in a court performing its own cost-benefit determinations and risk assessments, if a reviewing court found an agency had not complied with OIRA guidance. Third, courts could not defer to agency "determinations made in the adoption of an interim rule." This provision could potentially conflict with the RAA's proposed amendment to the APA's provision on reviewable agency actions, which would provide that "immediate judicial review … of the agency's determination to adopt such rule on an interim basis … shall be limited to whether the agency abused its discretion to adopt the interim rule without compliance with section 553(c), (d), or (e) or without rendering final determinations under subsection (f) of section 553." Finally, under the RAA, courts could not defer to agency guidance. Judicial deference to agency guidance documents is also addressed in case law, and the RAA's prohibition on deference to agency guidance would appear to eliminate even weak Skidmore deference to agency guidance (discussed below). As a result, courts would interpret statutes without the ability to account for an agency's specialized experience in administering a statute or regulation. The 2001 case United States v. Mead Corporation focused on a tariff classification ruling by the Customs Service and held that the ruling "fail[ed] to qualify" for Chevron deference. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. is the leading case on judicial review of agency interpretations of statutes. In Chevron , the Court enunciated a two-step test for judicial review of an agency's interpretation of its own statute: (1) Has Congress "directly spoken to the precise question at issue?" and (2) if Congress has not done so and "the statute is silent or ambiguous with respect to the specific issue," is the agency's answer "based on a permissible construction of the statute?" Under Chevron step one, if Congress has spoken directly to the question at issue, then Chevron deference is not due and the Court "must give effect to the unambiguously expressed intent of Congress." If Congress's intent is unclear or if Congress is silent, the Court's role at Chevron step two is to defer to any reasonable agency interpretation of the pertinent statutory language. The Mead Court qualified its decision in Chevron by holding that Chevron deference to an agency's interpretation of an ambiguous statute was "warranted only 'when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation was promulgated in exercise of that authority.'" These threshold determinations of whether Congress delegated authority and whether the agency has exercised its authority to act with the force of law, such as in notice-and-comment rulemaking or formal adjudication, has been referred to as Chevron step zero. The Mead Court held that congressional delegation of authority to an agency to make rules with the force of law "may be shown in a variety of ways, as by an agency's power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent." As the Court had explained earlier in Christensen v. Harris County , policy statements, agency manuals, enforcement guidelines, and interpretive opinion letters do not warrant Chevron -level deference. In the 2002 case Barnhart v. Walton , the Court focused on the longstanding nature of the agency's interpretation and found that Chevron deference may apply to agency interpretations reached "through means less formal than 'notice-and-comment' rulemaking." The Barnhart Court pointed to factors that highlighted "the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the Agency has given the question over a long period of time." With regard to the level of judicial deference that should be accorded to informal procedures, courts appear to be required to make a "threshold determination: whether to apply the criteria for determining Chevron worthiness from Mead or those from Barnhart ... Thus, Chevron deference appears to depend on whether the court evaluating a particular interpretive procedure favors Mead -style factors or Barnhart -style factors." If the agency's interpretation does not qualify for Chevron deference, it is otherwise "'entitled to respect' only to the extent it has the 'power to persuade'" under the standard of deference set forth in Skidmore v. Swift & Co . If Chevron deference does not apply to the agency's interpretation—such as in cases when the agency interprets a statute that also applies to other agencies or when the agency has issued an opinion letter—"courts ordinarily will give some deference or weight to an agency's interpretation of a statute that it administers." Under Skidmore v. Swift & Co ., a court may defer to such agency interpretations, as they are entitled to a "respect proportional to [their] 'power to persuade.'" The Skidmore Court stated that "[t]he weight [granted an administrative] judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." In other words, courts will often give weight to an agency's interpretations, due to the agency's "specialized experience" in the administration of its given functions. Added Definition (Section 8 of the RAA) The APA currently contains no definition for "substantial evidence." The Supreme Court has "defined substantial evidence as 'such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.'" The RAA would use similar language in its definition of "substantial evidence," which, under the RAA, would mean "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion in light of the record considered as a whole, taking into account whatever in the record fairly detracts from the weight of the evidence relied upon by the agency to support its decision." The RAA would add its definition of "substantial evidence" in chapter 7 of Title 5, United States Code, which delineates APA standards for judicial review. The RAA's definition would impact 5 U.S.C. Section 706, Scope of review, which states: To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—… (2) hold unlawful and set aside agency action, findings, and conclusions found to be— (E) unsupported by substantial evidence in a case subject to [5 U.S.C. §§556 and 557] or otherwise reviewed on the record of an agency hearing provided by statute; … In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error. The RAA's definition of substantial evidence would be used to evaluate adjudications and formal rulemakings conducted under 5 U.S.C. Sections 556 and 557. Under one reading of the RAA's amendments, a court also may review a high-impact rule hearing if such hearing is considered to be "an agency hearing provided by statute." Effective Date (Section 9 of the RAA) The RAA would restrict its application to pending or completed rulemakings. The following RAA amendments would not apply to pending or completed rulemakings on the date of the RAA's enactment: the RAA's amendments to the informal and formal rulemaking sections of the APA; the RAA's definition of "substantial evidence"; the RAA's new provisions that a court shall not defer to an agency's cost/benefit determinations and economic and risk assessments if the agency failed to conform to OIRA-established guidelines and that a court shall not defer to agency determinations made in the adoption of an interim rule; the RAA's addition of court reviews (for abuse of discretion) of agency denials of petitions during high-impact rule hearings "by an interested person who has participated in the rulemaking" related to "other issues relevant to the rulemaking," due to an agency "determin[ation] that consideration of the issues at the hearing would not advance consideration of the rule or would, in light of the nature of the need for agency action, unreasonably delay completion of the rulemaking"; and the RAA's addition of court reviews (for abuse of discretion) of agency denials of petitions for hearings under the APA's formal rulemaking provisions, 5 U.S.C. Sections 556 and 557. Potential Issues for Congress This section first provides a list of the most significant changes to the APA that the RAA would make. This section then discusses some potential broad implications of the RAA's changes to the rulemaking process. Significant Changes by the RAA If enacted, the RAA would enact major changes to the current rulemaking process. Some of the most significant changes are listed here. The H.R. 3010 version of the RAA would: Require agencies to adopt the "least costly" rule that meets "relevant statutory objectives" unless the benefits justify additional costs. Provide for judicial review of certain requirements and determinations, for which judicial review is not presently available or for whether there is a question as to whether judicial review is available. Overhaul the current notice-and-comment (informal) rulemaking process by codifying and modifying existing requirements and instituting many procedural and substantive additions to informal rulemaking. Raise questions regarding how the RAA would interact with existing statutory requirements for cost-benefit analysis and statutory prohibitions on cost considerations. Impose new requirements on independent regulatory agencies, including cost-benefit analyses and OIRA review. Impact existing case law on judicial deference to agency interpretations of rules and agency guidance. Provide that interim rules shall cease to have the effect of law if such rules are not finalized or rescinded in accordance with the RAA's requirements within 270 days of publication of the interim rule or 18 months if the rule is a major or high-impact rule. Mandate trial-like formal rulemaking procedures for high-impact rules. Require ANPRMs for major rules, high-impact rules, and rules involving novel legal or policy issues arising out of statutory mandates. Mandate the identification of costs and benefits, and assure that such benefits justify the cost, in major guidance documents and guidance that involves a novel legal or policy issue arising out of statutory mandates. Establish minimum time periods for comment in rulemakings. Grant the OIRA Administrator, in statute, increased powers and responsibilities. Enable IQA petitions under existing APA hearing requirements to determine if an agency's proposed rule does not comply with the IQA. Potential Effects of Additional Rulemaking Requirements The RAA would expand many requirements that already exist in the rulemaking process, and it would codify certain requirements that currently exist in executive orders and OMB documents. It would also add some requirements that do not currently exist. Supporters of the RAA have said that the RAA would help standardize the rulemaking process by enacting into law the executive order requirements for OIRA review and cost-benefit analysis, as well as other requirements and guidance that have been added since the APA. Proponents of the bill have also express strong support for the expansion of OIRA review and cost-benefit analyses to more rules and to independent regulatory agencies, saying that agencies would be held more accountable by the existence of these requirements. On the other hand, because of these new requirements, opponents of the bill have argued that the rulemaking process could become more difficult for agencies to navigate and more time may be required for agencies to issue rules. New requirements for hearings and minimum lengths for comment periods, for example, would likely extend the length of time it takes for agencies to promulgate rules. Furthermore, the extension of judicial review to considerations for which it does not presently exist could also potentially result in increased litigation. Although many of the requirements for the RAA are similar to requirements that currently exist under the RFA and UMRA, some of the requirements are narrow in scope compared to the RAA's application of similar requirements. If enacted, the RAA would supplant sections (b) through (e) of 5 U.S.C. Section 553, the APA's informal rulemaking provision, but it would not replace the requirements in the RFA or UMRA. Therefore, agencies would have to conduct the analyses that are currently required of them, and they would have additional requirements to meet as well. Additionally, enactment of the RAA could also lead to uncertainty for regulators and regulated entities as the courts interpret the RAA's provisions, particularly with regard to provisions that provide new authorities, definitions, and requirements. RAA May Require Additional Time and Resources Another related potential ramification that could arise from enactment of the RAA is that it could be more difficult for agencies to meet statutory deadlines due to the additional requirements and the addition of a minimum length of time for comment periods. In order for agencies and OIRA to fulfill these procedural requirements, additional resources may be necessary. For example, the RAA would require agencies to conduct many more cost-benefit analyses than are currently required, and OIRA would be required to review many more rules than it is currently required to review. There would also be a cost associated with the increased litigation that the RAA would be likely to bring about. The requirement for a potentially large subset of rules (major rules, high-impact rules, and rules involving novel legal or policy issues) to publish ANPRMs 90 days before publishing an NPRM and the minimum 60-day comment period associated with that requirement could also make rulemaking proceedings longer. Implications for Independent Regulatory Agencies Another potential implication of the enactment of the RAA may be a change in the level of independence of the independent regulatory agencies. Presidential executive orders on regulatory review have excluded independent regulatory agencies by referencing a statutory definition of an "independent regulatory agency" that contains a list of such agencies. The majority of these independent regulatory agencies, including the Securities and Exchange Commission, the Federal Communications Commission, and the Board of Governors of the Federal Reserve System, are led by multi-member boards in which substantive regulatory authority is vested in the board itself. The heads of independent regulatory agencies typically may be removed by the President only for cause. For cause removal protection provides an element of insulation from presidential control. Independent regulatory agencies may also have several other structural elements that theoretically provide insulation from executive branch control, such as staggered terms of office for the members of a multi-member board, as well as an odd number of members, with no more than a simple majority from one political party, who serve terms for an odd number of years and that may "extend beyond the four-year presidential term." Independent regulatory agencies have not been covered by the requirements for OIRA review and cost-benefit analysis since those requirements were established by President Ronald Reagan in E.O. 12291. President Clinton also chose to exclude those agencies when he issued E.O. 12866, which superseded E.O. 12291. According to President Clinton's OIRA Administrator, those agencies were excluded from the requirements for centralized regulatory review because presidential advisors concluded that the legal authority to extend the requirements existed, but the President should maintain deference to Congress and respect the independence of the agencies. As discussed throughout this report, if enacted, the RAA would extend both of the major requirements of E.O. 12866 to the independent regulatory agencies. First, they would have to submit their proposed and final rules to OIRA for review. Under the executive orders that have been in place since 1981, the requirements for OIRA consultation has essentially allowed the President, through OMB and OIRA, to ensure that regulations are consistent with his policy priorities. Therefore, critics may point out that a requirement for OIRA consultation could reduce the level of independence of those agencies. On the other hand, supporters of this change have argued that OIRA review would provide an important check on rulemaking in the independent regulatory agencies. Second, the independent regulatory agencies would also be subject to the same requirements for cost-benefit analysis to which other agencies currently are subject under E.O. 12866. During FY2010, the independent regulatory agencies promulgated 17 "major" (defined differently than in the RAA) rules, 16 of which "were issued to regulate the financial sector," and while some agencies assessed costs, according to GAO, "none of the 17 rules assessed both anticipated benefits and costs." OMB has indicated that it "does not know whether the rigor of the analyses conducted by these agencies is similar to that of the analyses performed by agencies subject to OMB review." OMB has "encouraged" independent regulatory agencies to follow E.O. 13563's instruction that agencies use "the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible," as well as the executive order's principles and requirements. Again, critics of this change may point to the independence of the independent regulatory agencies when it comes to OIRA's ability to examine their cost-benefit analyses. Critics of the RAA's change also may argue that courts may hold agencies accountable to their current statutory mandates with regard to cost-benefit analyses. Supporters of that change would argue, however, that those agencies should be held to the same standard to which other agencies are held when considering costs and benefits of regulations. In addition, those who support expanding the cost-benefit analysis requirements to the independent regulatory agencies have pointed to recent major legislation—particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act, which delegated a substantial amount of rulemaking authority to independent regulatory agencies—as an example of how transparency could be brought to the implementing regulations. Requirement for Choosing Least Costly Rule Another element that some critics of the RAA have raised is the RAA's requirement that agencies choose the least costly regulatory alternative. It appears that this could come into conflict with current laws, such as the Clean Air Act and the Occupational Safety and Health Act, which enable agencies to issue regulations and make decisions based on factors other than economic costs or cost-benefit analysis. Other laws provide specific directives with regard to costs and benefits. Given this potential conflict with existing law, some have identified the RAA as a "supermandate" that would supersede other requirements not to consider costs that exist in the enabling statutes of numerous agencies. Under the current executive orders that govern the rulemaking process, agencies are encouraged to select regulatory approaches that maximize net benefits, tailor their regulations to impose the "least burden on society" and ensure that the benefits of a rule justify the costs. Under the RAA, it appears that the decision criteria for the selection of a regulatory alternative may change: agencies would be required to "adopt the least costly rule considered during the rule making … that meets relevant statutory objectives." However, this provision may create uncertainty as to what would constitute a "relevant statutory objective," and such uncertainty would likely be resolved over time through case law on particular statutes or through a specific congressional directive defining what the "relevant statutory objectives" for a particular law. For example, in the Food and Drug Administration Food Safety Modernization Act, Congress directed the FDA to publish an NPRM "to establish science-based minimum standards for safe production and harvesting of those types of fruits and vegetables … that are raw agricultural commodities for which the Secretary has determined that such standards minimize the risk of serious adverse health consequences or death." The statutory provision contains specific requirements for the NPRM and the final rule, and provides requests for variances and exempts some farms. Specific statutory requirements such as those contained in this example could conceivably constitute "relevant statutory objectives" that would enable an agency to adopt a rule other than the least costly rule. Additional Authority for OMB and OIRA The proposed RAA would also change the role of OIRA in the rulemaking process. By enacting into law a requirement for agency consultation and adding other statutory functions for OIRA, the proposed legislation appears that it would increase the authority that OIRA has when it comes to influencing the rulemaking process. Supporters of the RAA would likely say that OIRA can serve as a check on agencies during the rulemaking process. Critics may argue that this could lead to the politicization of more rules and increased presidential control over those rules. Increased Agency Use of Adjudication If the RAA is enacted, and if an agency is not required by a particular statutory provision to use APA informal rulemaking procedures, the agency may increasingly turn to adjudication instead of informal rulemaking. Advantages to choosing adjudication over rulemaking procedures include an opportunity to avoid "[r]ulemaking's increasing procedural complexity," which could include the RAA's proposed amendments to the rulemaking process; the ability to change agency policy faster than through a subsequent rulemaking to modify or repeal a rule; "a desire to avoid political conflicts with congressional oversight committees and other overseers"; and the "situation-specific" nature of adjudication, which "potentially avoid[s] overinclusiveness or underinclusiveness." The Supreme Court has stated that agencies may choose "between proceeding by general rule or by individual, ad hoc litigation" and that the choice between rulemaking and adjudication "is one that lies primarily in the informed discretion of the administrative agency." Potential for Increased and/or Lengthier Litigation The RAA would provide that many of its requirements and agency determinations would be subject to judicial review, or clarify whether judicial review is available. For example, the RAA would provide for judicial review (or clarify that judicial review is available) for agency dispositions of issues with regard to IQA petitions, agency denials of information correction requests, agency denials of administrative appeals under IQA mechanisms, and agency failures to grant or deny IQA requests or appeals within 90 days. Such changes could allow interested parties with standing to litigate agency actions or raise additional claims in challenges to agency rulemakings. Under proposed 5 U.S.C. Section 553(k), the RAA would provide for judicial deference of an OIRA Administrator's determination regarding agency compliance with OIRA guidelines on the IQA that would apply in informal and formal rulemakings. The RAA would not provide for deference to certain agency interpretations or determinations; for example, a court could not defer to an agency's determinations of costs and benefits if the agency did not comply with OIRA guidelines on the assessment of costs and benefits under proposed 5 U.S.C. Section 553(k). The RAA's changes to judicial deference to agency interpretations and its amendments to APA judicial review provisions on actions made reviewable and scope of review may lead to lengthier court proceedings if courts cannot defer to agency interpretations or determinations. Side-by-Side Comparison Appendix A lists the provisions of the RAA and provides a side-by-side comparison of those provisions with provisions from relevant statutes, executive orders, and OMB documents. Generally, the provisions of the table are listed in the order that they are included in the House version of the RAA. Unless otherwise specified in the table or indicated by quotation marks, the text is pulled directly from the sources mentioned. Some components of the RAA, such as those that define certain government entities (i.e., OIRA) and those that define certain statutes (i.e., the IQA) are excluded from the table. In addition, the statutes included in the table are those that have broadly applicable, cross-cutting rulemaking requirements. Rulemaking statutes that apply to specific agencies are excluded. Similarly, when the table indicates that no broad requirement exists, there may be specific requirements for particular agencies in other statutes. Appendix A. Comparison of Current Rulemaking Requirements and the Proposed Regulatory Accountability Act of 2011 Appendix B. List of Abbreviations Used in This Report

In the fall of 2011, a group of Members from the House and the Senate introduced the Regulatory Accountability Act of 2011 (RAA, H.R. 3010 and S. 1606). The RAA would make the most significant legislative changes to the rulemaking process since the enactment of the Administrative Procedure Act in 1946. The RAA would modify and enact into law numerous new general procedures for rulemaking that appear in narrower form in existing law, executive orders, and Office of Management and Budget (OMB) documents. The House of Representatives passed H.R. 3010 on December 2, 2011. The Obama Administration has issued a Statement of Administration Policy against H.R. 3010. Some of the most significant changes the bill would make are listed here. H.R. 3010 would: Require agencies to adopt the "least costly" rule that meets "relevant statutory objectives" unless the benefits justify additional costs. Provide for judicial review of certain requirements and determinations, for which judicial review is not presently available or for which there is a question as to whether judicial review is available. Overhaul the current notice-and-comment (informal) rulemaking process by codifying and modifying existing requirements and instituting many procedural and substantive additions to informal rulemaking. Raise questions regarding how the RAA would interact with existing statutory requirements for cost-benefit analysis and statutory prohibitions on cost considerations. Impose new requirements on independent regulatory agencies, including cost-benefit analysis and regulatory review by OMB's Office of Information and Regulatory Affairs (OIRA). Impact existing case law on judicial deference to agency interpretations of rules and agency guidance. Provide that interim rules shall cease to have the effect of law if such rules are not finalized or rescinded in accordance with the RAA's requirements within 270 days of publication of the interim rule or 18 months if the rule is a major or high-impact rule. Create a new category of rules, "high-impact" rules, and mandate trial-like formal rulemaking procedures for such rules. Require advance notices of proposed rulemaking for certain rules. Mandate the identification of costs and benefits, and assure that such benefits justify the cost, in major guidance documents and guidance that involves a novel legal or policy issue arising out of statutory mandates. Establish minimum time periods for comment in rulemakings. Grant the OIRA Administrator, in statute, increased powers and responsibilities. Enable Information Quality Act (IQA) petitions to determine if an agency's proposed rule does not comply with the IQA.

Introduction The United States has supported anti-malaria programs since the 1950s. Global malaria received greater attention in 2005 when President Bush launched the President's Malaria Initiative (PMI), a five-year plan to expand U.S. malaria efforts. In FY2008, Congress significantly increased its funding for global malaria and authorized the creation of the U.S. Global Malaria Coordinator at the United States Agency for International Development (USAID) to oversee all U.S. malaria efforts. President Barack Obama has also emphasized combating malaria in his Global Health Initiative (GHI). This report provides background information on malaria and explains the key components of the U.S. response. Description of Malaria Malaria is an infectious disease that is transmitted to people through the bite of infected mosquitoes. The disease infects red blood cells, causing a range of symptoms that include fever, headache, and vomiting. Although malaria is preventable and curable, if left untreated, it can be fatal. Young children, pregnant women, and individuals with HIV/AIDS are particularly vulnerable to malaria due to their weakened immune systems. Global Malaria Statistics1 Malaria Cases: The World Health Organization (WHO) estimates that half of the world's population is at risk of malaria infection. Malaria is prevalent in 106 countries, referred to as malaria-endemic countries. In 2010, there were approximately 216 million cases of malaria worldwide, down from approximately 233 million cases in 2000. Since 2000, 43 countries have reported a reduction in reported malaria cases of more than 50%. Likewise, the estimated incidence—new cases of malaria—has decreased by 17% globally between 2000 and 2010. Malaria Deaths: The malaria death toll declined from 985,000 in 2000 to 655,000 people in 2010. Roughly 86% of 2010 malaria-related deaths occurred among children younger than five. Since 2000, global malaria mortality has been reduced by 26%. Regional Distribution of Malaria2 Malaria occurs worldwide, though it is heavily concentrated in what are categorized by WHO as the African, South-East Asian, and the Eastern Mediterranean regions ( Figure 1 ). In 2010, about 81% of all malaria cases and 91% of all malaria-related deaths occurred in the WHO Africa region. There are 43 malaria-endemic countries in the Africa region. The WHO Southeast Asia region was home to 13% of all malaria cases and 6% of malaria-related deaths in 2010. Of the 10 malaria-endemic countries in the South-East Asia region, India, Myanmar (Burma), and Indonesia make up 94% of all confirmed malaria cases. The WHO Eastern Mediterranean region was home to 5% of all malaria cases and 3% of malaria-related deaths in 2010. In the region, Sudan, Pakistan, Yemen, and Afghanistan make up 97% of confirmed malaria cases. Malaria Prevention and Treatment The international community generally applies four strategies for combating malaria: Treatment : Anti-malarial treatments include chloroquine, primaquine, and artesmisinin-based combination therapy (ACT). ACT is the preferred treatment in areas with particularly deadly forms of malaria or with drug resistance to earlier generations of anti-malarials. Multi-drug resistant malaria is found worldwide, and there is evidence that ACT resistance is occurring in Asia. Intermittent Preventive Treatment in Pregnancy (IPTp): In areas with high concentrations of malaria, physicians give pregnant women an anti-malarial drug to prevent them from transmitting the disease to their infants. Insecticide-Treated Bed Nets (ITNs): Insecticides used to treat bed nets kill and repel mosquitoes. ITNs are used as personal protection against mosquito bites, but evidence suggests that high community coverage of ITNs can lower the number of mosquitoes in a general area and reduce the life span of mosquitoes that remain. ITNs retain effective levels of insecticide for up to six months. Newly developed long-lasting insecticide-treated nets (LLINs) last for at least three years. Indoor Residual Spraying (IRS): IRS involves covering household walls with an insecticide to kill any mosquito that comes into contact with the surfaces for several months. To be effective, IRS must be applied to a high percentage (80%) of household surfaces. Resistance to insecticides is a growing concern. While there is presently no malaria vaccine, research is ongoing. There are currently over a dozen vaccine candidates in clinical development, and one, produced by GlaxoSmithKline, is in clinical trials. Key U.S. Legislation on Global Malaria On December 27, 2000, President Bill Clinton signed into law the Assistance for International Malaria Control Act ( P.L. 106-570 ). The act authorized $50 million per year for FY2001 and FY2002 for anti-malaria activities in countries with high malaria prevalence. On May 27, 2003, President George W. Bush signed into law the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act, P.L. 108-25 ). The act authorized $15 billion for global HIV/AIDS, TB, and malaria programs from FY2004 through FY2008. The act recognized malaria control as a major foreign policy objective, though it did not specify an amount for bilateral malaria programs. The act also prohibited U.S. contributions to the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) (see " Key Partners in the Response to Global Malaria ") from exceeding 33% of funds contributed from all sources. On July 24, 2008, President Bush signed into law the Tom Lantos and Henry J. Hyde U.S. Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 (Lantos-Hyde Act, P.L. 110-293 ). The act authorized $48 billion for global HIV/AIDS, TB, and malaria programs from FY2008 through FY2013, including $5 billion for malaria programs over five years. The act also created the position of U.S. Global Malaria Coordinator at USAID. The Malaria Coordinator is charged with overseeing all U.S. anti-malaria efforts, submitting an annual report to Congress describing U.S. malaria programs, and developing a five-year strategic plan for U.S. efforts to combat malaria. This legislation will be up for reauthorization in FY2013. U.S. Global Malaria Programs The United States has supported global malaria control efforts since the 1950s. Efforts to expand U.S. malaria programs and improve their coordination increased following the announcement of the President's Malaria Initiative (PMI) in 2005. PMI represented a growing acknowledgement of the efficacy of malaria prevention and treatment strategies and built on the success of the President's Emergency Plan for AIDS Relief (PEPFAR) in harnessing resources to combat a disease. PMI was initially created as a five-year, $1.2 billion effort to increase U.S. engagement in global malaria control and reduce malaria-related deaths by 50% in 15 high-burden focus countries. Focus countries were selected according to several criteria, including high malaria burden, capacity to implement anti-malaria programs, and willingness to partner with the United States. PMI has since expanded into four other malaria-endemic countries in Africa ( Table 1 ). PMI is an interagency initiative run by USAID and jointly implemented by USAID and the Centers for Disease Control and Prevention (CDC). The U.S. Global Malaria Coordinator at USAID coordinates malaria efforts across a number of agencies and departments, including CDC, the Department of Defense (DOD), and the National Institutes of Health (NIH). Oversight duties are shared with an Interagency Steering Group composed of representatives from USAID, CDC/the Department of Health and Human Services (HHS), the Department of State, DOD, the National Security Council, and the Office of Management and Budget. USAID and CDC also provide bilateral malaria assistance to a handful of countries not designated as PMI focus countries. President Obama has indicated support for an expanded U.S. malaria program. On May 5, 2009, the President announced Global Health Initiative (GHI), a new effort to develop a comprehensive U.S. global health strategy over the course of six years. Malaria is one of the GHI's six priority areas, and PMI is considered a key component of the GHI, reflecting the Administration's belief that scaled-up malaria interventions can help maximize health impact per dollar spent. The GHI calls for a more integrated U.S. response to global health issues, including better coordination between malaria and maternal and child health programs. The GHI also calls for a shift in U.S. global health strategy from one focused on specific diseases to a more comprehensive approach to health, including a focus on health system strengthening. In April 2010, in response to congressional reporting requirements to develop a coordinated approach to global malaria, USAID, HHS (including CDC), and the Department of State released a joint "Lantos-Hyde United States Government Malaria Strategy." The strategy explains how U.S. malaria programs will advance the goals of the GHI and outlines key targets for the U.S. malaria program from 2009 to 2014. Key goals include the following: halve the burden of malaria (morbidity and mortality) in 70% of at-risk populations in sub-Saharan Africa; limit the spread of anti-malarial multi-drug resistance in Southeast Asia and the Americas; assist host countries to revise and update their National Malaria Control Strategies and Plans to reflect the declining burden of malaria; and link U.S. malaria efforts with host country malaria plans. Implementing U.S. Agencies U.S. agencies supporting global malaria control efforts include the following: United States Agency for International Development : USAID manages PMI programs in the PMI focus countries. USAID also supports malaria control programs in several other countries and facilitates efforts to identify and contain anti-malarial drug resistance through two regional programs in the Amazon Basin and the Mekong Delta. USAID's malaria programs focus on five key areas: IRS, ITNs, IPTp, diagnosis and treatment, and pesticide management. Centers for Disease Control and Prevention : CDC jointly implements PMI with USAID. CDC's malaria efforts focus on monitoring and evaluation, disease surveillance, and capacity development for national malaria control programs. CDC also undertakes global malaria research to improve prevention and treatment efforts with an emphasis on LLINs, IRS, and IPTp, and the elimination of malaria. Department of Defense : DOD supports malaria research, including anti-malaria treatment and vaccine development. Research is conducted at the U.S. Military Malaria Vaccine Program at the Walter Reed Army Institute of Research and the Malaria Research Department at the Navy Medical Research Center. National Institutes of Health : The National Institute of Allergy and Infectious Diseases (NIAID) of the NIH is the lead U.S. agency supporting malaria research. NIAID works on developing tools for malaria prevention, treatment, and control, and enhancing research infrastructure in malaria-endemic countries. U.S. Global Malaria Assistance Funds Congress designates funds for malaria to USAID, through State-Foreign Operations appropriations, and to CDC, through Labor, Health and Human Services, and Education appropriations. Congress also provides resources to the DOD and NIH for malaria research efforts. Congressional appropriations for malaria have consistently increased since FY2004. In response to growing calls within the international community for global malaria control, funding for malaria interventions has increased most precipitously since FY2007 ( Table 2 and Figure 2 ) in support of PMI expansion into new countries. The United States also supports global malaria programs through contributions to the Global Fund, an international financing mechanism for the response to HIV/AIDS, TB, and malaria. U.S. contributions to the Global Fund support grants for HIV/AIDS, TB, and malaria. The United States is the single largest donor to the Global Fund. Table 3 details U.S. contributions to the Global Fund from FY2004 to FY2013. The majority of total global funding for malaria control comes from three sources: external donor assistance, national government spending, and household expenditures. According to WHO, of the total malaria spending in 2007, donor assistance accounted for 47%, national government spending accounted for 34%, and household expenditures accounted for 19%. The Global Fund is the single largest donor for global malaria efforts. WHO estimates that in 2010, the Global Fund accounted for approximately 50% of malaria funds from international sources, while PMI, DFID, and the World Bank accounted for approximately 49% of international funding ( Figure 3 ). International disbursements for global malaria appear to have peaked in 2011. Key Partners in the Response to Global Malaria The United States works with a range of partners to combat malaria, including other national governments, multilateral organizations, non-governmental organizations (NGOs), and the private sector. Key partners include the following: The Global Fund: The Global Fund was established in 2002 as a public-private partnership to provide significant financial support for the global response to HIV/AIDS, TB, and malaria. The United States contributes more to the Global Fund than any other donor. The Global Fund has committed over $22.6 billion in grants in 150 countries since it was established and provides over half of all international funding for malaria control in endemic countries. In November 2011, the Global Fund announced that due to limited resources available, it would postpone its 11 th round of funding. The World Bank: In 2005, the World Bank launched the World Bank Booster Program for Malaria Control in Africa. The Booster Program is implemented in 18 countries and supports the rapid scale-up of preexisting malaria control interventions and works to strengthen in-country procurement and supply-chain capacity, monitoring, and evaluation, and health planning. World Health Organization: WHO is the authority for health within the United Nations system. It is responsible for shaping the global health research agenda, setting norms and standards, articulating evidence-based policy options, providing technical support to countries, and monitoring global health trends. WHO's Global Malaria Program (GMP) promotes global malaria policies and intervention guidelines, provides technical assistance to malaria programs, and supports research and development of anti-malarial drugs and insecticides. Roll Back Malaria (RBM) Partnership: The RBM Partnership was created in 1998 by WHO, United Nations Children's Fund (UNICEF), United Nations Development Program (UNDP), and the World Bank to facilitate coordination of malaria activities and optimal use of resources. The RBM Partnership has 500 partners, including malaria-endemic countries, Organization for Economic Co-operation and Development (OECD) donor governments, multilateral organizations, the private sector, NGOs, foundations, research institutions, and ex-officio members. The Coordinator of PMI currently sits on the RBM Partnership Board. United Nations Children's Fund (UNICEF): UNICEF supports malaria programs through its work on child survival and development. UNICEF assists in developing national malaria plans and policies; monitoring and evaluation; and supplying, procuring, and distributing malaria commodities. According to UNICEF, it is the world's largest procurer and deliverer of ITNs. UNICEF and USAID have a "Malaria Control Partnership" to support malaria programming and commodity procurement, supply, and distribution. American Red Cross: The American Red Cross malaria programs support distribution of ITNs, community education on the threat of malaria and the proper use of ITNs, and operational research on the effectiveness of ITNs. Bill and Melinda Gates Foundation: The Gates Foundation advocates increased support for malaria and funds the development of new tools to treat, diagnose, and prevent malaria. The foundation hopes to have supported the development of a malaria vaccine by 2025. Key Issues in Global Malaria The 112 th Congress will likely be faced with a number of issues regarding the U.S. response to global malaria, including how much assistance to provide and how to best apportion global malaria funds. Over the past decade, significant progress has been made in combating global malaria. International assistance has helped to lower the number of malaria cases and deaths around the world. At the same time, several key challenges threaten the progress achieved to date. As Congress continues to debate the role of the United States in global malaria control, it might consider the following issues: Insecticide and drug resistance : Growing instances of drug-resistant malaria and insecticide-resistant mosquitoes threaten global malaria control, particularly in Southeast Asia and Africa. There are currently no alternatives to available forms of insecticides and treatments. Some health experts argue that anti-malaria resources should prioritize drug and insecticide resistance, including efforts to improve drug quality control, resistance monitoring and surveillance, and research and development of new forms of malaria drugs. Health System Strengthening : Weak health systems have been a major impediment to successful malaria prevention and treatment. In particular, shortages in health care personnel and weak supply chain networks have limited the delivery of essential commodities for malaria control. There is some disagreement within the global health community about whether PMI has had a beneficial or detrimental impact on the broader functioning of health systems. Control vs. elimination: There is debate within the global health community over the degree to which the international community should commit itself to malaria control (reducing the disease burden to a level at which it is no longer a public health problem) or malaria elimination (reducing incidence of infection to zero in a defined geographic). While the majority of international funding for malaria efforts in the past decade has been focused on control efforts, a number of experts have argued that efforts should increasingly focus on elimination of the disease. Key issues affecting the debate over control versus elimination include whether countries have the capacity to support more ambitious programs, whether donor assistance is predictable enough to support elimination efforts, and how the international community can avoid any potentially detrimental consequences of an elimination campaign, such as increased insecticide and drug resistance.

In 2010, malaria infected an estimated 216 million people and killed 655,000 people, most of whom were children under the age of five in sub-Saharan Africa. Despite the current burden of disease, malaria is preventable and treatable. Congress has increasingly recognized malaria as an important foreign policy issue, and the United States has become a major player in the global response to the disease. In its second session, the 112th Congress will likely debate the appropriate funding levels and optimum strategy for addressing the continued challenge of global malaria. Congress has enacted several key pieces of legislation related to global malaria control. These include the Assistance for International Malaria Control Act of 2000 (P.L. 106-570); the U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (P.L. 108-25); and 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). These acts have authorized funds to be used in the fight against malaria and have shaped the ways in which U.S. malaria programs are coordinated and managed, including through the creation of the U.S. Global Malaria Coordinator at the United States Agency for International Development (USAID). In 2005, in response to growing international calls for global malaria control and to the success of the President's Emergency Plan for AIDS Relief (PEPFAR), President George W. Bush launched the President's Malaria Initiative (PMI), which aims to halve the burden of malaria morbidity and mortality in 70% of at-risk populations in sub-Saharan Africa by 2014. PMI brought significant new attention and funding to U.S. malaria programs and made the United States one of the largest donors for malaria efforts. While U.S. funding for global malaria programs has increased each fiscal year since FY2004, support for malaria interventions increased most precipitously beginning in FY2007 as PMI has expanded into new countries. President Obama has continued to support PMI through the Global Health Initiative (GHI). There is evidence that the growing international response to malaria has had some success in controlling the epidemic. Since 2000, global malaria incidence has decreased by 17% and malaria mortality by 26%. Since 2000, 43 countries have reported a reduction in reported malaria cases of more than 50%, including eight African countries that have experienced 50% reduction in either confirmed malaria cases or malaria admissions and deaths. The decreases in each of these African countries are associated with intense malaria control activities. Despite these successes, several key issues pose challenges to an effective scale-up of the response to malaria. First, increasing reports of drug-resistant malaria in Southeast Asia and insecticide-resistant mosquitoes, largely in Africa, threaten the success of malaria control programs. Second, weak health systems, including shortages in health care personnel and inadequate supply chain networks, have limited the delivery of essential commodities for malaria control. There is also debate within the global health community over whether malaria efforts should increasingly target areas where malaria elimination is possible or whether efforts should remain concentrated on malaria control. This report outlines basic facts related to global malaria, including characteristics of the epidemic and U.S. legislation, programs, funding, and partnerships related to the global response to malaria. The report will be updated as events warrant.

Background and Introduction In FY2006, the federal government's real property portfolio consisted of 3.87 billion square feet of owned and leased office space. The General Services Administration (GSA), through its Public Buildings Service (PBS), is the primary federal real property and asset management agency, with a real property portfolio consisting of 8,847 buildings and structures with an estimated replacement value of $68.8 billion in FY2006. In addition to GSA, 27 other federal agencies have independent landholding and leasing authorities that enable them to acquire or construct specific types of buildings. GSA is responsible for the design and construction of its buildings, and for alterations and repairs to existing facilities. One of its primary goals has always been to assure the physical safety of federal employees who work in, and the private citizens who visit, government-owned or leased buildings. However, the federal government had no formally established building security standards for either federally owned or leased buildings when the April 1995 domestic terrorist bombing of the Alfred P. Murrah Federal Building occurred in Oklahoma City, OK. The Oklahoma City bombing brought a new awareness to the potential for violent acts directed at federal buildings as symbolic attacks against the federal government as a whole. The day following the April 19, 1995, bombing, President William Clinton directed the Department of Justice (DOJ) to assess the vulnerability of federal facilities to acts of terrorism or violence and to develop recommendations for minimum security standards. Because of its expertise in federal courts' security, the U.S. Marshals Service (USMS) coordinated two working groups to accomplish these tasks, a Standards Committee and a Profile Committee. The Standards Committee, composed of security specialists and representatives from GSA, the Federal Bureau of Investigation, the U.S. Secret Service, the Social Security Administration, and the Departments of Defense and State, identified and evaluated the various types of security measures that could be used to strengthen potential vulnerabilities. The committee compiled a list of proposed minimum standards pertaining to secure perimeter buffer zones; the security of entrances and exits and related access procedures; the identification and admittance of employees and visitors; garage and vehicle service entrances; the location of day care centers; and the use of closed-circuit television monitoring. Because of the differences among federal buildings and their related security issues, the Standards Committee categorized federal facilities into five different levels (with corresponding security standards) based on factors such as building size, agency mission and function, tenant population, and volume of public access. A Level I building is defined as having not more than 2,500 square feet (sq. ft.) of space, with 10 or fewer federal employees, and little public access. A Level II building contains between 2,500 to 80,000 sq. ft., and has between 11 and 150 federal employees engaged in routine activities, with a moderate level of public access. An example of a Level II building is the Social Security Administration Office in El Dorado, CO. A Level III building is defined as occupying between 80,000 to 150,000 sq. ft. of space, and housing between 151 and 450 federal employees, with a moderate to high volume of public access. Level III facilities may house several federal tenants, law enforcement agencies, or court-related or archival agencies. Level IV facilities are categorized as occupying more than 150,000 sq. ft. of space, and housing more than 450 federal employees. These Level IV facilities are defined as having "high volume public contact" and include federal courthouses with high-risk court chambers, judicial offices, and buildings that house highly sensitive government records. Level V facilities are similar to Level IV buildings in size and numbers of federal employees. However, the missions of Level V facilities are considered "critical to national security." The Central Intelligence Agency headquarters and the Pentagon, for example, are both classified as Level V for security purposes. The Profile Committee, composed of USMS deputies and GSA security specialists, conducted inspections at more than 1,200 federal facilities to obtain security data on buildings for use in upgrading existing conditions to comply with the proposed minimum standards. Sixty days later, the working groups' findings and recommendations were published in a June 1995 report entitled Vulnerability Assessment of Federal Facilities . Security Standards and Design Criteria The publication of the 1995 Vulnerability Assessment report was significant in that it represented the first time that broad security standards were applied to federal facilities, and they are still in effect. In conjunction with publication of the report, President Clinton directed all executive branch agencies to begin immediately upgrading their facilities to meet the recommended minimum security standards, to the extent possible within funding limitations. Based on the DOJ recommendations, he also required GSA to establish building security committees for all GSA facilities and called upon other landholding agencies to establish programs for upgrading their facilities to appropriate minimum security standards. Four months later, on October 19, 1995, President Clinton issued E.O. 12977, which established a permanent Interagency Security Committee (ISC) within the executive branch to address "continuing government-wide security" for federal facilities. Chaired by the GSA Administrator, the ISC was composed of representatives from each of the executive branch agencies, the Office of Management and Budget, the Environmental Protection Agency, and the Central Intelligence Agency. Other members included the following individuals or their designees: the Director of USMS; the Assistant Commissioner of the Federal Protective Service (FPS); the Assistant to the President for National Security Affairs; the Director of the Security Policy Board; and other federal officials appointed by the President. The ISC was also authorized to consult with other parties, including the Administrative Office of the U.S. Courts, in order to perform its duties. Section 5 of E.O. 12977 required the ISC to develop and evaluate existing security policies and to take necessary actions to enhance the quality of security and protection for federal facilities. These actions might include encouraging agencies with security responsibilities to share security-related intelligence in a timely manner; evaluating technology and information systems to facilitate cost-effective security upgrades; developing long-term construction standards for high-risk facilities that require blast-resistant structures or have other specialized security requirements; evaluating standards for the location and security of day care centers in federal facilities; and assisting the GSA Administrator in creating and maintaining a centralized security database of all federal facilities. While the 1995 Vulnerability Assessment report provided guidance for overall security standards for existing facilities, it did not provide criteria for the design and construction of new federal buildings. In January 1997, GSA completed its first draft of a document entitled GSA Security Criteria , which was revised and issued on October 8, 1997, to establish design standards for the protection of federal employees in civilian facilities. The GSA security document attempted to integrate security standards throughout all functional and design phases of the building process, including site and interior space planning, as well as structural and electrical design elements. Building upon GSA's 1997 Draft Security Criteria, the members of the ISC established a series of working groups that addressed new technology developments, cost considerations, the experience of architects and builders in applying GSA's design criteria, and the need to balance security standards with public access to federal buildings. In May 2001, the ISC issued its Security Design Criteria for New Federal Office Buildings and Major Modernization Projects , based on the five security levels for federal facilities. New ISC security requirements for future construction projects included the use of glazing protection for windows, the establishment of distances that buildings should be set back from the street, the control of vehicular access to the buildings, and the location and securing of air intakes. In July 2001, the ISC issued a second product for federal agencies to implement that set forth minimum standards for federal building access procedures. Two draft documents, one that addressed entry security technology, and the second, which pertained to preparedness for nuclear, biological, and chemical attacks, were not officially issued by the ISC membership. The September 2001 terrorist attacks on the Pentagon and the World Trade Center heightened concerns about the vulnerability of federal buildings to violence or bombing attacks. In response to these events, the ISC issued revised procedures to respond to potential vehicle bomb attacks by recommending that new federal buildings be constructed at a minimum distance of between 20 to 50 feet from the nearest perimeter barrier, depending upon the security level. Even though the ISC successfully completed its Security Design Criteria and related draft documents , a 2002 General Accounting Office (GAO) report found that the committee had made "little progress" in other mandated responsibilities. Although the ISC had established 13 working groups since 1995, only two of the groups were still active as of July 2002. Also, while GAO reported that the ISC was successfully disseminating security information to member agencies, it also found that the group's effectiveness was hindered by GSA's "lack of aggressive leadership and support," in that the agency failed to issue operating procedures, and did not provide sufficient staff support and funding. GSA was also unable to provide any documentation indicating that the agency or the ISC had actually monitored agency compliance with the ISC's security recommendations. Recent Developments Congressional enactment of the Homeland Security Act in 2002 and the associated creation of the Department of Homeland Security centralized the federal government's efforts to respond to terrorism, including physical security for federal facilities. On February 28, 2003, the chairmanship of the ISC was transferred from the GSA Administrator to the Secretary of Homeland Security, and a representative from GSA was added to the ISC's membership. Within DHS, the chairmanship of the ISC was subsequently delegated to the Director of the Federal Protective Service in January 2004. Given the challenges that the ISC faces to successfully integrate security initiatives encompassing diverse agency needs, GAO recommended in September 2004 that DHS direct the ISC to develop a plan that "identifies resource needs, implementation goals, and time frames for meeting the ISC's ongoing and yet-unfulfilled responsibilities." GAO reported that standard operating procedures had been approved by agency members in September 2004, and included new requirements for attendance and participation at ISC meetings. DHS is also helping the ISC meet its requirement to create and maintain a centralized security database of all existing federal facilities. The ISC issued updated security standards for leased facilities in July 2003, as well as new recommendations to member agencies pertaining to the use of escape hoods. The updated version of the ISC Security Design Criteria for New Federal Office Buildings and Major Modernization Projects was approved by concurrence of the ISC membership on September 29, 2004. In addition to its duties to coordinate federal facility security efforts and to develop security standards for the construction of new federal facilities, the ISC has been assigned responsibilities to review federal agencies' physical security plans. Homeland Security Presidential Directive/HSPD-7, issued on December 17, 2003, established requirements for federal agencies "to identify and prioritize United States critical infrastructure and key resources and to protect them from terrorist attacks," and assigned implementation responsibilities to DHS. In July 2004, the ISC was designated to oversee and review each agency's physical security plan pertaining to protection of the nation's infrastructure and key resources. According to GAO, the ISC's successful completion of these new responsibilities relating to homeland security issues would "represent a major step" toward carrying out its existing duties pertaining to compliance and oversight. A fundamental ISC objective is to improve the management of security programs by establishing policies and minimum standards for security operations. The successful integration of the federal government's facility protection standards is a formidable challenge because it involves diverse agencies with varying perspectives on security issues. On December 13, 2006, the ISC issued its 2007-2008 Action Plan, which included operational procedures for identifying and applying updated security technologies. Current ISC projects include the updating of the 1995 Vulnerability Assessment Report to make the document more specific to agencies' missions and strategic plans. The ISC membership is also striving for better formulation of security policies and directives to gain more consensus and compliance within the federal community. Through greater accountability and oversight, the ISC hopes to provide one leadership voice to integrate physical security initiatives successfully for the federal government.

The federal government owns or leases 3.7 billion square feet of office space, which may be vulnerable to acts of terrorism and other forms of violence. The Interagency Security Committee (ISC) was created by E.O. 12977 in 1995, following the domestic terrorist bombing of the Alfred P. Murrah Federal Building in Oklahoma City, OK, to address the quality and effectiveness of physical security requirements for federal facilities. The September 2001 terrorist attacks on the Pentagon and the World Trade Center renewed concerns about the vulnerability of federal buildings to bombing or other forms of attack. On February 28, 2003, the chairmanship of the ISC was transferred to the Secretary of Homeland Security from the Administrator of General Services by E.O. 13286. In July 2004, based on Homeland Security Presidential Directive/HSPD-7, the ISC began reviewing federal agencies' physical security plans to better protect the nation's critical infrastructure and key resources. On December 13, 2006, the ISC issued its 2007-2008 Action Plan, which sets forth revised policy recommendations for enhancing the quality and effectiveness of security in federal facilities. This report will not be updated.

Introduction Congress has broad plenary authority to determine classes of aliens who may be admitted into the United States and the grounds for which they may be removed. Pursuant to the Immigration and Nationality Act (INA), as amended, certain conduct may either disqualify an alien from entering the United States or provide grounds for his or her removal. Prominently included among this conduct is criminal activity. In general, aliens may legally enter the United States under one of three categories: (1) legal permanent residents (LPRs), who are also commonly referred to as immigrants; (2) nonimmigrants, who are aliens permitted to enter the United States temporarily for a specific purpose, such as for tourism, academic study, or temporary work; and (3) refugees, who are aliens facing persecution abroad and are of special humanitarian concern to the United States. There are two aspects for legal admission under each of these categories. First, an alien must fulfill the substantive requirements for admission under a specified category. For example, in order to enter the United States as a nonimmigrant student, an alien must demonstrate that he is a bona fide student at an approved school. Second, aliens who fulfill substantive requirements for admission may nevertheless be denied admission if they fall within a class of inadmissable aliens listed under INA § 212. Once admitted, aliens remain subject to removal if they fall within a class of deportable aliens listed under INA § 237. The INA contains bars for admission and grounds for deportation based on criminal conduct. This report discusses the potential immigration consequences of criminal activity. "Criminal activity" generally refers to conduct for which an alien has been found or plead guilty before a court of law, though in limited circumstances consequences may attach to the commission of a crime or admission of acts constituting the essential elements of a crime. Consequences may flow from violations of either federal, state or, in many circumstances, foreign criminal law. Some federal crimes are set out in the INA itself—alien smuggling, for example. However, not all violations of immigration law are crimes. Notably, being in the United States without legal permission—i.e., being an "illegal alien"—is not a crime in and of itself. Thus, for example, an alien who overstays a student visa may be an "illegal alien," in that the alien may be subject to removal from the United States, but such an alien is not a "criminal alien." Administration of Immigration Law For several decades, the primary authority to interpret, implement, and enforce the provisions of the INA was vested with the Attorney General. The Attorney General delegated most authority over immigration matters to two bodies within the Department of Justice (DOJ): the Immigration and Naturalization Service (INS), which was delegated authority over immigration enforcement and service functions, and the Executive Office of Immigration Review (EOIR), which was delegated adjudicatory functions over immigration matters. Following the establishment of the Department of Homeland Security (DHS), the INS was abolished and its functions were transferred to DHS. Pursuant to INA § 103(a)(1), as amended, the DHS Secretary is now "charged with the administration and enforcement of ... [the INA] and all other laws relating to the immigration and naturalization of aliens, except insofar as this chapter or such laws relate to the powers, functions, and duties conferred upon the ... [other executive officers and agencies including] the Attorney General...." Pursuant to INA § 103, as amended, EOIR retains adjudicative authority over immigration matters, and rulings by the Attorney General with respect to questions of immigration law remain controlling upon immigration authorities. However, the precise scope of the Attorney General's continued authority over other immigration matters remains unclear, because most provisions of the INA have not been specifically amended to reflect the transfer of certain immigration functions to DHS. As a result, many of the regulations implemented by DHS and EOIR are presently duplicative or otherwise overlapping. The Homeland Security Act of 2002, which established DHS and transferred to it many immigration functions previously conducted by the INS, provided a general guideline that immigration officials to whom immigration functions were transferred "may, for purposes of performing the function, exercise all authorities under any other provisions of law that were available with respect to the performance of that function to the official responsible for the performance of the function immediately before [transfer]." As a practical matter, the DHS has primary day-to-day authority over immigration matters, while the Attorney General and EOIR maintain adjudicatory authority over immigration matters and questions of immigration law. Categories of Criminal Aliens The INA lists a number of criminal grounds for designating an alien as inadmissible or deportable. Most crimes included under these grounds are not specifically mentioned, but instead fall under a broad category of crimes, such as crimes involving moral turpitude or aggravated felonies . In addition, certain criminal conduct precludes a finding of good moral character under the INA, thereby preventing an alien from becoming either a naturalized U.S. citizen or a candidate for certain types of relief. The class of crimes involving moral turpitude , the class of aggravated felonies , and the class of crimes that preclude a finding of good moral character are overlapping, but no two classes are coextensive. The types of crimes constituting crimes of moral turpitude are determined by case law. Crimes that are aggravated felonies are listed in statute, with case law illuminating the bounds of certain listed crimes. Crimes precluding a finding of good moral character are determined by a combination of case law and statutory law. These criminal classes are further modified for the purposes of specific INA provisions. The following sections will describe these criminal categories in more detail. Crimes Involving Moral Turpitude Immigration law has used the term "moral turpitude" in its criminal grounds for exclusion since 1891. Whether a crime involves moral turpitude has been determined by judicial and administrative case law rather than a statutory definition. In general, if a crime manifests an element of baseness or depravity under current mores—if it evidences an evil or predatory intent—it involves moral turpitude. Thus, certain crimes such as murder, rape, blackmail, and fraud have been considered crimes involving moral turpitude, whereas crimes such as simple assault have not been considered to involve moral turpitude. Aggravated Felonies Since 1988, Congress has designated specific offenses as aggravated felonies for immigration purposes, and it has made removal of aliens convicted of such crimes a priority through streamlined procedures and ineligibility for various types of relief. Aggravated felonies were initially listed under the INA pursuant to the Anti-Drug Abuse Act of 1988 as part of a broad effort to combat narcotics trafficking. The only crimes designated in the 1988 Act were murder, drug trafficking, and illegal trafficking in firearms or destructive devices. Subsequent legislation has expanded the definition of "aggravated felony" a number of times, to include certain categories of crimes and many specific crimes. Section 101(a)(43) of the INA defines "aggravated felony" through the listing of a number of criminal categories and specified crimes. The broadest categories of aggravated felonies under the INA are as follows: any crime of violence (including crimes involving a substantial risk of the use of physical force) for which the term of imprisonment is at least one year; any crime of theft (including the receipt of stolen property) or burglary for which the term of imprisonment is at least one year; and illegal trafficking in drugs, firearms, or destructive devices. Many specific crimes are also listed as aggravated felonies under the INA. These include the following: murder; rape; sexual abuse of a minor; illicit trafficking in a controlled substance, including a federal drug trafficking offense; illicit trafficking in a firearm, explosive, or destructive device; federal money laundering or engaging in monetary transactions in property derived from specific unlawful activity, if the amount of the funds exceeded $10,000; any of various federal firearms or explosives offenses; any of various federal offenses relating to a demand for, or receipt of, ransom; any of various federal offenses relating to child pornography; a federal racketeering offense; a federal gambling offense (including the transmission of wagering information in commerce if the offense is a second or subsequent offense) which is punishable by imprisonment of at least a year; a federal offense relating to the prostitution business; a federal offense relating to peonage, slavery, involuntary servitude, or trafficking in persons; any of various offenses relating to espionage, protecting undercover agents, classified information, sabotage, or treason; fraud, deceit, or federal tax evasion, if the offense involves more than $10,000; alien smuggling, other than a first offense involving the alien's spouse, child, or parent; illegal entry or reentry of an alien previously deported on account of committing an aggravated felony; an offense relating to falsely making, forging, counterfeiting, mutilating, or altering a passport or immigration document if (1) the term of imprisonment is at least a year and (2) the offense is not a first offense relating to the alien's spouse, parent, or child; failure to appear for service of a sentence, if the underlying offense is punishable by imprisonment of at least five years; an offense relating to commercial bribery, counterfeiting, forgery, or trafficking in vehicles with altered identification numbers, for which the term of imprisonment is at least one year; an offense relating to obstruction of justice, perjury or subornation of perjury, or bribery of a witness, for which the term of imprisonment is at least one year; an offense relating to a failure to appear before a court pursuant to a court order to answer to or dispose of a charge of a felony for which a sentence of two years' imprisonment or more may be imposed; and an attempt or conspiracy to commit one of the foregoing offenses. Unless otherwise specified, an aggravated felony includes both state and federal convictions, as well as foreign convictions for which the term of imprisonment was completed less than 15 years earlier. Crimes Affecting Assessment of Good Moral Character The possession of good moral character appears always to have been a statutory requirement for naturalization, and good moral character now also bears on the eligibility for various forms of immigration relief. Prior to 1952, the effect of criminal conduct upon assessments of good moral character was determined solely by case law and administrative practice. Following the enactment of the INA, certain criminal activities were statutorily designated as barring a finding of good moral character. The activities listed by the INA as prohibiting a finding of good moral character are not exclusive, and engaging in illegal activity that is not specifically designated by the INA may therefore still be considered when assessing character. Although not every activity listed by the INA as barring a finding of good moral character directly relates to illegal behavior, most do. Pursuant to INA § 101(f), an alien is barred from being found to have good moral character if, during the period for which character is required to be established, the alien commits certain acts related to prostitution or another commercialized vice; knowingly encourages, induces, assists, abets, or aids any other alien to enter or to try to enter the United States in violation of law, except in limited circumstances; commits a crime of moral turpitude, unless the alien committed only one crime and either (1) the crime was committed while the alien was a minor and the crime (as well as the alien's release from any imprisonment for the crime) occurred at least five years prior to the pertinent application or (2) the maximum possible penalty for the crime did not exceed one year's imprisonment and the sentence imposed did not exceed six months; violates a federal, state, or foreign law or regulation relating to a controlled substance, other than a single offense of possessing 30 grams or less of marijuana; commits two or more offenses for which the aggregate sentence imposed was at least five years; gives false information in attempting to receive a benefit under the INA; has an income principally derived from illegal gambling activities; commits at least two gambling offenses for which the alien is convicted; is in criminal confinement for at least 180 days; or has at any time been convicted of an aggravated felony. As previously mentioned, the INA's listing of conduct barring a finding of good moral character is not exclusive, and other activities—criminal or otherwise—may also bar an alien from citizenship or immigration benefits on character grounds. Among potential disqualifying conduct are an alien's deliberate non-support of his or her family, adultery that tended to destroy an existing marriage, and other notorious unlawful conduct. Additionally, crimes committed before the "good moral character" period may be considered. Major Immigration Consequences for Criminal Aliens Certain criminal conduct may have a substantial impact upon an alien's ability to enter or remain in the United States, and it may also affect the availability of discretionary forms of immigration relief and the ability of an alien to become a U.S. citizen. The following sections describe the major immigration consequences for aliens who engage in certain criminal conduct. Designation as Inadmissible Alien The INA categorizes certain classes of aliens as inadmissible, making them "ineligible to receive visas and ineligible to be admitted to the United States." Aliens who commit certain crimes are designated as inadmissible. Aliens designated as inadmissible include any alien who, inter alia has been convicted of, admits having committed, or admits to acts comprising essential elements of a crime involving moral turpitude (other than a purely political offense), unless (1) the alien committed only one crime and (2)(a) the crime was committed when the alien was under the age of 18 and the crime was committed (and any related incarceration ended) more than five years prior to the application for admission or for a visa or (b) the maximum penalty for the crime at issue did not exceed one year's imprisonment and, if convicted, the alien was not sentenced to more than six months; has been convicted of, admits having committed, or admits to acts comprising essential elements of a federal, state, or foreign law violation relating to a controlled substance; based on the knowledge or reasonable belief of a consular officer or immigration officer, (1) is or has been an illicit trafficker in a controlled substance, or knowingly is or has been an aider or abettor of a controlled substance, or (2) is the spouse, son, or daughter of an alien inadmissible for the foregoing reasons, and has, within the previous five years, obtained any financial or other benefit from the illicit activity of that alien, and knew or reasonably should have known that the financial or other benefit was the product of such illicit activity; has been convicted of two or more offenses for which the aggregate sentence imposed was at least five years; is coming to the United States to engage in (or within 10 years of applying for admission has engaged in) prostitution (including procurement and receipt of proceeds) or is coming to the United States to engage in another form of unlawful commercialized vice; committed a serious crime for which diplomatic immunity or other form of immunity was claimed; (1) commits or has conspired to commit a human trafficking offense, either in or outside the United States, or is known or reasonably believed to have aided or otherwise furthered severe forms of human trafficking or (2) is known or reasonably believed to be the adult child or spouse of such an alien and knowingly benefitted from the proceeds of illicit activity while an adult in the past 5 years; based on the knowledge or reasonable belief of a consular officer or immigration officer, is engaging, or seeks to enter the United States to engage, in a federal offense of money laundering, or is or has been a knowing aider, abettor, assister, conspirator, or colluder with others in such an offense; or based on the knowledge or reasonable belief of a consular officer or immigration officer, seeks to enter the United States to engage in espionage, sabotage, export control violations, unlawful opposition to the government, or other unlawful activity. Other types of unlawful conduct (which may also be covered under criminal grounds) precluding admission include terrorist activities, alien smuggling (with limited exception), immigration document fraud, illegal entry into the United States, unlawful voting, international abduction of a child who is a U.S. citizen, participation in genocide, recruitment of child soldiers, and severe violations of religious freedom while serving as a foreign government official. Waivers Various criminal grounds for inadmissibility are, by their own terms, subject to exception. For example, the crime of moral turpitude category does not cover certain juvenile or minor offenses. Further, even if a crime is covered, most criminal grounds for inadmissibility may nevertheless be waived in a number of circumstances. Authority to waive certain criminal grounds of inadmissibility is contained in INA § 212(h). Criminal grounds for inadmissibility that may be waived are crimes involving moral turpitude; a single offense of simple possession of 30 grams or less of marijuana; multiple convictions for which at least five year's imprisonment was imposed; prostitution or other unlawful commercialized vices; and serious criminal activity for which the alien has asserted immunity. INA § 212(h)(1) establishes that relevant immigration officials have discretion to waive a designation of inadmissibility on account of the foregoing conduct if four requirements are met. These requirements are that the alien is seeking admission as an LPR; the conduct making the alien inadmissible either involved prostitution or another unlawful commercial vice or, in the case of other criminal conduct, occurred more than 15 years before the date of the alien's application for a visa, entry or adjustment of status; the alien's admission into the United States would not be contrary to the national welfare, safety, or security of the United States; and the alien has been rehabilitated. An additional waiver is available for immediate family members under INA § 212(h)(1)(B) if the alien is seeking admission as an LPR; the alien is the spouse, parent, son, or daughter of a U.S. citizen or LPR; and denial of admission would cause extreme hardship to the United States citizen or lawfully resident spouse, parent, son, or daughter. A further circumstance where a waiver is available for inadmissible criminal conduct involves alien spouses or children of U.S. citizens or LPRs, when those aliens have been battered or subjected to extreme cruelty by the citizen or LPR. Certain aliens are barred from consideration for § 212(h) waivers. No waiver is permitted for aliens who have been convicted of murder or criminal acts involving torture, as well as attempts or conspiracies to commit murder or a criminal act involving torture. Further, a waiver under § 212(h) is not available in the case of an alien who has previously been admitted to the United States as an LPR if either (1) since the date of such admission the alien has been convicted of an aggravated felony or (2) the alien has not lawfully resided continuously in the United States for at least seven years immediately preceding the date of initiation of proceedings to remove the alien from the United States. In addition to § 212(h) waivers, criminal grounds may be waived for aliens seeking temporary admission as nonimmigrants, such as those seeking to enter the United States as tourists. Also, certain permanent residents may seek waivers through cancellation of removal, which will be discussed later. Deportation The criminal grounds for deportation cover both broad categories and specific crimes. Among those deportable on criminal grounds is any alien who is convicted of a single crime involving moral turpitude that was committed within five years of admission and that is punishable by imprisonment of at least one year; is convicted of two or more crimes involving moral turpitude not arising from a single scheme of misconduct; is convicted of an aggravated felony at any time after admission into the United States; is convicted of failing to register as a sex offender; is convicted after admission of any violation of a federal, state, or foreign law or regulation relating to a controlled substance (other than a single offense for possessing 30 grams or less of marijuana for personal use); is, or at any time after admission has been, a drug abuser or drug addict; is convicted at any time after admission of an offense related to a firearm or destructive device (including unlawful commerce relating to, possession, or use of a firearm or destructive device); is convicted at any time of an offense related to espionage, sabotage, or treason or sedition, if the offense is punishable by imprisonment of five years or more; is convicted of an offense under the Military Selective Service Act or the Trading with the Enemy Act; is convicted of an offense under 18 U.S.C. § 758 (high-speed flight from an immigration checkpoint); is convicted of an offense related to launching an expedition against a country with which the United States is at peace; is convicted of threatening by mail the President, Vice President, or other officer in the line of presidential succession; is convicted at any time after entry of a crime of domestic violence, stalking, child abuse, child neglect, or child abandonment; violates a protection order related to violence or harassment; or is described in the ground for inadmissibility relating to human trafficking offenses. Waivers Crimes involving moral turpitude, aggravated felonies, and high-speed flight from an immigration checkpoint may all be automatically waived as grounds for deportation upon the alien receiving a full and unconditional pardon by the President or governor. Cancellation of removal as a form of discretionary relief, which is discussed below, and § 212(h) waivers of inadmissibility , which are discussed above, may also be relevant in deportation cases. Denial of Discretionary Relief In addition to providing for discretionary waivers, the INA provides designated immigration authorities with the power to grant an alien asylum, cancel removal proceedings against him, permit his voluntary departure from the United States, or adjust the alien's status under registry provisions. However, authority to grant these remedies is circumscribed with respect to certain types of criminal aliens. Asylum Although asylum is a discretionary remedy for aliens who face persecution, it is unavailable to an alien who (1) "[h]aving been convicted ... of a particularly serious crime" (including an aggravated felony or an offense designated by the Attorney General as "particularly serious"), constitutes a danger to the community;" or (2) is reasonably believed to have committed a serious nonpolitical offense outside the United States (including such offenses as may be designated by the Attorney General). P.L. 110 - 340 requires the Attorney General and Secretary of Homeland Security to promulgate regulations establishing that persons inadmissible or deportable on account of recruiting child soldiers in violation of federal law have committed a serious nonpolitical crime making them ineligible for asylum. Further, an alien who is involved in specified terrorist activities, is a danger to national security, or has engaged in persecution of any person on account of race, religion, nationality, political opinion or membership in a particular social group is also ineligible for asylum. Withholding of Removal Apart from asylum is the separate remedy of withholding of removal . Like asylum, withholding of removal is premised upon a showing of prospective persecution of an alien if removed to a particular country. Withholding of removal differs from asylum in (1) requiring a higher standard of proof; (2) limiting relief to the claimant (as opposed to also including the claimant's spouse and minor children); (3) failing to allow for adjustment to LPR status; and (4) being a mandatory rather than discretionary form of relief for qualifying aliens. Although the remedy of withholding is stated in mandatory terms, otherwise eligible aliens are, with limited exception, disqualified under criminal grounds similar to those that apply to asylum. The primary difference, however, is that not all aggravated felonies automatically bar withholding of removal. Instead, relief is barred only if the alien has been convicted of one or more aggravated felonies for which the aggregate sentence imposed was five years or more. Cancellation of Removal In 1996, the INA was amended to combine two types of discretionary relief for long-term alien residents—" § 212(c) " relief for LPRs who had resided in the United States for an extended period and suspension of deportation for other long-term aliens—into a new remedy called cancellation of removal. Cancellation of removal, in turn, maintains some of the distinctions that appeared under the forms of relief that preceded it. Under provisions corresponding with earlier INA provisions concerning suspension of deportation , the Attorney General may cancel the removal of certain otherwise inadmissible or deportable non-LPRs if they have been in the United States continuously for at least 10 years and their removal would result in exceptional and extremely unusual hardship for immediate family members. However, certain criminal activity makes an alien ineligible for cancellation of removal despite whatever roots the alien has established in the United States. Disqualifying criminal activity includes convictions of crimes that preclude a finding of good moral character and crimes that fall within the criminal grounds for inadmissibility or deportation. Civil immigration document fraud also precludes relief. Additionally, "continuous residence" for purposes of qualifying for relief stops on the commission of an offense that would render the alien inadmissible. Under provisions that correspond to relief previously available under INA § 212(c) , the Attorney General may cancel the removal of an alien who has been an LPR for at least five years, if the alien has resided in the United States continuously for at least seven years and has not been convicted of an aggravated felony. Further, "continuous residence" for purposes of qualifying for relief stops upon the commission of an offense that would render the alien inadmissible. Voluntary Departure Through a grant of voluntary departure, an otherwise deportable alien may depart the United States without the stigma and legal consequences that would attach to a compulsory removal order. There are two standards for voluntary departure, depending on whether permission to leave voluntarily is sought before or after removal proceedings against the alien are completed. If voluntary departure is sought before proceedings are initiated (e.g., upon the alien being arrested by an immigration enforcement officer) or completed, the only criminal disqualification is for conviction of an aggravated felony (terrorist activities are also disqualifying). If voluntary departure is sought after removal proceedings are completed, the alien must not have been convicted of an aggravated felony and must also have been a person of good moral character for at least five years preceding. Temporary Protected Status In order to qualify for asylum or withholding of removal, an alien must show that he or she would personally face persecution. Aliens whose lives have been disrupted by generalized violence or natural disaster may not qualify on that basis alone. However, the INA permits temporary haven for nationals of countries that have been designated as experiencing widespread upheaval. At the same time, relief is granted on an individual basis, and an otherwise eligible alien shall be denied protection if he or she is inadmissible on criminal grounds related to (1) crimes involving moral turpitude, (2) multiple criminal convictions, (3) or drug offenses (other than a single offense for possessing 30 grams or less of marijuana). Additional, overlapping categories of aliens who are disqualified from receiving temporary protected status are those who (1) have been convicted of one felony or two or more misdemeanors in the United States or (2) who would be disqualified from asylum due to criminal conduct. Adjustment of Status Under certain circumstances, an alien with nonimmigrant status may adjust to LPR status. Certain aliens without legal status may also adjust if they had a preference petition or labor certification application filed on their behalf as of April 30, 2001, or under certain other circumstances. Otherwise eligible aliens are barred from adjustment if they are inadmissible, including those who are inadmissible on criminal grounds. Registry The INA has long contained authority for the adjustment to LPR status for aliens who have lived in the United States for an extended period. Known as the registry provision, this authority now allows for the adjustment of aliens who have lived in the United States since before 1972. However, aliens who are inadmissible on criminal grounds are ineligible for adjustment, as are aliens who lack good moral character. Naturalization Restrictions An essential requirement for becoming a U.S. citizen through naturalization is that the applicant establish that he or she has been, and continues to be, a person of good moral character. An LPR seeking naturalization is required to maintain good moral character for at least five years preceding his or her application for naturalization; five years being the minimum period of time that a person lawfully admitted into the United States must continuously reside in the country before applying for naturalization. As discussed previously, certain criminal acts may disqualify an alien from being found to possess good moral character. Pursuant to INA § 101(f), certain listed categories of criminal conduct automatically preclude an alien from being found to possess good moral character. This listing is not exclusive, and other conduct—criminal or otherwise—may also prevent a finding of good moral character, including crimes that occur before the statutory period requiring "good moral character" actually begins. For a more detailed discussion of the crimes that preclude a finding of good moral character, refer to the section of this report entitled " Crimes Affecting Assessment of Good Moral Character ." Recent Legislative Activity In recent years, numerous proposals have been introduced to modify the immigration consequences of criminal activity. The 110 th Congress enacted several such measures, including P.L. 110 - 257 , providing certain relief from inadmissibility to members of the African National Congress; P.L. 110 - 340 , making persons who have engaged in the recruitment of child soldiers in violation of federal law inadmissible, deportable and ineligible for asylum or withholding of removal; and P.L. 110 - 457 , modifying the grounds for inadmissibility and removal related to human trafficking. It is possible that proposals will be introduced in the 111 th Congress to further modify the immigration consequences of criminal activity. Proposals made in recent years that have received legislative action or significant congressional interest include measures that would: add further document-fraud offenses to the list of criminal activities making aliens inadmissible and/or deportable; make gang-related activity a ground for inadmissibility, deportation, and ineligibility from certain forms of relief from removal; make DUI offenses a ground for inadmissibility or deportation; and specify that an aggravated felony conviction is a ground for inadmissibility.

Congress has broad plenary authority to determine classes of aliens who may be admitted into the United States and the grounds for which they may be removed. Pursuant to the Immigration and Nationality Act (INA), as amended, certain conduct may either disqualify an alien from entering the United States ("inadmissibility") or provide grounds for his or her removal/deportation. Prominently included among this conduct is criminal activity. "Criminal activity" comprises acts violative of federal, state, or, in many cases, foreign criminal law. It does not cover violations of the INA that are not crimes—most notably, being in the United States without legal permission. Thus, the term "illegal alien"—an alien without legal status—is not synonymous with "criminal alien." Most crimes affecting immigration status are not specifically mentioned by the INA, but instead fall under a broad category of crimes, such as crimes involving moral turpitude or aggravated felonies. In addition, certain criminal conduct precludes a finding of good moral character under the INA, which is a requirement for naturalization and certain types of immigration relief. In certain circumstances, grounds for inadmissibility or deportation may be waived. In some cases, aliens facing removal may be allowed to remain in the United States—for example, when they are granted discretionary or mandatory relief from removal for humanitarian reasons, such as through asylum, withholding of removal, or cancellation of removal. Aliens facing removal may also be permitted to depart the United States voluntarily, and thereby avoid the potential stigma and legal consequences of forced removal. Criminal conduct may affect an alien's eligibility for either voluntary departure or discretionary relief from removal. Additionally, criminal conduct is a key disqualifying factor under the character requirement for naturalization. Several legislative proposals were made during the 110th Congress that contained provisions modifying the immigration consequences of criminal activity. Enacted legislation modifying the immigration consequences of criminal activity included P.L. 110-257, providing certain relief from inadmissibility to members of the African National Congress; P.L. 110-340, making persons who have engaged in the recruitment of child soldiers in violation of federal law inadmissible, deportable and ineligible for asylum or withholding of removal; and P.L. 110-457, modifying the grounds for inadmissibility and removal related to human trafficking.

Improper Payments Elimination and Recovery Act of 2010 Background In an effort to reduce and ultimately eliminate billions of dollars in improper payments made by federal agencies each fiscal year, Congress passed the Improper Payments Information Act (IPIA; P.L. 107-300 ; 116 Stat. 2350) in 2002. IPIA established an initial framework for identifying, measuring, preventing, and reporting on improper payments at each agency. Separately, Congress also passed legislation, the Recovery Audit Act of 2002 ( P.L. 107-107 ; Section 831; 115 Stat. 1186), which required agencies that awarded more than $500 million annually in contracts to implement plans to recover overpayments to contractors. Reports on improper payments and recovery audits were first issued for FY2004. After five years of reporting, the data showed that progress under IPIA was uneven—while many individual programs reduced their improper payment rates, the total amount of improper payments and the government-wide improper payment rate both increased between FY2004 and FY2008. During that same time period, Government Accountability Office (GAO) auditors had identified weaknesses in numerous agencies' recovery audit programs. In response, Congress passed new legislation, the Improper Payments Elimination and Recovery Act of 2010 (IPERA; P.L. 111-204 ; 124 Stat. 2224), which replaced and consolidated the requirements of both IPIA and the Recovery Audit Act. As discussed below, IPERA retained the core provisions of the IPIA while requiring improvements in agency improper payment estimation methodologies and improper payment reduction plans. It also significantly expanded the scope and reporting requirements of recovery audit programs. Improper Payments IPERA defines an improper payment as a payment that should not have been made or that was made in an incorrect amount, including both overpayments and underpayments. This definition includes payments that were made to an ineligible recipient, duplicate payments, payments for a good or service not received, and payments that do not account for credit for applicable discounts. Under IPERA, "payment" is defined as a transfer or commitment to transfer federal funds in the future—including cash, securities, loans, loan guarantees, and insurance subsidies—to a nonfederal entity. Thus, the law applies to federal funds paid or obligated by a federal agency to nonfederal grantees, contractors, and loan recipients, including state or local governments who administer federal programs or activities. Risk Assessments IPERA requires agencies to take specific steps to identify and reduce improper payments. First, it requires agencies to perform a risk assessment of all programs and activities and identify those that were susceptible to "significant" improper payments. IPERA defines "significant" for FY2011 and FY2012 as either (1) improper payments that exceed both $10 million and 2.5% of program or activity outlays; or (2) improper payments in excess of $100 million. Beginning in FY2013, the 2.5% threshold drops to 1.5%, with other aspects of the definition unchanged. IPERA also requires agencies to perform the initial risk assessment for every program and activity during the year in which IPERA was enacted (i.e., in 2011) and to perform subsequent risk assessments at least every three years. When performing risk assessments, IPERA requires agencies to consider several risk factors that may make a program or activity susceptible to "significant" improper payments: whether the program or activity is new to the agency; the complexity of the program or activity; the volume of payments; whether payments or payment eligibility decisions are made outside the agency, such as by a state government; recent major changes in program funding, authorities, practices, or procedures; the level of experience and quality of training for personnel responsible for making program eligibility determinations or certifying that payments are accurate; and major deficiencies in an agency's audit report or other source that might result in inaccurate payment certification. Once a program or activity has been identified as susceptible to "significant" improper payments, agencies are required to estimate the amount of improper payments made under each. Reporting on Agency Efforts to Reduce Improper Payments IPERA requires agencies to report on the actions they have taken to reduce improper payments for each program and activity in the accompanying materials to their annual financial statement. IPERA also requires agencies to provide an estimate of improper payments for each program or activity identified as susceptible through the risk assessment, describe the causes of improper payments, the actions planned or taken to correct those problems, and when those actions were completed or will be completed. Target dates for achieving reductions in improper payments must be approved by the Office of Management and Budget (OMB), and agencies must include annual performance criteria used to hold the appropriate parties accountable for meeting those targets—whether they work for the agency or for a state or local government that helps implement the program. The performance criteria must also include an evaluation of the internal controls within the agency, or state or local government, that are intended to prevent, detect, and recover improper payments. IPERA also requires agencies to include a statement as to whether they have sufficient resources to develop their own internal controls for reducing improper payments—such as human capital and information systems—and, if not, to identify what additional resources are needed to do so. OMB is also required to establish criteria that agencies must meet to demonstrate that they have effective internal control systems. IPERA also requires OMB to submit a report to two congressional committees—the House Committee on Oversight and Government Reform and the Senate Committee on Homeland Security and Government Affairs—that provides a government-wide summary of agency efforts to reduce and recover improper payments. This report must include (1) government-wide improper payment reduction targets; (2) the compliance status of each agency; (3) a discussion of progress made towards meeting improper payment reduction targets; and (4) a summary of the improper payment reduction and recovery actions of each agency. IPERA further directs OMB to provide guidance on the timing and format of the improper payments reports required by IPERA, both at the agency level and government wide. OMB's guidance, which was issued in 2011, is discussed in detail in the " OMB Guidance " section of this report. Compliance The inspector general of each agency must determine whether the agency is in compliance with IPERA and report its findings to the head of the agency, the Comptroller General, the House Committee on Oversight and Government Reform, and the Senate Committee on Homeland Security and Government Affairs. An agency is deemed in compliance if it has published an annual financial statement; conducted risk assessments for each program or activity; published improper payment estimates, corrective action plans, and improper payment reduction targets for all risk-susceptible programs and activities; and reported no improper payment rate that met or exceeded 10%. By definition, then, an agency must report that all of its programs and activities have an improper payment rate of less than 10% to be deemed in compliance with IPERA. Agencies that are deemed noncompliant must submit a plan to Congress that describes the steps they will take to become fully compliant. The plan must include (1) measurable milestones that will result in compliance for each program or activity deemed noncompliant; (2) the name of a senior agency official who is responsible for ensuring the agency becomes compliant; and (3) an "accountability mechanism" that may include incentives and consequences tied to the ability of the responsible official to bring the agency into compliance. If an agency is deemed noncompliant for two consecutive years, and OMB has determined that additional funding would help the agency become compliant, then the agency head would be required to obligate additional funds—in an amount determined by OMB—for "intensified compliance efforts." IPERA does not provide agencies with new authority for transferring funds. Agencies that were unable to obligate all of the additional funds required by OMB under their existing authorities, then, would need statutory authority to transfer funds under Title 31 of the U.S. Code . If an agency is deemed noncompliant for three or more consecutive years for the same program or activity, then the agency must submit to Congress reauthorization proposals for those programs or activities, along with proposed statutory changes that may bring the agency into compliance. IPERA gives OMB the authority to conduct compliance pilot programs to "test potential accountability mechanisms" and to report the findings from those pilot programs within five years from enactment (i.e., before July 22, 2015). Recovery Audits A recovery audit, or payment recapture audit, is a review process designed to identify overpayments. According to OMB guidance, "It is not an audit in the traditional sense. Rather it is a detective and corrective control activity designed to identify and recapture overpayments, and, as such, is a management function and responsibility." The idea of recouping overpayments through the recovery auditing process had received attention in previous Congresses. In a hearing on eliminating agency payment errors, Senator Tom Carper noted that, "even as agencies report greater improper payments, we are seeing actually fewer improper payments recovered." When Senator Carper introduced IPERA in the 110 th Congress, the legislation addressed this issue through the inclusion of a section on recovery audits. IPERA requires agencies to perform recovery audits on each program or activity with expenditures of $1 million or more per year. In addition, the legislation stipulates that the performance of recovery audits is conditional on cost-effectiveness, though the term "cost-effective" is not defined in law. IPERA contains provisions for the conduct of these recovery audits. The legislation establishes agencies' threshold requirement for recovery auditing, details certain procedures for the performance of recovery audits, mandates collection of overpayments, specifies disposition allotments for recovered amounts, and imposes reporting requirements on actions to recover improper payments. The legislation institutes two procedural requirements for the conduct of recovery audits. First, it requires agencies to prioritize both the most recent payments and those deemed susceptible to "significant" improper payments. Second, the legislation specifies options for recovery audit services—they could be performed within the agency itself or by other U.S. departments and agencies, or private sector services could be procured by contract. Although IPERA permits contractors to conduct recovery audits on agencies' behalf, it circumscribes their scope of authority. Only with the express consent of the agency head are contractors authorized to notify entities of potential overpayments, respond to questions pertaining to potential overpayments, and take administrative action on overpayment claims. In addition, contractors are not allowed to render a final decision as to whether or not an overpayment occurred, and they are not authorized to adjudicate overpayment claims. IPERA requires recovery audit contractors to report all overpayments detected through recovery audits to the procuring agency, regardless of whether a given overpayment occurred at the agency that contracted the audit or another agency beyond the scope of the contract. Nongovernmental entities are prohibited from disclosing information uncovered through a recovery audit that would identify an individual for any purpose other than the recovery audit itself. An individual could waive this privacy protection, however, and permit the executive agency that contracted the audit to disclose identifying information for other purposes. The legislation directs agencies to take "prompt and appropriate action" to collect overpayments identified in recovery audits upon receipt of an overpayment notification. Distribution of collected amounts was left to the discretion of agency heads, though there were limits on the maximum percentage of recovered amounts that could be applied to certain programs, purposes, and activities: At most, 25% for a financial management improvement program, to be implemented by agency heads to address improper payments and reduce errors and waste across agency programs and operations. At most, 25% credited to the appropriation or fund from which the overpayment was made. At most, 5% for inspector general activities relating to implementation of the legislation itself or investigation of improper payments. The remaining 45% of collected amounts—and up to 100% depending on how much the agencies actually allocated in accordance with these criteria—are to be deposited in the Treasury as miscellaneous receipts. IPERA specifies four reporting requirements which relate to the conduct of recovery audits. First, the legislation requires agency heads to provide a report on improper payment recovery actions, which is to include a statistically valid estimate of improper payments made by each program or activity, along with the following: a discussion of the methods used to recover overpayments; the amounts recovered, outstanding, and determined not to be collectable; a written justification explaining any uncollected amounts; an aging schedule of outstanding amounts; a summary of the disposition of recovered amounts; a discussion of conditions giving rise to improper payments and how these are being resolved; and if an agency determined that a recovery audit was not cost-effective, then a justification as to why. Second, by November 1 of each year, agencies are required to submit a report to OMB and Congress on actions taken on those conditions that promote overpayments, as identified and reported by recovery audit contractors. Third, the Director of OMB must provide the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform a government-wide report on agencies' reports of improper payments information and recovery actions, as well as the compliance status of each agency covered by the law. Lastly, within two years of IPERA's enactment, the Chief Financial Officers Council must conduct a study, in consultation with the Council of Inspectors General on Integrity and Efficiency and recovery audit experts, on the implementation of IPERA's recovery audit provisions, the costs and benefits of agency recovery audit activities, and, in particular, the effectiveness of service provision by private contractors, agency employees, cross-servicing from other agencies, or any combination of the three. A report on this study was to be submitted to the Senate Committee on Homeland Security and Governmental Affairs, the House Committee on Oversight and Government Reform, and the Comptroller General by July 22, 2012. OMB Guidance OMB circulars operationalize implementation for agencies. Frequently, if legislation gives OMB discretion over administrative concerns, OMB details the legislation's procedural requirements and may impose its own additional requirements, provided that these do not contravene the enacted legislation. IPERA requires OMB to issue implementation guidance to agencies. This government-wide guidance was issued April 11, 2011, through the revision of Appendix C of OMB Circular A-123 (hereinafter, A-123), Management's Responsibility for Internal Control . Agencies were required to begin using the revised guidance for their FY2011 reporting. Improper Payments OMB's definition of an improper payment is consistent with IPERA's, though A-123 clarifies that when an agency does not have the documentation necessary to determine that a payment was proper, it is to be considered improper. OMB's guidance also provides a definition for program, which IPERA does not. According to A-123, a program includes all types of grants, procurements, and credit programs, as well as regulatory activities, research and development activities, and activities that agencies perform to support their programs. OMB's guidance specifies that payments to other agencies and to employees are not considered programs. Risk Assessments A-123, like IPERA, requires agencies to (1) review all programs and identify those susceptible to improper payments; (2) develop a valid estimate of the amount of improper payments for those programs identified as susceptible to "significant" improper payments; (3) implement a plan to reduce improper payments; and (4) report estimates of the annual amounts of improper payments and progress in reducing them. For each of those steps, discussed below, A-123 establishes a detailed process by which agencies are to fulfill their obligations under IPERA. A-123 and IPERA both use the same definition of "significant" improper payments for agencies to follow when identifying programs susceptible to improper payments, including the use of a 2.5% threshold for FY2011 and FY2012, and a 1.5% threshold for FY2013 and beyond. The guidance and IPERA also identified the same risk factors that may indicate a program is susceptible to "significant" improper payments. OMB may determine on a case-by-case basis whether certain programs below the threshold may be required to have risk assessments performed. Like IPERA, A-123 requires OMB to approve of agency sampling methodologies to ensure they accurately reflect the annual amount of improper payments. A-123 provides agencies with detailed explanations of steps they should take to establish valid methodologies, including sampling technique and size. OMB's guidance specifies that improper payment estimates should only include the erroneous amount. For example, if a payment of $50 was due, and the agency paid $60, then only the $10 above the correct amount would be counted in the improper payment total. Similarly, if the agency had paid $40 to a recipient that was supposed to receive $50, then only the $10 below the correct amount would be counted as improper. However, if a $100 payment was made without sufficient documentation to confirm that the payment was correct, the entire $100 would be included in the improper payment total. A-123 permits agencies to sample transactions at certain steps within the lifecycle of a payment rather than the entire payment process, if the agency believes that only those steps have the highest risk or have the greatest return on investment. For example, if an agency determines that a five-step payment has two high-risk steps, then it may sample, review, and report an estimate for just those two steps. A-123 mirrors IPERA in that it requires each agency to develop a plan to reduce improper payments that includes three components: a description of the root causes of improper payments for each risk-susceptible program; OMB-approved improper payment reduction targets and a timeline within which those targets will be reached; and the steps taken to ensure that all of the parties involved—federal and nonfederal—are held accountable. The guidance does not provide examples of accountability mechanisms, but it does require agencies to assess whether they or their partners have the necessary infrastructure (i.e., human capital, internal controls, information systems) to reduce improper payments. A-123, like IPERA, also requires agencies to identify any statutory or regulatory barriers to implementing their plans. However, A-123 permits agencies to request a waiver for this reporting for programs or activities that have been deemed not risk-susceptible for two consecutive years, an allowance which is not found in IPERA. A-123 requires agencies to include an estimate of the annual amount of improper payments for all of their programs and activities, and it clarifies that the estimate is to include programs or activities with estimated improper payment totals below $10 million. Consistent with IPERA, OMB's guidance also requires agencies to publish a report each year that includes the improper payment estimate; narrative information on agency plans to prevent, detect, and recover improper payments; and what resources, if any, they lack to implement their plans. Compliance A-123 provides numerous examples of steps agencies should take to prevent, detect, and recapture improper payments. The guidance acknowledges that fully implementing long-term corrective actions may take several years, but that those actions should be intensified and expanded whenever possible. A-123 identifies best-practices that could be used by agencies to reduce and recover improper payments, including predictive modeling, forensic accounting, partnering with agency inspectors general to focus on fraud prevention, data mining, and training agency staff on tools to identify improper payments. Recovery Audits As noted, IPERA requires agencies that have programs or activities with expenditures of $1 million or more per fiscal year to conduct payment recapture audits. A-123 further requires agencies to implement payment recapture audit programs, which consist of overall plans for risk analysis, payment recapture audits, and recapture (recovery) activities. While the agency head has discretion over the manner and combination of payment recapture activities, the cost-effectiveness mandate means that the benefits of the payment recapture audit program, such as recaptured amounts, should exceed the costs of implementation and oversight. Payment recapture activities should include a management improvement program to address problems with internal controls that contributed to those overpayments identified through implementation of a payment recapture program. A-123's scope for payment recapture audit programs is consistent with IPERA, though A-123 provides greater specificity regarding the types of programs and activities which require recovery audits, including grants, benefits, loans, and contract programs. In addition, A-123 states that agencies must prioritize payment recapture audits for the most recent payments and those deemed susceptible to "significant" improper payments; must design the program so as to ensure the greatest financial benefit for the government; may exclude payments from recovery audit activities if payment recapture audits are not determined to be cost-effective; may permit payment recapture audit contractors to notify entities of potential overpayments, respond to questions about overpayments, and take administrative action on overpayment claims but cannot authorize these contractors to render a final decision as to whether or not an overpayment occurred nor to adjudicate overpayment claims; and must correct underpayments identified through the recovery audit process, as well as overpayments. IPERA requires agencies to perform recovery audits if doing so is cost-effective. According to A-123, agencies should consider the likelihood of overpayment recapture in determining whether a recapture audit is cost-effective. In making this determination, agencies may weigh (1) whether laws or regulations permit recovery; (2) whether the recipient of the overpayment is likely to have resources to repay overpayments from nonfederal funds; (3) whether the evidence of overpayment is clear versus contestable; and (4) whether the overpayment is truly a recoverable improper payment rather than a payment with unsupported documentation. If an agency determines that a payment recapture audit program would not be cost-effective, then it must advise OMB and the agency's inspector general of this decision, along with the analysis it performed to reach that decision. OMB may review the analysis and instruct the agency to conduct a payment recapture audit program. Agencies are required to establish annual payment recapture targets for their programs, which should vary in accordance with the different types of payments the agency makes, such as grants versus contracts. Targets are based on the rate of recovery, which the guidance defines as "the amount of improper payments recovered divided by the amount of improper payments identified." Agencies may set their own targets for OMB review and approval but must aim for annual recapture targets of at least 85% within three years. If they cannot achieve this target by FY2013, they must provide OMB a justification for setting a lowered target and obtain OMB's approval before setting it. A-123 establishes guidelines for coordination between federal agencies and state or local governments, with respect to both payment recapture audits and financial management improvement efforts authorized by IPERA. Grant programs are subject to IPERA's recovery audit provisions, as noted previously, and these programs are often administered by states and local governments. The guidance instructs federal agencies to work with state and local governments to ensure that sufficient resources are available to perform payment recapture audits; federal agencies must also coordinate among themselves to reach partnerships with grant recipients for cost-effective payment recapture audit implementation. In addition, agency heads are required to use information obtained from payment recapture programs to implement financial management improvement programs that will improve the agency's internal controls to address improper payments, as well as reduce errors and waste across agency programs and operations. In so doing, agencies with state-administered programs may provide money to states and local governments for their financial management improvement efforts. IPERA specifies three options for recovery audit services—recovery audits can be performed (1) within the agency itself, (2) by other U.S. departments and agencies, or (3) by a private sector entity. A-123 added a fourth option: by nonfederal entities that expend federal awards. IPERA allows agencies flexibility in the type of contract they use to procure recovery audit services, including contingency contracts, in which private sector contractors receive a percentage of overpayments that the agency is able to collect as payment for their services. However, certain types of payments recovered—amounts recovered due to interim improper payments made under ongoing contracts, recoveries from nondiscretionary appropriations, amounts recovered from unexpired appropriations, amongst others—cannot be used to pay contingency fee contracts. In these cases, agencies must establish alternative payment arrangements, such as through appropriations, to pay contractors. A specific set of requirements and prohibitions governs the use of contracted payment recapture auditing firms. Contractors are required to provide semi-annual reports to the contracting agency on conditions giving rise to improper payments and recommendations for mitigation of these conditions; notify the agency of identified overpayments, regardless of whether they occurred at the contracting agency or another agency beyond the scope of the contract; and report credible evidence of fraud to the agency and its Office of Inspector General. In addition, contractors must familiarize themselves with agencies' policies and procedures and protect the confidentiality of sensitive financial information that could identify an individual. Payment recapture audit contractors are not prohibited from visiting the property of a payment recapture audit subject, though they cannot compel the production of records or information from the agency's contractors, nor can they act as agents for the federal government in the recovery of funds. Actual collection activities are carried out by federal agencies or nonfederal entities expending federal awards; a payment recapture audit contractor may only perform the collection activity if it is permitted by statute. A-123 elaborates on IPERA's delineation of the disposition of amounts from nonexpired and expired discretionary funds. Overpayments recaptured from nonexpired discretionary funds, appropriated after the enactment of IPERA, must be returned to the appropriation from which they were made and not used for any other purpose. Overpayments from mandatory fund accounts, trust fund accounts, or special fund accounts must revert back to those accounts, as well. The distribution of any expired, recaptured discretionary collected amounts is at the discretion of agency heads, though amounts allocated to (1) the financial management improvement program, (2) the appropriation or fund from which the overpayment was made, or (3) inspector general activities are subject to maximum limits under IPERA. Within these constraints, agency heads may determine the actual percentages after reimbursing expenses for administering payment recapture audit programs and paying contractors for payment recapture audit services. IPERA subjects agencies to two reporting requirements. First, it requires agencies to report annually on their payment recapture audit programs in their Performance and Accountability Reports (PARs) or Agency Financial Reports (AFRs). OMB's guidance on information to be included in these reports is consistent with IPERA, though it adds some additional requirements: Provision of the total amount of payments subject to review, the actual amount of payments reviewed, the amounts identified for recapture, and the amounts actually recaptured in the current year; these amounts should be separated by those attributable to internal agency activities versus payment recapture audit contractors. Description and justification of the classes of payments excluded from payment recapture audit review by the agency. Second, agencies using federal employees or external contractors must complete an additional annual report for OMB, Congress, and their inspectors general, containing recommendations from payment recapture auditors on mitigation of conditions that promote overpayments and corrective actions taken by the agency in response to these recommendations. It is due by November 1each year and should describe recommendations and actions taken by the agency during the previous fiscal year. Analysis Agencies have had 10 years to implement improper payment legislation, beginning with the enactment of IPIA in 2002, which established the core requirements of improper payments reduction. IPERA, while enacted more recently, reinforced IPIA's core requirements and expanded agencies' responsibilities to prevent and recover improper payments. Therefore, it is possible to evaluate agency efforts in reducing payment error rates over several years, and to make an initial assessment of recovery audit programs. Improper Payments The government's improper payment rate of 4.4% in FY2004—the first year of reporting required by IPIA—appears static when compared to the same rate for FY2012. Over time, though, the rate has declined to a low of 2.81% in FY2007 and reached a high of 5.42% in FY2009, as shown in Table 1 . As a consequence, agencies continue to make tens of billions of dollars a year in improper payments. Since the IPIA reporting requirements took effect, agencies have made over half a trillion dollars ($688 billion) in improper payments. In FY2012 alone the government made $108 billion in improper payments. The inability of the government to reduce its overall improper payment rate is partly due to agencies' failure to reduce substantially the error rates for risk-susceptible federal programs with multi-billion dollar annual outlays. In some cases, error rates for those programs have actually increased over time. Moreover, the full extent of the improper payment problem is not known because agencies have yet to develop improper payment rates for some programs, including programs which OMB estimates may have annual improper payments of at least $750 million annually. Agencies did not have improper payment estimates in place for all of their risk-susceptible programs and activities for the first year of IPIA reporting, FY2004. Since then, agencies have expanded the number of programs reported each year as they develop valid improper payment estimates for them. During this same time, the annual dollar amount of improper payments reported has more than doubled, rising from $45 billion in FY2004 to $108 billion in FY2012. While the inclusion of additional programs accounts for much of the growth in improper payments reported since FY2004, there are a number of multi-billion dollar programs which have seen little or no improvement in their improper payment rates, and in some cases the error rates for these programs have actually increased over time. The improper payment rate for the Medicare Fee-for-Service program, for example, increased from 5.2% in FY2005 to 8.5% in FY2012, and the amount of improper payments made under the program has more than doubled in that same period of time, increasing from $12 billion to approximately $30 billion. Similarly, the improper payment rate for the Unemployment Insurance (UI) program increased from 10% in FY2005 to 11% in FY2012, and the amount of improper payments under UI increased from $3 billion to $10 billion. Error rates—and improper payment amounts—have also increased over time for the Supplemental Security Income (SSI) program and Medicare Advantage (Part C). While OMB has argued that administrative problems, such as the lack of required documentation, are the root causes of most improper payments, this does not explain why a program's improper payment error rate would increase over time—particularly when agencies were to begin addressing these weaknesses 10 years ago with the enactment of IPIA. Incomplete Scope The full scope of improper payments has not been determined because agencies have not yet developed estimates for all of their risk-susceptible programs or are re-calculating their initial estimates. Among these programs are several that have multi-billion dollar outlays and may have annual improper payment amounts in the hundreds of millions to billions of dollars. The Department of Health and Human Services (HHS), for example, is re-estimating its error rate for the Children's Health Insurance Program (CHIP). In FY2008, HHS initially reported an error rate of 14.7% for CHIP and outlays of $5.7 billion, resulting in $834 million in improper payments. Similarly, the Federal Communications Commission (FCC) is re-estimating the improper payment rate for the High-Cost Program component of the Universal Service Fund (USF). The initial improper payment rate for the High-Cost Program, published for FY2007 expenditures, was 16.5%, and total outlays exceeded $3.7 billion, resulting in $620 million in improper payments that year. One of the largest risk-susceptible programs that lacks a valid improper payment error rate is the Earned Income Tax Credit (EITC), which is administered by the Department of the Treasury. The initial improper payment rate for the EITC, published for FY2004 expenditures, was 24.5%, with total outlays $39.4 billion, resulting in $9.7 billion in improper payments. OMB estimates that the FY2011 improper payment rate for the EITC was between 21% and 26%, with a "rough" estimate of improper payments in excess of $15 billion. Until these and all other risk-susceptible programs have valid improper payment rates, the extent of the problem will remain unknown. Ineffective Internal Controls According to GAO, many agencies have not yet established internal controls that are effective enough to significantly reduce the risk of improper payments. As noted, OMB has reported that the three most common causes of improper payments are administrative in nature, specifically due to agencies failing to (1) verify that recipient-reported information is accurate, such as whether a recipient is working; (2) ensure that requests for payments are for valid purposes, such as whether a claim for a particular medical service is necessary given the recipient's medical condition; and (3) have the required documentation for each recipient, such as a completed application for benefits. To address these deficiencies, GAO has recommended that agencies to consider implementing a range of preventive controls, including technological tools. Among these tools, GAO recommended that agencies share data to validate recipient eligibility from a variety of sources. HHS, for example, shares information from its New Hires database with the Department of Labor to confirm the employment status of an individual claiming benefits from the Unemployment Insurance program. GAO also recommended that agencies utilize predictive analytic technologies, which identify unusual patterns or abnormalities in service utilization or billing that may indicate fraudulent activity. Predictive analytic technology, for example, is currently employed by HHS to screen all claims under the Medicare Fee-for-Service program prior to payment. GAO is evaluating the effectiveness of the technology in preventing payments for fraudulent claims. GAO also recommended that agencies provide more extensive training tailored for the various parties involved in the lifecycle of a payment: agency staff, beneficiaries, and service providers (when applicable). The training for agency staff, for example, might emphasize methods for detecting improper payments, while training for beneficiaries and service providers might focus on program requirements. In addition, GAO reiterated the need for agency managers to ensure that audit findings are resolved in a timely manner. Managers have three important responsibilities in this regard, according to GAO. First, they must promptly review any audit findings that show deficiencies in agency internal controls; second, they must determine the proper steps needed to resolve these deficiencies; and third, they must complete those steps within an established, expeditious time frame. Recovery Audits One argument advanced by the proponents of IPERA was that it would increase the recovery of overpayments. OMB issued government-wide guidance on the implementation of IPERA in April 2011. However, only about seven months of IPERA's payment recapture audit provisions were in effect by the time agencies reported on improper payments in their FY2011 Agency Financial Reports (AFRs). That said, IPERA may have had a positive impact on efforts to recoup overpayments. According to the Treasury Department, agencies recaptured more than $1.2 billion in improper payments to contractors and vendors in FY2011, which is nearly double the $688 million recaptured in FY2010. A recent GAO report noted that some agencies have indicated that statutory or regulatory barriers have interfered with their ability to perform recovery audits. GAO identified the Office of Personnel Management (OPM) and the Department of Agriculture (USDA) as specific cases in point. In its FY2011 AFR, OPM stated that current law and Treasury Department regulations prohibit financial institutions from providing the requisite information to recover overpayments for its Retirement Program. The USDA cited Section 281 of the Agriculture Reorganization Act of 1994 as the chief impediment to conducting recovery audits for the Farm Service Agency (FSA) and Commodity Credit Corporation (CCC). Section 281 prohibits the recovery of incorrect payments after 90 days unless the participant believes the decision to be erroneous. Other agencies not cited in the GAO report have encountered problems, as well. The Department of Housing and Urban Development (HUD) explained that certain programs lack "the means to capture and report the amounts of improper payments identified and recovered." The Department of Education (ED) cited the high burden of proof required to recover funds under the General Education Provisions Act (GEPA) as a barrier to recovery auditing. IPERA's cost-effectiveness requirement may limit the funds recovered through recovery audits. Under the law, agencies are required to conduct recovery audits only if so doing is cost-effective. If an agency determines that a recovery audit would not be cost-effective, it must notify the Office of Management and Budget (OMB) and its inspector general with the analysis it performed to reach this decision. For FY2011, several agencies determined that recovery audits would not be cost-effective; two selected examples include the Treasury Department and the Small Business Administration (SBA). According to the Department of the Treasury's Office of Inspector General (OIG), neither the Treasury Executive Office for Asset Forfeiture (TEOAF) nor the Bureau of the Public Debt's Office of Public Debt Accounting (OPDA) performed recovery audits. The Treasury Department considered them low risk and immaterial and so deemed that recovery audits would not be cost-effective. SBA cited low error rates and program complexity as reasons that payment audits would not be cost-effective. With regard to contracting specifically, for example, SBA stated that contracting's limited amount of outlays—$133.4 million over the improper payment period—meant that recovery audits would not be cost-effective. Given that $133.4 million exceeded the $1 million threshold for conducting recovery audits under IPERA, SBA was required to provide a justification for this decision, but it did not. While OMB Circular A-123, Appendix C, instructs agencies on considerations they should take into account when evaluating whether a recovery audit would be cost-effective, there are no clear-cut criteria that would achieve a uniform response across agencies. Agency "opt-out" in the absence of definitive standards of cost-effectiveness could result in missed opportunities to recoup overpayments. In addition, understating amounts potentially available for recovery could limit congressional oversight, as incomplete and incorrect information might impede effective program monitoring and review. Improper Payments Elimination and Recovery Audit Improvement Act of 2012 In an attempt to expand the scope of data used to verify that payments are being made to eligible recipients and for the correct amount, Congress passed the Improper Payments Elimination and Recovery Audit Improvement Act of 2012 (IPERIA; P.L. 112-248 ). IPERIA is in the early stages of implementation—President Obama signed it into law on January 10, 2013—so there is no evidence yet as to the law's effectiveness in reducing improper payments and increasing the amounts recovered. The following section describes key provisions and provides a brief analysis of the potential benefits of the law. Improper Payments IPERIA requires OMB to identify a list of "high-priority" federal programs for greater levels of oversight. These programs must be chosen on the basis of the relatively high dollar value or error rate of improper payments, or because they are deemed more susceptible to improper payments when compared to other high-risk programs, regardless of size. OMB is also required to establish annual targets, as well as quarterly and semi-annual actions for reducing improper payments for the high-priority programs. In addition, each agency with a high-priority program is required to submit an annual report on the steps agencies have taken, and plan to take, to prevent and recover future improper payments. The report will be submitted to the inspector general of the agency and posted on a website accessible to the public. The inspector general, in turn, must submit a report to Congress that assesses the quality of the improper payment estimates for each high-priority program, determines whether proper controls are in place to identify and prevent future improper payments, and makes recommendations to Congress on how agency plans might be modified to improve their improper payment estimates and internal controls. IPERIA also requires OMB to issue new guidance intended to increase the accuracy of agency improper payment estimates. The bill establishes new standards for sampling payments; bars agencies from relying on self-reporting by recipients for estimates; requires agencies to include all improper payments in their estimates, including those payments recovered or in the process of being recovered; and includes payments to employees in their estimates. In addition, IPERIA requires a "Do Not Pay Initiative" similar to the "Do Not Pay List" established by President Barack Obama. Under IPERIA, agencies are required to verify recipient eligibility by reviewing available databases prior to issuing a payment or award. At a minimum, agencies must verify eligibility by reviewing data in the Death Master File, maintained by the Social Security Administration; Excluded Parties List System, maintained by the General Services Administration; Debt Check Database, maintained by the Department of the Treasury; Credit Alert System, maintained by the Department of Housing and Urban Development; and List of Excluded Parties and Entities, maintained by the inspector general of the Department of Health and Human Services. IPERIA gives OMB the authority to include additional databases as part of the "Do Not Pay Initiative," as long as the public is provided notice and opportunity to comment before the database is included. OMB must issue a report to Congress each year that evaluates agency efforts to implement the "Do Not Pay Initiative," including whether the initiative has led to reduced improper payments and the identification of incorrect data. To facilitate data integration across agencies, IPERIA requires OMB to submit a plan by March 11, 2013, for (1) including other databases in the "Do Not Pay Initiative"; (2) maximizing agency access to the databases; and (3) developing agreements between agency inspectors general that would permit data sharing. OMB is required to issue guidance on the IG agreements, including standards for reimbursement of costs associated with implementation, retention and destruction of records, and privacy protections. Thirty days after OMB submits its plan, it is required to ensure that a working data-sharing system is in place, although it only needs to include three agencies by that deadline. By June 1, 2013, all agencies must review all their payments for all programs through the initiative. In addition to drawing on data from existing sources, IPERIA requires the Attorney General to submit a report to Congress within a year of enactment that would assess the ability of using state, local, and federal incarceration status as a method for identifying and preventing improper payments. IPERIA also requires the Social Security Administration (SSA) to take steps to improve the accuracy and timeliness of death data maintained by SSA. Recovery Audits Under IPERA, agencies must establish annual payment recapture targets for their programs. By FY2013, the proportion of recovered amounts to amounts identified for recovery must be at least 0.85 (that is, a recovery rate of at least 85%). IPERIA expands upon these provisions by requiring the Director of OMB to set recovery targets for improper payments, with specific amounts identified for recovery audit contractors. In addition, the legislation requires the Director of OMB to determine both current and historical improper payments recovery amounts and rates, including those recaptured by recovery audit contractors, and provide a list of agency recovery audit contract programs. Initial Analysis IPERIA's provisions target areas for improvement that are known to be weak, particularly with regard to developing more accurate improper payment estimates. In addition, the explicit requirement to include payments to federal employees when estimating improper payments may yield new areas for savings, as OMB has reported that federal benefit programs may be susceptible to high rates of improper payments—perhaps over $1 billion a year. In FY2008, for example, the Office of Personnel Management reported more than $330 million in improper payments for federal health, life, and retirement programs, and the Department of Defense reported more than $730 million in improper payments for military and civilian pay, health, and retirement programs. Finally, the ability of agencies to access data from a range of sources across the government may prove to be a valuable tool for preventing payments to ineligible recipients. It may be useful, however, to compare the cost of integrating and improving existing data sources, as IPERIA requires, to the potential savings generated by doing so. S. 1360: Improper Payments Agency Cooperation Enhancement Act of 2013 On May 8, 2013, the Senate Committee on Homeland Security and Governmental Affairs held a hearing on eliminating improper payments to people who have already died. IPERIA included provisions that were intended to address this problem—the law requires agencies to check SSA's Death Master File (DMF) to ensure intended recipients are still alive before issuing payments. A report by the Government Accountability Office (GAO), however, determined that DMF data were flawed and that many improper payments to decedents were going undetected. Senator Carper, committee chairman, called the problem "frustrating but solvable" and stated that he wanted the hearing to result in steps that the government could take to ensure agencies receive the most accurate information from the DMF. According to Daniel Burtoni, GAO director of Education, Workforce, and Income Security Issues, who testified at the hearing, the accuracy of the DMF is uncertain because SSA does not verify all of the death reports it receives. Multiple sources report deaths to SSA, some of which SSA considers "highly accurate" and others that SSA considers "less accurate." SSA reviews each file submitted from a "less accurate" source before recording an individual as deceased in the DMF. The "less accurate" sources include post offices, financial institutions, the Department of Veterans Affairs, and the Centers for Medicare and Medicaid Services. SSA does not verify death reports from "highly accurate" sources before recording an individual as deceased in the DMF. The "highly accurate" sources include data from states reported through the Electronic Death Registration System (EDRS), family members, and funeral directors. Regardless of the source, SSA does not verify deaths reported for non-beneficiaries. If a post office submitted a death report to SSA, for example, the death would be recorded in the DMF without verification if the decedent was not receiving SSA benefits. Burtoni did not provide an estimate of how many DMF files are inaccurate. Burtoni also discussed the degree to which agencies utilize the DMF. As noted, SSA receives death data from state governments. The Social Security Act, however, prohibits SSA from sharing state data with federal agencies that do not pay benefits. SSA, therefore, must determine whether an agency is eligible for access to the full DMF on a case-by-case basis. As of May 8, 2013, SSA had granted full access to only six federal agencies, all of which make benefit payments: Centers for Medicare and Medicaid Services (CMS) Department of Defense (DOD) Department of Veterans Affairs (VA) Internal Revenue Service (IRS) Office of Personnel Management (OPM) Railroad Retirement Board (RRB) Agencies are generally required to reimburse SSA for the "reasonable cost of sharing the [DMF] data." Despite this, Burtoni noted that SSA is not reimbursed by all agencies for access to the full DMF. The VA is statutorily exempt from paying SSA, so it does not reimburse SSA at all. Neither does OPM, which has an arrangement with SSA under which the agencies exchange information at no cost to either party. CMS and DOD do reimburse SSA, but at different amounts. Other federal agencies—including some that pay benefits—purchase only the partial DMF. These agencies include the Departments of Labor, Agriculture, and Justice. The partial DMF excludes data provided by states—estimated at about 11 million death reports. The agencies that pay benefits may be eligible for access to the full DMF, but they have not requested access. Burtoni did not explain why some benefit-paying agencies had not requested access to the full DMF. S. 1360 In response to issues raised at the May 8, 2013, hearing, Chairman Carper introduced S. 1360 , the Improper Payments Agency Cooperation Enhancement Act of 2013. The bill's provisions, discussed below, are directed at improving the accuracy of, and increasing access to, DMF data. Registry Access and Data Quality S. 1360 would require the SSA Commissioner (Commissioner) to establish a National Deaths Registry (Registry) that must include information agencies need to fully implement IPERIA. The Commissioner would also be required to enter into agreements with federal agencies that would enable them to have full access to all of the death data in the Registry. Agencies would be required to reimburse the Commissioner for the reasonable cost of carrying out the agreement. The Commissioner would also be required to enter into similar agreements with state, local, and tribal governments, "to the extent feasible." The agreements would help them prevent, identify, and recover improper payments made under federally funded programs. These agreements, like those made with federal agencies, would require state, local, or tribal governments to reimburse the Commissioner for access to the Registry. The bill would also require the Commissioner to implement procedures for identifying and correcting errors, including those identified by members of the public; determining the accuracy of death records in the Registry; ensuring that the Registry is operated and maintained according to best practices for privacy, security, and disclosure; and providing data to contractors that have been certified by a federal agency, or state, local, or tribal government, as being compliant with applicable privacy and security protocols. The Commissioner would be given the specific authority to share all of the information in the Registry with any federal agency, including data received from states. This provision would supersede the language in the Social Security Act that prohibits the Commissioner from sharing state data with federal agencies that do not provide benefits. Reporting Data to the Registry S. 1360 would require the Director of the Office of Management and Budget (Director) to identify agencies that have data which might be used for matching data in the Registry. If an agency has data on annuity recipients, for example, the Director must establish a method for comparing the data the agency has with the data in the Registry. The Commissioner would then use the comparison to confirm the accuracy and completeness of the Registry data, and to identify conflicting data that needs to be further researched. Each agency identified by the Director would be required to submit to the Commissioner, on a regular basis, data relating to the death of a federal beneficiary, federal annuitant recipient, or other individual that might be in the Registry. The Director would be required to submit a plan to Congress that explains how state, local, and tribal governments will use data matching to improve the accuracy of data in the Registry and in their own databases. Sharing Data S. 1360 would require the U.S. Postal Service to provide agencies access to delivery addresses, including a list of known locations of commercial mailboxes. The Postal Service has the authority to request reimbursement from agencies that use this data. In addition, federal agencies with data that pertain to federal beneficiaries or annuitants must share that data with other agencies. Data Analytics S. 1360 would require the Secretary of the Treasury, within 180 days of enactment, to submit a report to Congress which includes a description of any analysis or investigation of data used to implement the "Do Not Pay Initiative." Examples include matching data in the Registry to state beneficiary enrollment lists, and comparing program data from multiple agencies to identify payment duplication. The Secretary of the Treasury would also be required to describe the metrics used to determine whether data analytics reduced improper payments. Task Force on Federal Annuitants S. 1360 would require the OMB Director to assemble a task force of agencies to reduce payments to deceased federal annuitants. To that end, the task force would be a forum to share best practices for identifying deceased annuitants and to improve data-sharing among agencies. The task force must include representatives from four agencies: DOD, SSA, VA, and OPM. In addition, the task force must include any other agency that provides or conducts oversight of annuities. Analysis of S. 1360 S. 1360 includes provisions that, if fully implemented, may improve the accuracy of death data, which in turn may reduce improper payments to deceased individuals. Expanding data matching with state, local, and tribal governments, for example, would provide new sources of information against which the data in the Registry could be compared. Participation in data sharing, however, comes with a cost. The Department of Defense, for example, pays $40,000 a year for access to the Registry. It is not known how many state, local, and tribal governments would be able to obtain the funds needed to reimburse SSA for access to the Registry. As noted, the Electronic Death Registration System (EDRS) is considered a "highly accurate" source of data for the Registry. As of March 2013, however, only 35 states submitted their death reports using EDRS. SSA estimates that with the necessary funding, EDRS could be implemented in the remaining states within four years. One option for improving the quality and quantity of death data in the Registry would be to consider funding the implementation of EDRS nation-wide. Among the questions that might be asked to assist Congress in this decision are Do the states without EDRS have the capacity to implement it without a major technology upgrade? Would states contribute to the cost of implementing EDRS? How long would it take for the government to recover its investment in EDRS expansion through the prevention and recovery of improper payments? S. 1360 includes language that would permit SSA to share state death data with federal agencies that do not issue benefit payments—agencies that are currently prohibited from accessing state death data by the Social Security Act. Agencies may discover similar statutory obstacles as they try to formalize data sharing agreements, as required by S. 1360 . One option for identifying these statutory obstacles and making them known to Congress would be to require the Secretary of the Treasury to include them in its report on data analytics. S. 1360 requires the Secretary to submit a report within 180 days of enactment that includes a description of "multiple agencies and programs for which comparison of data could show payment duplication." As part of that review, the Secretary could be required to work with agencies to determine whether any statutory barriers to sharing that data exist. Another option would be to require the OMB Director to include statutory barriers in its annual report on the implementation of S. 1360 . The first such annual report would be required not more than one year after the enactment of S. 1360 .

As Congress searches for ways to generate savings, reduce the deficit, and fund federal programs, it has held hearings and passed legislation to prevent and recover improper payments. Improper payments—which exceeded $115 billion in FY2011—are payments made in an incorrect amount, payments that should not have been made at all, or payments made to an ineligible recipient or for an ineligible purpose. The total amount of improper payments may be even higher than reported because several agencies have yet to determine improper payment amounts for many programs, including some with billions of dollars in annual expenditures. In 2002, Congress passed the Improper Payments Information Act (IPIA; P.L. 107-300; 116 Stat. 2350), which established an initial framework for identifying, measuring, preventing, and reporting on improper payments at each agency. That same year, Congress also passed legislation, the Recovery Audit Act (P.L. 107-107; Section 831; 115 Stat. 1186), which required agencies that awarded more than $500 million annually in contracts to establish programs to recover overpayments to contractors. After five years of reporting, the data indicated that while many individual programs reduced their improper payment rates, the total amount of improper payments and the government-wide improper payment rate both increased. Since the IPIA reporting requirements took effect, agencies have expanded the number of programs reported each year. One potential consequence of this expansion is that the annual dollar amount of improper payments reported has more than doubled over time from $45 billion in FY2004 to $108 billion in FY2012. In response, Congress passed new legislation, the Improper Payments Elimination and Recovery Act of 2010 (IPERA, P.L. 111-204; 124 Stat. 2224), which replaced and consolidated the requirements of both IPIA and the Recovery Audit Act. IPERA retained the core provisions of the IPIA while requiring improvements in agency improper payment estimation methodologies and improper payment reduction plans. It also significantly expanded the scope and reporting requirements of recovery audit programs. A subsequent statute, the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA; P.L. 112-248), signed into law on January 10, 2013, addresses some of the weaknesses in agency improper payment prevention controls and recovery audit programs. In particular, IPERIA requires agencies to improve the quality of oversight for high-dollar and high-risk programs, and it mandates that agencies share data regarding recipient eligibility and payment amounts. In addition, IPERIA requires the Office of Management and Budget to examine the rates and amounts of improper payments that agencies have recovered and establish targets for increasing those amounts. This report will be updated to reflect significant developments.

Introduction In 1984, the Crime Victims Fund (CVF, or the Fund) was established by the Victims of Crime Act (VOCA, P.L. 98-473 ) to provide funding for state victim compensation and assistance programs. Since 1984, VOCA has been amended several times to support additional victim-related activities. These amendments established within the CVF discretionary grants for private organizations; the Federal Victim Notification System; funding for victim assistance staff in the Federal Bureau of Investigation (FBI) and Executive Office of U.S. Attorneys (EOUSA); funding for the Children's Justice Act Program; and assistance and compensation for victims of terrorism. In 1988, the Office for Victims of Crime (OVC) was formally established within the Department of Justice (DOJ) to administer the CVF. As authorized by VOCA, the OVC awards CVF money through formula and discretionary grants to states, local units of government, individuals, and other entities. The OVC also distributes CVF money to specially designated programs, such as the Children's Justice Act Program and the Federal Victim Notification System (see Figure 1 ). The OVC's mission is to enhance the nation's capacity to assist crime victims and to improve attitudes, policies, and practices that promote justice and help victims. According to the OVC, this mission is accomplished by (1) administering the CVF, (2) supporting direct services for victims, (3) providing training programs for service providers, (4) sponsoring the development of best practices for service providers, and (5) producing reports on best practices. The OVC funds victim-support programs in all 50 states, the District of Columbia, and the territories. Notably, Congress has amended VOCA several times to provide support for victims of terrorism. These amendments established CVF-funded programs for (1) assistance to victims of terrorism who are injured or killed as a result of a terrorist act outside the United States, (2) compensation and assistance to victims of terrorism within the United States, and (3) an antiterrorism emergency reserve fund to support victims of terrorism. This report provides background and funding information for VOCA programs and the CVF. It describes the process through which CVF funds are allocated and explains how the CVF impacts the annual budget for DOJ. It then provides an analysis of selected issues that Congress may consider regarding the CVF and the federal budget. Financing of the Crime Victims Fund Deposits to the CVF The CVF does not receive appropriated funding. Rather, deposits to the CVF come from a number of sources including criminal fines, forfeited bail bonds, penalties, and special assessments collected by the U.S. Attorneys' Offices, federal courts, and the Federal Bureau of Prisons from offenders convicted of federal crimes. In 2001, the USA PATRIOT Act ( P.L. 107-56 ) established that gifts, bequests, or donations from private entities could also be deposited to the CVF. The largest source of deposits into the CVF is criminal fines. Large criminal fines, if collected, can have a significant effect on deposits into receipts for the CVF. For example, from FY1996 through FY2004, fines collected from 12 defendants in federal courts accounted for 45% of all deposits to the CVF during this time period. Table 1 provides the amounts deposited into the CVF in each fiscal year from 1985 through 2016. Fluctuation in Deposits and Growth of the Fund As Table 1 illustrates, since 2000 there has been considerable fluctuation in the amounts deposited each fiscal year. For example, from FY2013 to FY2014 the monetary amount collected rose by over 140% and then decreased by approximately 26.0% in FY2015. This was followed by a 43.7% decrease in FY2016. Table 1 provides the annual amounts collected from FY1985 through FY2016. During the last decade, over $20 billion has been deposited into the CVF. Large criminal fines levied in cases of financial fraud and other white collar crimes likely contributed to the sizeable growth of the Fund. Although OVC had expected deposits to remain high due to major fines levied against federal offenders (in particular, against corporate violators of federal law), deposits into the Fund fluctuate from year to year and sometimes decrease, as they did from FY2015 to FY2016. Further, DOJ has identified the prosecution of violent offenders as a priority. While this does not mean that prosecutions against corporate offenders that pay substantial criminal fines will decline, if these prosecutions were to decline it may effect a further decline in the deposit amounts to the CVF. Caps on the CVF In the history of the CVF, two caps have affected the balance and distribution of the Fund: a cap on deposits and an obligation cap. Cap on Deposits In 1984, Congress placed a cap on how much could be deposited into the CVF for the first eight years. As shown in Table 1 , from FY1985 through FY1992, the annual cap on deposits ranged from $100 million to $150 million. In 1993, Congress lifted the cap on deposits, establishing that all criminal fines, special assessments, and forfeited bail bonds could be deposited into the CVF. Obligation Cap From FY1985 to FY1998, deposits collected in each fiscal year were distributed in the following fiscal year to support crime victims services. In 2000, Congress established an annual obligation cap on the amount of CVF funds available for distribution to reduce the impact of fluctuating deposits and ensure the stability of funds for programs and activities. Congress establishes the CVF cap each year as a part of the appropriations for DOJ. Changes to the CVF Obligation Cap In FY2015, Congress set the CVF obligation cap at $2.361 billion, a 216.9% increase over the FY2014 cap. Congress did not specify directions for the increase in CVF funds, which were distributed to crime victims programs according to the formula established by VOCA. In FY2016, Congress set the cap at $3.042 billion, a further increase to the cap; however, $379 million was transferred to the Office on Violence Against Women (OVW) for purposes outside of VOCA and $10 million was designated for the DOJ Office of the Inspector General (OIG) for oversight and auditing purposes. After deducting these amounts specified in P.L. 114-113 , the obligation cap was equal to $2.653 billion, a 12.4% increase over the FY2015 cap. In FY2017, however, Congress set the cap at $2.573 billion, a 15.4% decrease compared to the FY2016 cap. From this amount, $326 million was transferred to OVW (again for purposes outside of VOCA) and $10 million was again designated for the DOJ OIG for oversight and auditing purposes. Of note, the Administration's FY2018 budget request specifies that $610 million be transferred from the CVF to OVW and agencies within the Office of Justice Programs for non-VOCA grant programs. In the accompanying explanatory statement for the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2017 (Division B, P.L. 115-31 ), Congress explains that collections into the CVF have slowed, and to ensure solvency of the Fund the FY2017 obligation cap was calculated based on the three-year average of collections into the CVF. Appropriations Riders and the CVF Cap Language restricting the use of certain funds, particularly as they relate to abortions, is commonly included in appropriations language. Appropriations riders may or may not apply to the programs authorized by the CVF, depending on how those riders are framed. Amounts in the CVF are not appropriated; rather, the CVF is funded through fines and penalties as specified in VOCA. Carryover Balance of the CVF Funding for a current year's grants is provided by the previous year's deposits to the CVF, and the OVC is authorized to use the capped amount for grant awards in a given year. After the yearly allocations are distributed, the remaining balance in the CVF is retained for future expenditures. The difference between the fund's balance and the capped amount due to the obligation limitation is scored as a reduction or offset (i.e., as a Change in Mandatory Program or CHIMP) in the DOJ total discretionary spending in a given fiscal year. Moreover, that offset also affects the discretionary spending total in measures reported in the Commerce, Justice, and Science appropriations bill. VOCA law requires that all sums deposited in a fiscal year that are not obligated must remain in the CVF for obligation in future fiscal years. If collections in a previous year exceed the obligation cap, amounts over the cap are credited to the CVF, also referred to as the "rainy day" fund, for future program benefits. For example, in FY2000 funding for the year was capped at $500 million despite the fact that collections were over $985 million in FY1999. In FY2000, approximately $485 million remained in the CVF and was credited for future use. Table 1 provides the balances that remain credited to the CVF at the end of each fiscal year from FY2000 through FY2016. Distribution of the Crime Victims Fund As previously stated, the OVC awards CVF money through formula and discretionary grants to states, local units of government, individuals, and other entities. The OVC also awards CVF money to specially designated programs. Grants are allocated according to statute (see Figure 1 ) established by the VOCA. Children's Justice Act Program The OVC and the Administration for Children and Families (ACF) within the Department of Health and Human Services (HHS) manage the Children's Justice Act Program, a grant program designed to improve the investigation, handling, and prosecution of child abuse cases. Up to $20 million must be distributed annually to the Children's Justice Act Program. Of the designated funds, ACF receives up to $17 million to manage this program for the states, while the OVC distributes up to $3 million for tribal populations. In FY2016, the ACF received $17.36 million from the CVF to fund the Children's Justice Act Program. Table 2 provides funding data from FY2012 through FY2016. Executive Office of U.S. Attorneys (EOUSA) The OVC provides annual funding to support victim-witness coordinators within each of the 93 U.S. Attorney's Offices. In accordance with the Attorney General Guidelines for Victim and Witness Assistance , these personnel provide direct support for victims of federal crime by assisting victims in criminal proceedings and advising victims of their rights, such as their right to make oral and written victim impact statements at an offender's sentencing hearing. Table 3 provides the number of full-time employees supported with CVF funding and the amount of CVF funding that the EOUSA victim-witness coordinator program has received from the OVC from FY2012 through FY2016. Federal Bureau of Investigation (FBI) The OVC provides annual funding to support victim witness specialists within the 56 FBI field offices. These specialists, or coordinators, personally assist victims of federal crime and provide information on criminal cases throughout case development and court proceedings. Table 4 provides the amount of CVF funding that the FBI's Victim Witness Program has received from the OVC in FY2012-FY2016. The Victim Notification System The OVC provides annual funding to support the Victim Notification System (VNS), a program administered by the EOUSA and jointly operated by the FBI, EOUSA, OVC, and the Federal Bureau of Prisons. VNS is the vehicle through which victims are notified of major case events relating to the offender, such as the release or detention status of the offender. Table 5 provides the amount of CVF funding that the VNS has received from the OVC in FY2012-FY2016. Victim Compensation and Assistance After the Children's Justice Act, victim witness, and VNS programs are funded, remaining CVF money is distributed as follows: Victim Compensation Formula Grants (47.5%); Victim Assistance Formula Grants (47.5%); and OVC Discretionary Grants (5%). Amounts not used for state compensation grants are made available for state victim assistance formula grants. As shown in Figure 1 , while both compensation and assistance grants are allotted the same percentage of the remaining balance, the state victim assistance grant program receives 47.5% of the remaining balance plus any funds not needed to reimburse victim compensation programs at the statutorily established rate. Victim Compensation Formula Grant Program As mentioned, 47.5% of the remaining annual CVF money is for grant awards to state crime victim compensation programs. All 50 states, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico have victim compensation programs. The OVC awards each state 60% of the total amount the state paid (from state funding sources) to victims in the prior fiscal year. According to VOCA, a state is eligible to receive a victim compensation formula grant if the state program meets the following requirements: (1) promotes victim cooperation with requests of law enforcement authorities, (2) certifies that grants received will not be used to supplant state funds, (3) ensures that non-resident victims receive compensation awards on the same basis as victims residing within the state, (4) ensures that compensation provided to victims of federal crimes is given on the same basis as the compensation given to victims of state crime, and (5) provides compensation to residents of the state who are victims of crimes occurring outside the state. The formula grants may be used to reimburse crime victims for out-of-pocket expenses such as medical and mental health counseling expenses, lost wages, funeral and burial costs, and other costs (except property loss) authorized in a state's compensation statute. Victims are reimbursed for crime-related expenses that are not covered by other resources, such as private insurance. Since FY1999, medical and dental services have accounted for close to half of the total payout in annual compensation expenses. In FY2015, 45.2% of the total payments were for medical and dental expenses. According to OVC data, assault victims represent the highest percentage of victims receiving compensation each year. Victims of assault represented 39.3% all claims filed during FY2015. Nearly half of assault claims for FY2015 were "domestic and family violence-related." Table 6 provides the amount of CVF funding that was allotted to OVC's Victim Compensation Program from FY2012 through FY2016. Victim Assistance Formula Grant Program The other 47.5% of the remaining annual CVF money (see Figure 1 ) is for the Victim Assistance Formula Grants Program. Amounts not used for state compensation grants are made available for the Victim Assistance Formula Grants Program. This program provides grants to state crime victim assistance programs to administer funds for state and community-based victim service program operations. The grants support direct services to crime victims including information and referral services, crisis counseling, temporary housing, criminal justice advocacy support, and other assistance needs. Assistance grants are distributed by states according to guidelines established by VOCA. States are required to prioritize the following groups: (1) underserved populations of victims of violent crime, (2) victims of child abuse, (3) victims of sexual assault, and (4) victims of spousal abuse. States may not use federal funds to supplant state and local funds otherwise available for crime victim assistance. The time period in which states must use their annual award includes the year it was given to the state plus three years. VOCA establishes the amount of funds allocated to each state and territory. Each of the 50 states, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico receive a base amount of $500,000 each year. The territories of the Northern Mariana Islands, Guam, and American Samoa receive a base amount of $200,000 each year. The remaining funds are distributed based on U.S. census population data. Table 7 provides the amount of CVF funding that the OVC allotted for the Victim Assistance Grant Program from FY2012 through FY2016. According to the OVC, victims of domestic violence make up the largest number of victims receiving services under the Victim Assistance Formula Grants Program. In FY2015, 47.8% of the 3,716,668 victims served by these grants were victims of domestic violence. This percentage has remained relatively stable since 2000, when 50.1% of all victims served by the victim assistance grants were victims of domestic violence. Discretionary Grants Five percent of the CVF money available after the specially designated program allocations have been made (see Figure 1 ) is for discretionary grants. According to VOCA, discretionary grants must be distributed for (1) demonstration projects, program evaluation, compliance efforts, and training and technical assistance services to crime victim assistance programs; (2) financial support of services to victims of federal crime; and (3) nonprofit victim service organizations and coalitions to improve outreach and services to victims of crime. The OVC awards discretionary grants each year through a competitive application process. Table 8 provides the amount of CVF funding that the OVC allotted for discretionary grants from FY2012 through FY2016. Antiterrorism Emergency Reserve The Antiterrorism Emergency Reserve was established in P.L. 104-132 to meet the immediate and long-term needs of victims of terrorism and mass violence. The OVC accomplishes this mission by providing supplemental grants to states for victim compensation and assistance and also by providing direct compensation to victims (U.S. nationals or officers or employees of the U.S. government, including Foreign Service Nationals working for the U.S. government) of terrorist acts that occur abroad. The Director of the OVC is authorized to set aside $50 million of CVF money in the Antiterrorism Emergency Reserve to respond to the needs of victims of the September 11 terrorist attacks, and subsequently, to replenish any amounts expended so that not more than $50 million is reserved in any fiscal year for any future victims of terrorism. After funding all other program areas, as listed above, the funds retained in the CVF may be used to replenish the Antiterrorism Emergency Reserve. This reserve fund supports the following programs: Antiterrorism and Emergency Assistance Program (AEAP), International Terrorism Victim Expense Reimbursement Program, Crime Victim Emergency Assistance Fund at the FBI, and Victim Reunification Program. Assistance for Victims of Terrorism and Mass Violence Over the past two years, the OVC has responded to several incidents of terrorism and/or mass violence in the United States with grants from the AEAP. Following incidents of terrorism or mass violence, jurisdictions may apply for AEAP funds to be used for crisis response, criminal justice support, crime victim compensation, and training and technical assistance expenses. In January 2014, OVC announced the award of $8.4 million to assist victims, witnesses, and first responders of the Boston Marathon bombings, an incident that resulted in the deaths of three spectators and a police officer, and the injuries of hundreds more. The grant award was received by the Massachusetts Office for Victim Assistance to assist organizations with "costs, both incurred and anticipated, for organizations providing crisis intervention services and trauma-informed care, continuum of care, socioeconomic support, wrap-around legal services and other victim assistance." In 2013, AEAP funds were also used to support victims of mass shootings in Newtown, CT; Oak Creek, WI; and Aurora, CO. Assistance for Victims of 9/11 In the aftermath of the terrorist attacks on September 11, 2001, the OVC used money available in the Antiterrorism Emergency Reserve account to immediately respond to the needs of victims. The OVC awarded $3.1 million in victim assistance funding and $13.5 million in victim compensation funding to the states of New York, Virginia, and Pennsylvania. The funds were used by these states to coordinate and provide emergency assistance to victims in the form of crisis counseling and other direct services, and to offset out-of-pocket expenses for medical and mental health services, funeral costs, and lost wages. In addition to providing funds to states, the OVC provided other assistance and services to victims, including the following: OVC staff worked to identify the short- and long-term needs of victims and related costs, as well as to coordinate its efforts with other federal agencies such as the Federal Emergency Management Agency (FEMA). Immediately following the attacks, the OVC set up a call center that offered a 24-hour, toll-free telephone line for collecting victim information and providing referrals for financial, housing, and counseling assistance. Approximately 37,000 victims and family members received assistance and referrals through the call center. The OVC also established a Victim and Family Travel Assistance Center, which handled all logistical arrangements and paid travel and lodging costs for 1,800 family members traveling to funerals and memorial services. The OVC designed and operated a special "Hope and Remembrance" website to provide victims with answers to frequently asked questions, official messages from U.S. government sources, news releases, etc. Selected Issues Congress may confront several issues when considering the balance of the CVF, the annual obligation cap on the CVF, and possible amendments to VOCA. These issues include using the CVF for purposes other than those explicitly authorized by VOCA, making adjustments to the CVF cap such as eliminating the cap, and amending VOCA to accommodate new programs or to adjust the allocation formula. Congress may also consider the purposes for which certain pools of victim services monies can be used. Issues in Considering the Balance of the Fund Because the CVF balance remains significantly larger than the amount distributed to victims each year, there are several issues Congress may consider, and in some cases already has considered, regarding the balance of the Fund. One is whether to use receipts from the CVF to fund grant programs that are not authorized by VOCA. In the past, Congress has passed legislation that made CVF money available to support programs authorized outside of VOCA. For example, the National Defense Authorization Act ( P.L. 110-181 ) included a provision mandating that the Attorney General transfer from the emergency reserve of the CVF "such funds as may be required" to cover the costs of special masters appointed by U.S. district courts in civil cases brought against state sponsors of terrorism. Until FY2016, CVF money had not been used to fund grant programs outside of those authorized by VOCA; however, in the FY2016 and FY2017 appropriations acts, CVF funds were transferred to the Office on Violence Against Women (OVW) to be used for specified grant programs authorized under the Violence Against Women Act. The Administration's FY2018 budget request proposes to use the CVF to fund multiple DOJ accounts not authorized by VOCA, including those that address domestic violence, sex offenders, trafficking victims, and child abuse. While it could be argued that funds for non-VOCA grant programs go to support crime victims, it raises a question about whether these actions might pave the way for the CVF to be used to support grant programs that might not be victim-focused. On the other hand, the CVF has a balance of more than $9 billion, which indicates that receipts to the fund, for certain years, exceeded the congressionally specified cap; however, as mentioned, Congress substantially increased the cap in FY2015 and increased it further in FY2016 (see Table 1 ). In addition, deposits into the Fund decreased by approximately 44% from FY2015 to FY2016. In a time of fiscal constraint, the CVF might provide an avenue to fund some DOJ grant programs while reducing DOJ's discretionary appropriation; however, as shown by the drop in CVF deposits in FY2016, there is no guarantee that receipts going into the CVF will be consistent from one year to the next. Therefore, if Congress were to further increase the cap and continue to use funding from the CVF for non-VOCA programs, it may not be possible to ensure that there will be a consistent level of funding to support these programs in future budget cycles. Congress may also decide to rescind funds from the balance of the CVF, as it did in November 2015 through the Bipartisan Budget Act of 2015 ( P.L. 114-74 ). This law required the rescission and permanent cancellation of $1.5 billion from the balance of the CVF. This unprecedented rescission and cancellation did not carry any specification as to any redirection for the funds, but rather was treated as a general offset. This action did not impact, at least not directly, the annual obligation cap on the CVF. Congress could decide to eliminate the cap on the Crime Victims Fund altogether. If Congress should decide to eliminate the cap and allow all collected funds to be distributed in a given fiscal year, it could possibly have significant consequences for the DOJ budget. As mentioned, the capped amount and remaining balance in the CVF are considered part of the DOJ budget total. These amounts impact the DOJ appropriation, are used to offset spending limits for DOJ programs, and are included in the overall budget score for DOJ. If Congress were to eliminate the cap, it would have to make up the amount of the CVF through offsets. Moreover, Congress may consider whether VOCA programs would be able to use all money in the fund if the obligation cap were eliminated. Issues in Considering Amendments to VOCA While VOCA may be amended in many possible ways, this report presents two options that Congress may choose to consider. Congress may decide to reassess the allocation formula of the CVF (see Figure 1 ) or consider the addition of new programs to be supported through the CVF. VOCA Assistance Administrators have voiced concern that fluctuations in annual obligations can directly impact fund availability for victim assistance formula grants and, to a lesser extent, discretionary grants. The addition of new programs, increases in funding to other programs funded by the CVF, and new management and administration costs cause a reduction in funding available for victim assistance formula grants and discretionary grants. Congress may choose to review the allocation formula to determine if changes should be made to reduce the impact of fluctuations in obligated funds on these grants. Since 1984, VOCA has been amended several times to support additional victim-related activities and accommodate the needs of specific groups of victims, such as child abuse victims and victims of terrorist acts. Congress may choose to continue amending VOCA to further accommodate the needs of additional special populations, such as victims of elder abuse and rural victims. While support for victims of elder abuse is an allowable use of the Fund, as the "baby boom" generation ages, it is possible that elder abuse will grow as a social concern. Similarly, victims in rural areas are supported through VOCA programs, but they face unique barriers to assistance such as lack of qualified service professionals and higher costs and availability of transportation to obtain services. Other populations with unique risks and needs may present themselves, and Congress may choose to use VOCA as one potential vehicle to address those risks and needs. VOCA Support and American Indian Tribes Currently, the VOCA formula does not incorporate American Indian tribal governments for its two largest programs; the victim assistance and victim compensation formula grant programs. While tribal governments are eligible to receive assistance and compensation funds from their respective state victim programs (e.g., in the form of sub-grants), some have argued that there should be a dedicated amount from the Crime Victims Fund directed to American Indian tribes each year. In the 114 th Congress, the Senate Committee on Indian Affairs marked up the Securing Urgent Resources Vital to Indian Victim Empowerment Act (SURVIVE Act; S. 1704 ), which would have amended VOCA to create a special allotment (5% of the annual obligation capped amount) for tribes. These funds would have been used to create a new grant program for tribal crime victims services and compensation to be administered by the U.S. Department of the Interior. The Administration's FY2018 budget request proposes to set aside 5% of the FY2018 obligation cap for grants and assistance to American Indian tribes "to improve services and justice for victims of crime." Fairness for Crime Victims Act of 2017 Federal spending can be divided into the budget categories of discretionary spending, mandatory spending, and net interest. In certain circumstances, reductions in mandatory spending can generate offsets that allow higher levels of discretionary spending than would otherwise be permitted under congressional budget rules or under statutory caps on discretionary spending. Changes in mandatory spending (CHIMPs) are provisions in appropriations acts that reduce or constrain mandatory spending, and they can provide offsets to discretionary spending. The obligation limitation on the CVF has been the CHIMP item that has generated the largest offset of discretionary spending in recent years. In the 115 th Congress, the Fairness for Crime Victims Act of 2017 ( H.R. 275 ) has been introduced, and if enacted would adjust the way CHIMPs affect the CVF and how it is used as an offset of discretionary spending. Also, the bill is intended to ensure that the CVF annual obligation cap is never less than the average amount of deposits into the CVF of the previous three fiscal years. As mentioned, the FY2017 obligation cap was calculated based on a three-year average of collections into the CVF.

In 1984, the Crime Victims Fund (CVF, or the Fund) was established by the Victims of Crime Act (VOCA, P.L. 98-473) to provide funding for state victim compensation and assistance programs. Since 1984, VOCA has been amended several times to support additional victim-related activities. These amendments established within the CVF (1) discretionary grants for private organizations, (2) the Federal Victim Notification System, (3) funding for victim assistance staff within the Federal Bureau of Investigation and Executive Office of U.S. Attorneys, (4) funding for the Children's Justice Act Program, and (5) assistance and compensation for victims of terrorism. In 1988, the Office for Victims of Crime (OVC) was formally established within the Department of Justice (DOJ) to administer the CVF. As authorized by VOCA, the OVC awards CVF money through grants to states, local units of government, individuals, and other entities. The OVC also distributes CVF money to specially designated programs, such as the Children's Justice Act Program and the Federal Victim Notification System. Deposits to the CVF come from criminal fines, forfeited appearance bonds, penalties and special assessments collected by the U.S. Attorneys' Offices, federal courts, and Federal Bureau of Prisons. Since 2002, Congress has allowed gifts, bequests, and donations from private entities to be deposited into the CVF. Of note, the largest source of deposits into the CVF is criminal fines. At the end of FY2016, the CVF had a balance of more than $9 billion. When the CVF was created in 1984, Congress placed a cap on how much money could be deposited into the CVF each year. Congress eliminated the cap for deposits in 1993. From FY1985 to FY1998, deposits collected in each fiscal year were distributed in the following fiscal year to support crime victim services. In FY2000, Congress established an annual obligation cap on CVF funds available for distribution to reduce the impact of fluctuating deposits and to ensure the stability of funds for crime victims programs and activities. Since 2000, Congress has established the annual obligation cap in appropriations law. In FY2015, Congress set the CVF obligation cap at $2.361 billion, a 216.9% increase over the FY2014 cap. In FY2016, Congress set the cap at $3.042 billion, a further increase to previous caps; however, $379 million was transferred to the Office on Violence Against Women (OVW; for purposes outside of VOCA) and $10 million was designated for the DOJ Office of the Inspector General for oversight and auditing purposes. In FY2017, however, Congress set the cap at $2.573 billion, a 15.4% decrease compared to the FY2016 cap. From this amount, $326 million was transferred to OVW (again for purposes outside of VOCA) and $10 million was designated for the DOJ Office of the Inspector General for oversight and auditing purposes. Over the past few years, Congress has taken a number of unprecedented actions involving the CVF. In the 114th Congress, the Bipartisan Budget Act of 2015 (P.L. 114-74) included a provision (§702) that required the rescission and permanent cancellation of $1.5 billion from the balance of the Crime Victims Fund. In addition, in FY2017 Congress calculated the obligation cap based on a three-year average of collections into the CVF. In considering the CVF allocation and future caps, there are several issues on which policymakers may deliberate. Congress may consider whether to adjust the manner in which the CVF is allocated, amend VOCA to accommodate additional victim activities or groups, further adjust the cap and allow use of the CVF for grant programs other than those explicitly authorized by VOCA (as they did for FY2016 and FY2017), or make other adjustments to the CVF cap—such as eliminate the cap altogether.

Background The Obama Administration, in the FY2014 budget proposal, has proposed eliminating a variety of federal tax deductions and credits available to the oil and natural gas industries. This year's proposals are similar to those sent to Congress in conjunction with the FY2010 through FY2013 budget requests. New revenue estimates for the FY2014 proposed tax changes are $40.7 billion over the next decade, contrasted with decade estimates of $38.6 billion in 2013, $43.6 billion in 2012, $36 billion in 2011, and $31 billion in 2010, for essentially the same proposed changes. Although Congress did not implement these proposals in previous years, they might be considered as part of long-run deficit reduction agreement. The Administration characterizes the deductions and credits slated for elimination as tax preferences, or oil and gas industry subsidies, that are costly to U.S. taxpayers and do little to either provide incentives for increased production or reduce prices to consumers. A contrasting description is provided by the American Petroleum Institute (API), which describes the tax provisions slated for elimination as "standard business deductions (some available to all other industries) and mechanisms of cost recovery—a fundamental and necessary component to a national income tax system." The Administration also characterizes repealing these tax preferences as eliminating market distortions, and links them to providing resources for investments in clean, renewable, efficient energy resources. The FY2014 Budget Proposal The Administration's proposals to foster a clean energy economy and reduce consumption of fossil fuels have led to eight proposed tax changes for the oil and natural gas industries. Table 1 identifies the proposed tax changes and the Administration's estimates of the revenue gains for 2014, the five year period FY2014-FY2018, and the 10-year period FY2014-FY2023. Many of these proposed tax changes have the effect of equalizing the tax treatment of independent oil producers to that of the major oil companies. Equalization is accomplished by eliminating preferential tax treatment of the independent companies not available to the major oil companies. In some cases, for example, the expensing of intangible drilling expenses, the major oil companies have been excluded from the benefits of the tax provision for years, while the independent companies continue to receive the benefit. As shown in Table 1 , the proposed tax changes would have the effect of raising an estimated $3.9 billion in FY2014. Almost all (96%) of the revenues from the proposed tax preference repeal from FY2014-FY2023 would come from only three of the proposals, while two of the proposals would provide no revenue at all. Compared to the FY2013 budget proposal, the current proposal estimates less revenue received in the current year, $3.9 billion compared to $4.8 billion, but higher revenues over the 10-year period, $40.7 billion compared to $38.6 billion. The major difference in the revenue estimates comes from a revision of the revenue gains from repealing the domestic manufacturing deduction for the oil and natural gas industries. That provision was expected to yield $11.6 billion over the 10-year time horizon in 2013, compared to $17.4 billion in the current estimate. In addition, the repeal of the expensing of intangible drilling expenses provision is expected to yield $11 billion in the 2014 proposal, compared to $13.9 billion in the 2013 budget proposal. Repeal Enhanced Oil Recovery Credit The enhanced oil recovery credit provides for a credit of 15% of allowable costs associated with the use of oil recovery technologies, including the injection of carbon dioxide, to supplement natural well pressure, which can enhance production from older wells. The credit is only available during periods of low oil prices, determined by yearly guidance with respect to what constitutes a low price. The credit has not been in effect over the past several years. Elimination of this credit would likely not have any effect on current, or expected, oil production, as oil prices are generally expected to remain high. Periods of low oil prices are usually associated with excess supply in the market. During periods of excess supply, it is unlikely that keeping older, higher-cost, low-production wells producing is an effective strategy for oil companies. Revenues from these wells are unlikely to cover operating costs in periods of low prices, although the credit could provide the margin that keeps some of these wells in production. Repeal Credit for Oil and Gas from Marginal Wells4 The marginal well tax credit was implemented as the result of a recommendation by the National Petroleum Council in 1994. The purpose was to keep low-production oil and natural gas wells in production during periods of low prices for those fuels. The tax credit is designed to maximize U.S. production levels even when energy markets result in low world prices for oil, and low regional prices for natural gas. It is believed that up to 20% of U.S. oil production and 12% of natural gas production might be sourced from wells of this category. The credit was enacted in 2004, but has not been utilized because market prices have been high enough since that time to justify production on economic grounds without the application of the credit. The credit is not likely to be an important factor if prices remain high, or if the United States is successful in transitioning to alternative energy sources. The high-cost wells that fall into the marginal well category are likely to be some of the first eliminated on economic efficiency grounds if a reduction in petroleum prices occurs even if the credit were maintained. Repeal Expensing of Intangible Drilling Costs The expensing of intangible drilling costs has been part of the federal tax code since 1913. Intangible drilling costs generally include cost items that have no salvage value, but are necessary for the drilling of an exploratory well, or the development of a well for production. Intangible drilling costs cover a wide range of activities and physical supplies, including ground clearing, draining, surveying, wages, repairs, supplies, drilling mud, chemicals, and cement required to commence drilling, or to prepare for development of a well. The purpose of allowing current-year expensing of these costs is to attract capital to what has historically been a highly risky investment. Current expensing allows for a quicker return of invested funds through reduced tax payments. In recent years, the risk associated with finding oil has been reduced, but not eliminated, through the use of advanced technology, including three-dimensional seismic analysis and advanced horizontal drilling techniques, among others. These advances make expensive "dry holes" less likely, and expand the physical range of exploration and production activities available from a drilling rig, reducing the cost of exploration of prospective oil and natural gas fields. In the current law, the full expensing of intangible drilling costs is available to independent oil producers. Since 1986, major integrated oil companies have been able to expense 70% of their intangible drilling costs and capitalize the remaining 30% over a 60-month period. The FY2014 budget proposal would repeal both direct expensing and the accelerated capitalization provision, and replace them with generally applicable accounting procedures for cost recovery. Administration estimates are that the repeal of the expensing of intangible drilling costs provision will yield $10.9 billion in revenue over the decade to 2023. In response to a similar tax proposal in the FY2010 federal budget proposal, the Independent Petroleum Association of America (IPAA) estimated that the tax change would result in an initial year reduction in investment in U.S. oil development of about $3 billion. IPAA's estimated reduction in oil development spending implied an almost dollar-for-dollar relationship between higher taxes and reduced investment. Little empirical evidence for the estimate was provided. The effect of the elimination of the expensing of intangible drilling costs in FY2012 was estimated by IPAA to result in an almost immediate one-third reduction in drilling budgets. Actual reductions in drilling budgets are likely to be determined by the effect of increased taxes in conjunction with the price of oil. If the price of oil were to settle in the $40-per-barrel range that prevailed in December 2008, the burden of additional tax expense on the independent firms could reduce drilling activity. The combination of low oil prices and additional taxes might not justify the development of relatively high-cost resources, especially in deep waters, as in the Gulf of Mexico. However, with the October 2013 price of oil around $100 per barrel, reflecting political unrest in the Middle East as well as other factors, the additional tax expense is likely to have a smaller effect on reducing oil development activity. Repeal Tertiary Injectants Deduction Tertiary injection expenses, including the injectant cost, can be fully deducted in the current tax year. Supporters of the favorable current treatment of these expenses point to the importance of tertiary recovery methods in maintaining the output of older wells, as well as the environmental advantages of injecting carbon dioxide, a primary tertiary injectant, into wells. Repeal of the deduction, or less favorable tax treatment of the expenses, would be likely to reduce oil output from older producing fields during periods when the profit margin, and the price of oil, is low. During a period of high oil prices, the repeal is likely to have a smaller effect on production levels. Repeal Passive Loss Exception for Working Interests in Oil Properties Repeal of the passive loss exception for working interests in oil and natural gas properties is a relatively small item in terms of tax revenues, estimated at $74 million from FY2014 to FY2023. The provision exempts working interests, investments, in gas and oil exploration and development from being categorized as "passive income (or loss)" with respect to the Tax Reform Act of 1986. This categorization permits the deduction of losses accrued in oil and gas projects against other active income earned without limitation, and is believed to act as an incentive to induce investors to finance oil and gas projects. Repeal Percentage Depletion Allowance Percentage depletion is the practice of deducting from an oil company's gross income a percentage value, in the current law 15%, which represents, for accounting and tax purposes, the total value of the oil deposit that was extracted in the tax year. Percentage depletion has a long history in the tax treatment of the oil industry, dating back to 1926. The purpose of the percentage depletion allowance is to provide an analog to normal business depreciation of assets for the oil industry, in effect equating the tax treatment of oil deposits to the tax treatment of capital equipment in more traditional manufacturing industries. The analogy is based on the observation that both capital equipment in traditional manufacturing, as well as an oil deposit, are "wasting resources" in the sense that they both require capital investment to generate an income stream, and that both will eventually become nonproductive through obsolescence or through wearing out. Depreciation allowances are applied against the investment in capital equipment, and depletion allowances are applied to the value of oil deposits as a way to recover initial investments. In its current form, the allowance is limited to domestic U.S. production by independent producers, on the first 1,000 barrels per day, per well, of production, and is limited to 65% of the producer's net income. Percentage depletion was eliminated for the major oil companies in 1975. Although major oil companies' profits were likely affected by the tax change, their production of oil showed little variation as a result. Production of oil within the United States remains attractive for companies because ownership of the oil is allowed in this country. In most areas of the world, ownership of oil is vested in the national oil company, as a proxy for the state itself. The result is generally a lower share of revenues for private oil companies producing outside the United States. The Administration projects that the repeal of the percentage depletion allowance would yield tax revenues of approximately $10.7 billion over the period FY2014 through FY2023. Repeal Manufacturing Tax Deduction (§199) A provision in the proposed budget for FY2014 that affects both independent and the major companies' oil and natural gas tax liability is the repeal of the domestic manufacturing tax deduction for those industries. As shown in Table 1 , the Administration estimates that the repeal of this deduction for the oil and natural gas industries would contribute $1.1 billion in revenue in 2014, $8.8 billion for the period FY2014 to FY2018. The total increase in tax revenue is estimated to be $17.4 billion from FY2014 to FY2024, according to estimates reported in the budget proposal. This tax provision was enacted in 2004 as part of the American Jobs Creation Act ( P.L. 108-357 ) to encourage the expansion of American employment in manufacturing. The oil industry was categorized as a manufacturing industry, and hence, eligible for the deduction, which was to be phased in over several years, beginning at 3% in 2005, and rising to a maximum of 9% in 2010. The base of the tax is net income from domestic manufacturing activities, capped by a limitation related to the size of the company's payroll. Section 199(d)(9) of the Tax Code limits the rate available to the oil and natural gas industries to 6%. This tax deduction was intended to provide domestic firms an incentive to increase domestic employment in manufacturing at a time when there was concern that manufacturing jobs were migrating overseas. By allowing a percent deduction of net income, up to the payroll limitation, the effective cost of labor to the manufacturer was reduced. The reduction in net labor cost was intended to expand employment, increase output, and reduce prices, making domestically manufactured goods more competitive in the U.S. and world markets. Although the oil and natural gas industries are classified as manufacturing industries for data reporting and tax purposes, they differ from traditional factory manufacturing in a number of ways. For example, the production of petroleum products at a refinery is only indirectly related to the level of employment. This implies that if wage costs go down due to the tax deduction, there is less chance that the result will be increased output due to higher employment. Even if employment did increase, it would have little effect on national employment levels due to the capital-intensive nature of the industry. The Bureau of Labor Statistics reports that oil and natural gas extraction industries employed approximately 185,500 workers in December 2011, of which about 105,700 were classified as production workers. The period since 2004, while difficult for American manufacturing as a whole, has been generally one of high profits for the oil industry. The generally high, although volatile, prices for oil prevailing since 2004 that have generated the high profits for the industry are seen as the critical factor in oil investment. Oil exploration tends to increase when prices are expected to increase, and possibly remain high, and investment decreases when prices are expected to decrease and possibly remain low for a sustained period. The variability and level of expected oil and natural gas prices are likely to be a more important factor in determining capital investment budgets, and hence exploration and production development budgets, than the repeal of a tax benefit that is capped by a relatively low wage bill for the companies. Increase Geological and Geophysical Amortization Period Geological and geophysical expenses are incurred during the process of oil and natural gas resource development. The most favorable tax treatment of these costs would be to allow them to be deducted in the year they are incurred. Requiring these costs to be amortized, or spread out for tax purposes, over several years is less favorable. The longer the amortization period, the less favorable the tax treatment, because a smaller amount is deducted each year, and more time is required to recover the entire cost. Currently, the major integrated oil companies amortize geological and geophysical costs over a period of seven years. Independent producers amortize these costs over a period of two years. Under the FY2014 budget proposal, independent producers would have their amortization period extended to seven years, equalizing treatment with the integrated oil companies. The extended amortization period for independent producers is projected by the Administration to yield $1.3 billion over the period FY2014 to FY2023. IPAA estimated in 2010 that a similar proposal in the FY2011 budget proposal would likely reduce exploration and development activities on a dollar-for-dollar basis as a result of altering this tax provision. The API points out that exploration expenses tend to be higher in the United States than overseas, and the current law's favorable tax treatment of geological and geophysical expenses encourages the development of domestic resources. However, it seems unlikely that oil producers would reduce exploration investment to this extent if the spread of the market price over the full cost of oil exploration and development remains high, as it generally has been in the period of high oil prices since 2004. Additionally, if prices decline to a level near the cost of exploration and development, investment is likely to be curtailed even with the more favorable tax treatment of geological and geophysical expenses currently in place. If the industry were experiencing a time of stagnant oil prices that were near the cost of production, relatively small changes in tax expenditures might affect investment and production activities. However, in a time of high and volatile oil prices, small changes in tax expenses are likely to be overshadowed by price changes derived from other factors. Other Tax Policies The FY2014 budget proposal identifies a number of other proposed tax changes that would likely affect the oil industry. These changes include the repeal of the last-in-first-out (LIFO) accounting method, increasing the Oil Spill Liability Trust Fund taxes, reinstating Superfund taxes, and modifying the Dual Capacity Rule. Last In, First Out (LIFO) LIFO, as described by the API, is not a tax loophole, but a well-established accounting methodology to determine taxable earnings. Under LIFO accounting procedures, firms assume that the last unit of a good that the company acquires in its inventory is the first unit of the good that is sold. In periods of price inflation, or periods when the expected cost of acquiring inventories is rising, LIFO is beneficial in reducing taxes by allowing the cost deduction of the most recent (expensive) goods, independently of which goods were actually sold out of inventory. The general upward movement of oil prices since 2004 has been, with the significant exception of the period when the effects of the recession drove oil prices down (September 2008 to January 2009), a favorable period for the oil industry to be using LIFO. To the extent that demand conditions and political unrest in oil exporting regions might keep the price of oil rising, keeping LIFO in place could be a tax advantage for the oil industry. API suggests that, if it were repealed, companies might have to redirect cash or sell assets to cover the tax payment, destroying some businesses. Using FY2014 Budget Proposal estimates, changing the LIFO provision for all industries could raise $80.8 billion over the period FY2014 to FY2023, with the API estimating that $28.3 billion of the total over the period would come from the oil and natural gas industries. Oil Spill Liability Trust Fund The FY2014 budget proposal includes a proposed increase in the Oil Spill Liability Trust Fund financing, by raising the tax on imported and domestic crude oil to 9 cents per barrel in 2014 and to 10 cents per barrel in 2017. The current tax is 8 cents per barrel, and under current law is set to rise to 9 cents per barrel in 2016. These proposed tax increases to finance the fund at a higher rate were possibly motivated as a response to the Deepwater Horizon oil spill in the Gulf of Mexico. These changes are expected to generate $64 million in 2014 and $1 billion over the period 2014 to 2023. Superfund The Superfund finances cleanup of the nation's high risk contaminated sites for which the responsible parties cannot be found, or cannot pay. Superfund taxing authority expired at the end of 1995. The FY2014 budget proposal would reinstate an excise tax of 9.7 cents per barrel on domestic and imported petroleum products, including crude oil sourced from bituminous deposits and kerogen-rich rock. In addition to the oil excise tax, other dedicated taxes on chemicals and corporate income have been proposed. The Administration and supporters of reauthorization believe that reinstatement of Superfund taxes would reduce the reliance on general Treasury revenues. The API contends that the excise taxes would impose a disproportionate share of the total cleanup costs on oil production and the sale of petroleum products. The API also questions whether a shift away from the use of general Treasury revenues as a source of funding would speed up cleanup efforts, if the overall appropriations from the trust fund were to remain constant and only the funding sources changed. According to the budget proposal, reinstating the Superfund Taxes would raise approximately $1.3 billion in 2014 and $20.2 billion from FY2014 to FY2023. Dual Capacity Rule and Foreign Tax Credits The credit for foreign income taxes paid, upon which the Dual Capacity Rule is based, dates back to 1918. Since that time corporations have been able to credit, directly from their U.S. income tax liabilities, income tax payments made to foreign governments. The period from the end of World War II to 1950 saw a new interpretation of this tax rule develop with respect to the oil industry. Before that time, oil-producing countries like Saudi Arabia charged the oil companies operating in their countries royalties, based on the resources extracted, as well as other taxes. For U.S. tax purposes, the royalties were treated as costs of doing business, hence, an expense, but not a direct credit against U.S. tax liabilities. In 1950, Saudi Arabia and the U.S. major oil companies operating there began negotiations to transform royalty payments into income taxes. This change had the effect of allowing the companies to pay more to Saudi Arabia, and increasing their after-tax earnings, at the expense of essentially transferring funds from the U.S. Treasury to the Saudi government. Proposed modification of the dual capacity rules would restrict companies from claiming the full amount of foreign income taxes as a credit against U.S. taxes. Instead, the oil companies would only be allowed to credit amounts equal to the general corporate tax rate applicable to other industries. Any additional tax payments would be classified as tax-deductible operating expenses. The effect of the change in dual capacity rules would be to reduce after-tax revenues for the companies, as well as returns from overseas investments. This could lead to U.S. firms choosing to invest in fewer marginal overseas projects. Modified rules for dual capacity taxpayers are estimated to generate $552 million in revenue in 2014 and $11 billion over the period 2014 through 2023. Department of the Interior Budget The Department of the Interior (DOI) budget proposal contains several changes in fees and other revenue-generating items that would affect the oil and natural gas industries. The FY2014 budget proposal includes provisions to initiate royalty reforms, encourage the development of oil and gas leases, and improve revenue collection processes. In total, these proposals are expected to yield revenues of $2.5 billion over the period 2014 through 2023. Although these fees and charges would increase the cost of exploring, developing, and operating oil and natural gas facilities under DOI's management, and are likely to reduce those activities as suggested by opponents of the proposals, the effects are likely to be small, as these fees represent only a fraction of the revenues, profits, or other taxes and fees paid to the government. Supporters of these fees might make the argument that they represent "user charges" consistent with environmentally sound management of resources on federal lands. Conclusion On the one hand, the tax changes proposed in Table 1 would increase tax collections from the oil and natural gas industries and may have the effect of decreasing exploration, development, and production, while increasing consumer prices and possibly increasing the nation's dependence on foreign oil. These same proposals, from an alternate point of view, might be considered to be the elimination of tax preferences that have favored the oil and natural gas industries over other energy sources and made oil and natural gas products artificially inexpensive, with consumer cost held below the true cost of consumption when external costs associated with environmental costs and energy dependence, among others, are included. The quantitative effects of these proposals are likely to be small if oil prices remain high. The net revenue of the top 150 U.S. oil companies in 2012 was $91.1 billion, while total revenue was $1.02 trillion. The 2014 estimated tax revenues from the oil and natural gas industry tax proposals are approximately $3.8 billion, about 4% of net revenues, and one third of one percent of total revenues.

The Obama Administration, in the FY2014 budget proposal, seeks to eliminate a set of tax expenditures that benefit the oil and natural gas industries. Supporters of these tax provisions see them as comparable to those affecting other industries and supporting the production of domestic oil and natural gas resources. Opponents of the provisions see these tax expenditures as subsidies to a profitable industry the government can ill afford, and impediments to the development of clean energy alternatives. The FY2014 budget proposal outlines a set of proposals, framed as the termination of tax preferences, that would potentially increase the taxes paid by the oil and natural gas industries, especially those of the independent producers. These proposals include repeal of the enhanced oil recovery and marginal well tax credits, repeal of the current expensing of intangible drilling costs provision, repeal of the deduction for tertiary injectants, repeal of the passive loss exception for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increasing the amortization period for certain exploration expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of increased inspection fees and other charges that would generate more revenue for the Department of the Interior (DOI) are included in the budget proposal. The Administration estimates that the tax changes outlined in the budget proposal would provide $24.2 billion in additional revenues over the period FY2014 through FY2018, and $40.7 billion from FY2014 to FY2023. These changes, if enacted by Congress, would reduce the tax advantage of independent oil and natural gas companies over the major oil companies. They would also likely raise the cost of exploration and production, with the possible result of higher consumer prices and more slowly increasing domestic production; however, the measurement of these effects is beyond the scope of this report.

Introduction It has been reported with increasing frequency that American corporations are engaging in profit shifting. That is, they are using tax planning strategies to avoid, delay, or reduce their U.S. tax on income earned overseas. Included among the companies that have been mentioned are Amazon, Apple, Caterpillar, Cisco, Google, Pfizer, and Starbucks, along with a number of other well and not-so-well known businesses. To curb profit shifting, some have argued for disallowing the sophisticated techniques companies use, as either part of a broader tax reform plan, or as separate legislation; presumably the separate legislation would be a stop-gap measure put in place until potential tax reform takes place. Others have argued that it is the current U.S. corporate tax rate and general approach to taxing American multinational corporations (MNCs) that is encouraging companies to shift profits and keep money abroad. The best remedy, it is argued, is to reduce the corporate rate and consider excluding most foreign earned income from taxation. This approach has also been offered as a broader tax reform package. Thus far, there is no consensus on the best way to reduce profit shifting. Profit shifting is not exclusively a U.S. problem. Foreign policymakers have also voiced concern over the tax strategies employed by U.S. corporations operating in their markets, as well as their own domestically based corporations. For example, in 2012, the Public Accounts Committee of the British House of Commons called upon executives from Amazon, Google, and Starbucks to explain their companies' U.K. tax strategies. German Chancellor Angela Merkel urged action to curb corporate profit shifting in a speech at the Organisation for Economic Co-operation and Development (OECD) on February 19, 2014. Similarly, French President François Hollande has called for some form of global tax harmonization. In response to the growing international concern, the OECD was asked by the G20 finance ministers to develop an Action Plan on Base Erosion and Profit Shifting (BEPS). The goal is to develop 15 detailed actions governments can take to reduce tax avoidance by multinational corporations (as well as individuals) worldwide. The Action Plan is scheduled to be completed in three phases: September 2014, September 2015, and December 2015. Some of the actions will require coordination and information sharing between governments, and potentially the amendment of existing tax treaties. As a result, the Action Plan relies heavily on the participation of all major economies. A number of G20 countries that are not part of the OECD (Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia, and South Africa) participated in the meetings that led to the eventual adoption of the Action Plan by all G20 finance ministers. This report is intended to assist Congress as it considers what, if any, action to curb profit shifting. Data on the operation of U.S. and foreign corporations are analyzed to understand where profit may be being shifted to and to what extent. There are indications that profits are being shifted to "tax-preferred" or "tax-haven" countries, and that the amount of profits involved (and therefore the tax revenue lost) could be considerable. This report discusses the methods used for shifting profits only to the extent that it is necessary for interpreting the data or discussing policy options. For a detailed discussion of the profit-shifting mechanisms used by corporations, see CRS Report R40623, Tax Havens: International Tax Avoidance and Evasion , by [author name scrubbed]. Overview of the U.S. International Corporate Tax System The United States, in theory, taxes American corporations on their worldwide income. This approach to taxation is referred to as a worldwide (or resident-based) tax system. In contrast, a territorial (or source-based) system would tax American corporations only on income earned within the physical borders of the United States. In reality, no major economy has a pure worldwide or a pure territorial tax system. Although the U.S. taxes the worldwide income of American corporations, current law allows taxes to be deferred on income earned abroad until that income is repatriated (returned) to the United States. Deferral is a benefit to American corporations because delayed taxes are a reduced tax expense to firms due to the time value of money. In the extreme, deferral could allow an American corporation to completely avoid U.S. taxation on foreign source income if they never repatriate their overseas income, either because the income is being held abroad in financial assets or because it is permanently reinvested (e.g., in plant and equipment). The income earned by foreign branches of American corporations, however, cannot be deferred. A particular type of income which does not qualify for deferral is known as "subpart F income." Named for the location in the Internal Revenue Code (IRC) where its tax treatment is defined, subpart F income generally includes passive types of income such as interest, dividends, annuities, rents, and royalties. The highly fungible nature of subpart F income is such that corporations can use overseas subsidiaries to transfer taxable income from high-tax countries to low-tax countries with the ultimate goal of reducing their U.S. income tax liability. To prevent this, corporations must pay taxes on subpart F income in the year it is generated, regardless of whether it is actually repatriated to the United States. A temporary exception to the subpart F income tax rules for "active financing income" existed for income earned between 1997 and 2014. The active financing exception relates to the income earned by American corporations that operate banking, financing, and insurance lines of business abroad. Although some of the income derived from these lines of business (e.g., interest, dividends, and annuities) could be labeled as passive, active financing income was excepted from subpart F, and thus qualified for deferral and was only taxed when it was repatriated to the United States. The exception was last extended retroactively through 2014 by P.L. 113-295 in the 113 th Congress, and has regularly been extended in recent years as part of "tax extenders" legislation. When American corporations repatriate income from subsidiaries operating abroad, that income may have already been taxed by a foreign country. If it has, corporations are generally allowed to claim a dollar-for-dollar tax credit (up to a limit) for foreign taxes paid. The credit, formally known as the foreign tax credit, is intended to alleviate the double taxation of corporate income. The credit is generally limited to the amount of taxes a corporation would pay in the credit's absence, which is effectively just the U.S. corporate tax rate multiplied by the amount of income earned abroad. In other words, an American corporation may claim the foreign tax credit up to the point that reduces its U.S. tax on foreign-earned income to zero, but no further. Additionally, a separate credit must be calculated for two types of income "baskets"—passive and non-passive income. As long as the U.S. corporate tax rate is higher than the foreign country's rate, the foreign tax credit should—in principle—result in the corporation owing the same amount in total taxes (U.S. plus foreign) as it would if it earned the income in the Unites States. When the foreign tax rate is higher than the U.S. tax rate, a corporation should end up paying total world taxes (U.S. plus foreign) at a tax rate higher than the U.S. rate. There are instances when a corporation could end up with "excess" foreign credits because of the limits that restrict the credit from reducing U.S. taxes owed below zero. Excess foreign tax credits generated in a high-tax country can potentially be used to reduce U.S. tax owed on income generated in a low-tax country via a process known as "cross crediting." This is possible because deferral allows corporations to selectively decide when to repatriate income and therefore when to use excess credits. Indications of Profit Shifting by American MNCs The tax returns of American corporations are private, which makes it difficult to study profit shifting directly. Several publically available datasets, however, do allow for an indirect examination into the extent that profit shifting may be occurring. The U.S. Bureau of Economic Analysis (BEA) collects data on the financial operations of American MNCs, including information on where they report profits, employ workers, make investments, conduct research and development, and carry out various other activities. The BEA also collects country-level data on the foreign direct investment (FDI) positions of U.S firms. The following sections discuss these data in turn. BEA Corporate Profits by Country American companies reported earning profits of just over $1.2 trillion abroad in 2012 according to the BEA. Table 1 shows that the 10 most popular places to report profits were responsible for approximately 65% (or $789 billion) of the total $1.2 trillion in overseas earnings. Seven of the 10 reporting jurisdictions are considered "tax havens" or "tax-preferred" countries, including the four most popular destinations: the Netherlands, Ireland, Luxembourg, and Bermuda. The other three tax-preferred countries are Switzerland, Singapore, and the U.K. Caribbean Islands. Among the non-tax-preferred countries, the United Kingdom and Canada are major industrialized nations that are historically close trading partners with the United States. Norway is the biggest oil producer in Europe and the third largest exporter of natural gas in the world, which explains its placement on the list. Figure 1 shows the distribution of profits reported abroad in the same 10 jurisdictions displayed in Table 1 . The distribution is divided into two groups—one that includes the seven tax-preferred jurisdictions and another that is comprised of the three non-tax-preferred jurisdictions. The tax-preferred jurisdictions accounted for 50% of all profits reported as being earned outside the United States, in comparison to the 15% being reported in the three non-tax-preferred jurisdictions. At first glance, the fact that the seven tax-preferred jurisdictions are responsible for a larger share of reported profits may not seem surprising—a larger number of countries should account for a larger share of profits. But consider that the combined economic size of the tax-preferred group (as measured by GDP) is less than one-half that of the non-tax-preferred group ($2.23 trillion to $4.86 trillion). Figure 2 displays the share of workers hired and the share of property, plant, and equipment owned by American companies outside of the United States in both country groups. Comparing where American firms report profits ( Figure 1 ) with where they have a physical presence as measured by the location of their employees and tangible capital indicates a disconnect between the two. While accounting for 50% of reported profits reported worldwide, 5% of employees and 11% of property can be attributed to the tax-preferred country group. In contrast, the three non-tax-preferred countries of Canada, Norway, and the United Kingdom account for 20% of employees and 29% of property held by American MNCs worldwide. U.S. Foreign Direct Investment by Country Data on the foreign direct investment (FDI) behavior of American MNCs can also shed some light on possible profit-shifting activity. FDI generally involves a multinational corporation's investment in its foreign subsidiaries. There are a number of types of investments that can be categorized as FDI and not all of them are associated with profit shifting. For example, investments in real physical capital such as production plants and equipment are counted as FDI. At the same time, FDI also captures financial flows within a company group such as reinvested earnings and intra-company loans that may or may not be supporting real capital investment. It is these financial flows that cannot be tied to corresponding real investment that economists believe may be an indication of profit shifting. To qualify as FDI, the parent corporation must have an ownership and controlling stake in the foreign entity it is investing in. Currently, the BEA and other international statistical agencies (e.g., International Monetary Fund) require that the domestic parent hold a minimum 10% ownership interest in the foreign "affiliate" to categorize an investment as FDI. The ownership of the foreign affiliate by the domestic parent can be either direct or indirect. An example of indirect ownership would be if the American parent established a foreign holding company which in turn owned several foreign affiliates. In this case, the American parent would still be considered to hold an FDI position in the countries where the foreign affiliates were located. Thus, FDI activity in particular countries could be indicative of funds being channeled through intermediate firms within a holding company group. Tax planning is one of the possible motivations for this corporate structure. Shown in Figure 3 are the 10 countries with the largest positions of U.S. FDI. American MNCs are reporting a significant share of their FDI as occurring in tax-preferred countries. The seven tax-preferred countries—Netherlands, Luxembourg, Bermuda, Ireland, United Kingdom Caribbean Islands, Singapore, and Switzerland—accounted for 47% of the FDI positions of American companies, compared to 24% for the three larger industrialized nations of the United Kingdom, Canada, and Australia. Perhaps most interesting is that the Netherlands, while only a fraction of the economic size, holds more American FDI than Australia, Canada, and the United Kingdom. FDI flow data (or change in FDI over a given point of time) show similar type patterns. U.S. Foreign Direct Investment Held Through Holding Companies An increasingly popular way American companies have been structuring their operations and foreign investments is through the use of holding companies. In its simplest form, a holding company is an entity established to own the securities and assets of other companies. The companies under the umbrella of a holding company can be located anywhere in the world. The holding company, in turn, is owned by a U.S. parent that is then deemed to have an indirect ownership or investment interest in the jurisdiction where the holding company's subordinates are located. Figure 4 shows that over the last 30 years, the share of U.S. FDI owned through holding companies has increased from 9.4% to 46.2%. Holding companies offer two significant advantages. First, organizing a group of subsidiaries under the umbrella of a holding company can allow for the streamlining of management, operations, financing, and leasing agreements which can increase business efficiency, lower costs, and boost profitability. Second, holding companies present a number of tax minimization opportunities. For example, if a U.S. corporation owns its foreign subsidiaries through a foreign holding company instead of directly, it becomes possible to transfer funds from one subsidiary to another without triggering U.S. tax by using the holding company as the intermediary in the transfer. Another example involves placing valuable intellectual property (IP) with a foreign holding company located in a low-tax jurisdiction and then licensing the IP to other subsidiaries in higher-tax jurisdictions. This results in a deductible royalty payment in the high-tax jurisdictions and income in the low-tax jurisdiction. Numerous other examples exist as to how holding companies fit into the profit shifting picture. Current data limitations prevent definitively determining whether multinational companies are increasingly using the holding-company structure for non-tax business reasons or to minimize taxes. Still, it is possible to look for anomalies that may be suggestive of why holding-company use is on the rise. Shown in Figure 5 are the 10 most favored locations through which U.S. outward FDI is held via holding companies. In 2013, the amount of the U.S. FDI position abroad that was held through holding companies was approximately $2.2 trillion. Of that $2.2 trillion, 68% (or $1.5 trillion) was attributable to the seven tax-haven or tax-preferred locations of the Netherlands (27%), Luxembourg (16%), Bermuda (9%), Ireland (5%), the U.K. Caribbean Islands (5%), Singapore (4%), and Switzerland (2%). In contrast, the three traditional economies of the United Kingdom, Australia, and Germany collectively accounted for 14% of the U.S. FDI position abroad that was held through holding-company structures. Indications of Worldwide Profit Shifting Data from the International Monetary Fund (IMF) suggest that corporate profit shifting is not solely a U.S. issue. As indication of this, consider a comparison of foreign investment into the 10 largest economies and the 10 most popular investment destinations. Figure 6 displays the inward FDI positions (that is, investments in each country from the rest of the world) as a percentage of GDP for the 10 largest economies. On average the 10 largest economies in the world have an inward FDI position equal to 25% of their economies. Japan has the smallest FDI position (4% of GDP), while the U.K. has the largest (63% of GDP). The United States, with the largest economy, has an inward FDI position equal to 17% of GDP. In comparison, Figure 7 shows the inward FDI positions of the 10 most popular direct investment destinations. Again, these FDI positions are the result of investment flowing in from the rest of the world. Two features of the data are immediately apparent. First, aside from Mongolia (where mining operations have attracted capital), the most popular direct investment destinations are all tax-haven or tax-preferred countries. Second, the amount of investment into these countries far exceeds investment in the 10 largest economies. For example, the countries in Figure 7 have an average inward FDI position equal to 961% the size of their economies. The least popular tax-preferred country in the group, Ireland, had an FDI position equal to 156% of GDP, which is more than twice that of the United Kingdom (see Figure 6 ). Luxembourg had the largest FDI position (5,434% of GDP). The stock of FDI in the economies displayed in Figure 7 is still notable without adjusting for countries' size. The Netherlands, for example, has a larger absolute inward FDI position ($4.3 trillion) than the largest economy in the world, the United States ($2.8 trillion). Luxembourg follows close behind with a $3.3 trillion inward FDI position. Combined, the Netherlands and Luxembourg account for 27% of worldwide inward FDI positions, which is more than the two largest economies in the world—the United States and China—which account for 18% combined. The United Nations (U.N.) compiles data similar to the IMF. While differences in methodology, measurement issues, and countries covered by each group lead to discrepancies between the two datasets, both paint the same general picture; there is a disproportionate amount of FDI being reported in tax-haven and tax-preferred countries. Figure 8 displays the 10 countries with the highest inward FDI postion to GDP ratios as reported by the U.N. in 2013. The British Virgin Islands has the largest inward FDI position, equal to 50,513% of GDP, followed by the Cayman Islands (4,708%), Hong Kong (524%), and the Marshall Islands (503%). A final indication that profit shifting may be occuring can be found by looking at how much investment is funneled through special purpose entities (SPEs). According to the OECD, Examples [of SPEs] are financing subsidiaries, conduits, holding companies, shell companies, shelf companies and brass-plate companies. Although there is no universal definition of SPEs, they do share a number of features. They are all legal entities that have little or no employment, or operations, or physical presence in the jurisdication in which they are created by their parent enterprises which are typically located in other jurisdictions (economies). They are often used as devices to raise capital or to hold assets and liabilities and usually do not undertake significant production. Data on the use of SPEs are scarce. The OECD, however, does publish data on the inward FDI positions of the Netherlands and Luxembourg that are broken down into investment held through SPEs and non-SPEs. In 2013, the total inward FDI stock held via SPEs in Luxembourg and the Netherlands was $3.1 trillion and $3.9 trillion, respectively, both of which are larger than the total inward FDI stock of the United States. As Figure 9 shows, 83% ($3.2 trillion) of the inward FDI position in the Netherlands is held through SPEs. For Luxembourg the share is even higher; 96% of its inward FDI position is held through SPEs. Policy Options and Considerations For Reducing Profit Shifting The debate over reducing profit shifting and reforming the international tax system may involve a number of policy considerations and tradeoffs. Proposals thus far have included moving closer toward a pure-form worldwide system, moving closer toward a pure-form territorial system, adopting a new approach such as a minimum tax or formula apportionment, or modifying the current system's rules and structure. There is also on the horizon the completion of OECD's Base Erosion and Profit Shifting (BEPS) initiative. The remainder of this report discusses these considerations generally. For more detailed information see CRS Report RL34115, Reform of U.S. International Taxation: Alternatives , by [author name scrubbed] and CRS Report R42624, Moving to a Territorial Income Tax: Options and Challenges , by [author name scrubbed]. Worldwide vs. Territorial Taxation There have been calls for the United States to change its approach to taxing American MNCs. The United States currently follows what roughly approximates the so-called "worldwide" approach to taxation. While the United States generally follows this approach, corporations are typically allowed to defer paying taxes on income earned abroad until that income is brought home, or repatriated, in the form of a dividend payment to the U.S. parent. Additionally, foreign taxes paid in one country may be used to offset income earned in other countries via a process known as cross-crediting. These two features—deferral and cross-crediting—result in the current system straying away from the worldwide approach and into a hybrid system with both worldwide and territorial system features. Where exactly on the spectrum between worldwide and territorial taxation the current system lies is not precisely known. The general implications of moving closer toward either system are discussed below. Move Closer Toward Worldwide Taxation If the United States were to transition toward a more pure-form worldwide system, the most straightforward way to do this would be to eliminate deferral while still allowing a credit for foreign taxes paid. Such an approach would result in U.S. investments being taxed at the same total tax rate (foreign plus U.S.), regardless of where investments were made. As a result, investment decisions would be made based on real economic returns and not on any differential between U.S. and foreign tax rates. This, in turn, would lead U.S. corporations to allocate capital to its most productive use in the world economy. Additionally, corporations would largely have no incentive to shift profits or to accumulate large sums of cash overseas (like the current system incentivizes firms to do) because all earnings would be taxed currently. A reduction in the incentive to shift profits as the result of a purer-form worldwide system would also likely reduce complexity in the administration of the tax system because many tax strategies would be rendered useless. A pure-form-type system would still likely require that income and costs be allocated between domestic and foreign activities for purposes of the foreign tax credit. If the movement to a more worldwide system was accompanied by a per-country foreign tax credit limit (to eliminate cross-crediting), however, then U.S. corporations would have to allocate income and expenses between domestic and foreign activities and allocate income and expenses between affiliated foreign subsidiaries. To the extent that firms were in an excess credit position (had credits they could not use because of the foreign tax credit limit), there would be an incentive to shift profits to lower-tax countries. Without the ability to defer income, however, excess credits would likely be reduced. There are concerns over moving toward a more pure-form worldwide tax system. Without the proper safeguards in place, it is likely that a true worldwide tax system would encourage corporations to shed their U.S. corporate charter by reincorporating abroad via a process known as "inversion." Several high profile U.S. companies expressed interest in inverting under the current hybrid system in early and mid-2014. In response, Treasury released a notice of regulatory changes that would further restrict the ability to invert and has indicated that additional actions are possible. Legislation was also introduced in Congress that would modify current laws meant to curb the practice, although nothing was enacted. The recent regulatory changes and proposed legislative changes would likely need to be strengthened to prevent inversions under a pure worldwide system. For more detailed information on corporate inversions see CRS Report R43568, Corporate Expatriation, Inversions, and Mergers: Tax Issues , by [author name scrubbed] and [author name scrubbed]. Concern has also been expressed that moving from the current hybrid system to a true worldwide system would reduce America's international competitive position. Using "competition" as an evaluation criterion is problematic because generally it is not well defined in the context of international tax policy, and often times the "competitive" concepts that are used are at odds with each other. For example, does increasing America's competitive position call for tax policies that promote the flow of U.S. capital (and therefore business operations and jobs) abroad to better compete in international markets? Or does it call for policies that reduce the flow of capital (and therefore business operations and jobs) abroad so that it remains in the United States and can be put to use domestically? There is an argument that these two objectives are not at odds with each other, and that promoting increased foreign investment and employment complements increased domestic investment and employment. There is not conclusive evidence to support this argument. Additionally, it is important to understand that countries do not compete with each other in an economic sense. Competition implies a zero-sum game with winners and losers. But enhanced economic well-being in one country generally does not reduce economic opportunities in other countries. Instead, countries trade with each other. When countries specialize in what they have a comparative advantage at producing and trade for what they have a comparative disadvantage at producing, they are able to produce more together than in isolation. Greater production leads to more product variety, lower consumer prices, and greater average incomes. For these reasons, economists typically question whether "competitiveness" makes sense as a tax policy objective for a country. For economists, the typical objective is economic efficiency, or the optimal allocation of limited resources. Move Closer Toward Territorial Taxation If the United States were to transition toward a more pure-form of a territorial system it would forgo taxing income earned outside its borders. This change would result in U.S. investments being taxed at the rates that exist where the investments are made. As a result, investment decisions would no longer be based solely on real economic returns, but on after-tax returns that would vary country by country. This variation, in turn, would lead U.S. corporations to allocate more investment to lower-tax countries than they otherwise would. Another feature of a territorial-based system would be that tax policy would no longer affect corporations' decisions to repatriate income because there would be no tax consequence for doing so. Recall that a pure worldwide system would also remove the influence of taxes on the repatriation decision, but in that case, it would be because taxes were unavoidable and not because repatriation would be tax-free. It is argued that relative to the current hybrid system, a more territorial system would enhance the competitiveness of U.S. firms relative to their foreign competitors. Again, however, economists are typically skeptical of using competition criteria when evaluating international tax policy, whether it is comparing a territorial system with the current system or with a true worldwide system. Still, the effective U.S. tax burden on foreign earned income is already argued by some analysts to be quite low because of the ability to shift income to low-tax countries, suggesting that the current system may not be inhibiting the overseas operations of American MNCs. A territorial system raises some of the same concerns that the current system does regarding profit shifting. Specifically, profit shifting could increase under a territorial system without the proper anti-abuse provisions in place. With a territorial system, income earned abroad would be exempt from U.S. tax. MNCs would therefore have an incentive to attribute as much income as possible to operations outside the United States. Anti-abuse provisions particularly focused on the transfer of intangible assets (patents, intellectual property, etc.) out of the United States may be the most useful at curbing profit shifting under a territorial system. For a detailed discussion about profit shifting under a territorial system, see CRS Report R42624, Moving to a Territorial Income Tax: Options and Challenges , by [author name scrubbed]. Does the Distinction Matter? There is the issue of whether the distinction between worldwide and territorial systems is even relevant for current policy debates. Among the major economies, no country has either a pure worldwide or territorial system—they are all hybrid systems. The problem then becomes one of degree and depends on the specific differences in each country's international tax regime. For example, a country typically classified as having a worldwide-based system could actually tax foreign source income at a lower effective rate than a country that is typically classified as having a territorial system. One possible way this could arise is if the worldwide-based country allows deferral for most types of income, and the territorial-based country has in place effective base erosion provisions. Which system is preferable in this situation is not clear. Problems can also arise when attempting to empirically analyze or compare worldwide and territorial systems as two distinct country groups. Labeling a system as worldwide or territorial without considering where on the "spectrum" it lies is too simplistic and can lead to mislabeling. This mislabeling, in turn, can lead to questionable empirical results when comparing groups of countries labeled as "worldwide" and "territorial" because the countries within the groups are themselves quite heterogeneous. It may be better to stick to pairwise comparison so that the nuances of the two systems can be better accounted for. Adopt a Minimum Tax A worldwide minimum tax could potentially allow for some balance to be struck between multinational corporations' concerns over tax burdens and governments' concerns over profit shifting. With a minimum tax, income earned in countries with a tax rate below a specified threshold would be subject to immediate U.S. taxation at the threshold tax rate. Income earned in countries with a tax rate above the threshold would be exempt from U.S. tax or eligible for deferral. Typically, a credit would be allowed for foreign taxes paid, but the credit would be calculated on a country-by-country basis to prevent cross-crediting. An example may be useful. Say that the United States set a minimum tax threshold of 20% of net income. If a corporation where to report $100 million of income as being earned in a country with a tax rate of 15%, the corporation would then be subject to a 20% U.S. tax in the year the income was earned. However, the United States would credit the corporation for the 15% in taxes paid abroad, leaving the company with a residual U.S. tax of 5%. The foreign tax credit prevents double taxation of income and also ensures that the firm's total tax rate is no greater than 20% (15% to the foreign country plus 5% to the United States). The minimum tax could also apply only to particular types of income, such as passive income or income associated with intellectual property. Several proposals to install a minimum tax have been offered in recent years. In the 112 th Congress, Senator Enzi introduced S. 2091 , which would have enacted a minimum tax equal to half the top U.S. corporate rate, but would have exempted active business income. Former Senate Finance Committee Chairman Max Baucus's tax reform discussion draft, published in November 2013, also included several options for imposing a minimum tax. Senator Baucus never introduced formal legislative language so it is not clear exactly how the tax would have been structured, or to what income it would have applied. Former Ways and Means Chairman Dave Camp's Tax Reform Act of 2014 ( H.R. 1 ) included a minimum tax that ranged from between 12.5% to 25% depending on the type of income. Most recently, the President's FY2016 budget includes a proposed 19% minimum tax on American corporations' overseas income. The minimum tax approach could have some undesirable features depending on its design. If the minimum tax only applied to low-tax-rate countries it could still leave an incentive to shift profits to countries with a tax rate just above the minimum tax. For example, if the minimum tax only applied to countries with a tax rate of 10% or lower, profits could still be shifted to Ireland which has a 12.5% tax rate without triggering the tax. This problem could be avoided or at least mitigated by setting the minimum tax rate appropriately high enough (for example, at the average of the countries not considered tax havens). The problem would also be avoided by imposing an overall minimum worldwide tax with a credit for taxes paid. Second, there is concern that designing a minimum tax may be too complex. For example, would it be each country's statutory tax rate or each company's effective tax rate that would be subject to the minimum threshold? If it were the latter, how would scenarios involving companies in a relatively high-tax country that experiences large losses in a year (lowering their effective tax rate) be handled? And third, concern has been expressed that a minimum tax is really a patchwork structure that is not consistent with either a territorial or worldwide system. The same argument, however, can be made about the current U.S. international tax system. Adopt Formula Apportionment Another option that has been suggested that could reduce profit shifting is the adoption of a formula apportionment approach to taxation. The current system requires U.S. corporations to price transactions between affiliated companies to determine the allocation of income and expenses. This provides an opportunity to shift profits to low-tax countries. An alternative would be to pool profits earned around the world and then allow countries to tax a share of the total profits, eliminating the need for transfer pricing. The share each country could tax would be determined by a formula that measures real business activity conducted in each country. To understand how formula apportionment works, it may help to consider an example of a sales-based approach. Under this method, if a U.S. company earned $100 million of profits worldwide and 60% of its sales occurred domestically, then the United States would have the right to tax $60 million ($100 million multiplied by 60%). The remaining $40 million could be subject to taxation in the jurisdictions where the 40% of foreign sales occurred. More realistically, the formula used to apportion profits might depend on more than just sales, such as the location of assets and employees. In this case, known as a multi-factor formula, taxable profits would be determined by the weighted average of factor activity occurring in each country. For example, if a company had 60% of its sales, 30% of its assets, and 25% of its employees in the United States, then the share of income that would be taxable in the United States would be $100 million multiplied by (0.6+0.3+0.25)/3, or $38.3 million. There is currently a debate among economists over desirability of switching to a formula apportionment regime and its ability to reduce profit shifting. If the apportionment formula can be easily manipulated then its impact on profit shifting may be limited. It has been argued that a sales-based formula would be less susceptible to manipulation. At the same time, it has been argued that without extensive recordkeeping or a tracking system, nothing would stop an MNC from setting up a chain of subsidiaries in low-tax countries to which intermediate components are sold on their way to their final destination, which could be a high-tax country. Determining how those intermediate sales are to be treated in the allocation formula could be difficult, or at least increase the administrative complexity of the approach. Alternatively, a U.S. MNC could enter into a sales contract with an unrelated foreign distributer who is based in a low-tax country. Again, the sales to the distributer would seem to dictate that the MNC's profits should be allocated to the low-tax location of its distributer. There has been, however, legislative and regulatory language proposed by at least one tax practitioner that is aimed at addressing these concerns. The increasing role of intangible assets (patents, trademarks, copyrights, etc.) may also limit a formula apportionment regime's capacity to reduce profit shifting. For example, a sales-based approach would generally result in some share of taxable income being apportioned to foreign locations when that income arguably should be taxable in the United States since that is where the initial R&D investment was made. Additionally, to the extent that the investment was subsidized by the U.S. government via the tax code or federal funding (e.g., NSF grants, SBA loans, etc.) it could be argued that the associated income should be taxable in the United States. A multi-factor formula that incorporated assets may not fare much better given the difficulty of valuing intangible assets. Still, formula apportionment may result in more income being subject to tax in more jurisdictions than currently occurs. Formula apportionment may also require international cooperation. It is possible that if countries unilaterally establish a formula-apportionment-type system that some income could either face no taxation or double taxation. The reason for this is differences in tax systems and taxable bases across countries. Harmonizing tax systems so that they mirrored each other as closely as possible would likely mitigate the risk of lapses or redundancies in the worldwide tax system. Modify Subpart F Rules In contrast to a minimum tax, which targets the income earned in particular low-tax countries, Congress could target the types of income firms use to shift money to tax havens. This was the intent of the Subpart F rules that were enacted to prevent deferral of highly fungible income that can be more easily shifted. Since 1997, however, there has existed a temporary "active financing income" exception to the Subpart F rules. The active financing exception allows deferral for certain types of passive income earned by American corporations that operate banking, financing, and insurance lines of business abroad, even if their primary line of business is quite different. On the one hand, there is the argument that there are real economic reasons for keeping this income abroad and that transactions involving active financing income are not necessarily for tax avoidance purposes. On the other hand, it could be argued that passive income is passive income, regardless of the underlying line of business. Nonetheless, active financing income earned through the end of 2014 qualified for deferral and in recent years has only been taxed when it is repatriated to the United States. Congress could choose to modify the active financing exception if it were to extend the provision again for 2015, or allow it to remain expired if Congress believes the exception is used more to avoid taxes than to finance real operations. Another option would be to expand the definition of Subpart F income. For example, the President's FY2015 and FY2016 budgets both included an expanded definition of Subpart F income that would include "foreign base company digital income," or income derived from selling or licensing digital products and services. Expanding the definition of Subpart F income to encompass more income related to intangible assets may help curb profit shifting; a significant share of profit shifting is believed to be associated with intangible assets. Reduce Corporate Tax Rates One topic that has been part of nearly every debate regarding corporate tax reform has been the 35% top statutory corporate tax rate. Reducing this rate would decrease the incentive to shift profits by reducing the tax savings from such behavior. Companies profit shift to take advantage of the differential between the U.S. tax rate and rates in low-tax countries. By reducing this discrepancy, the incentive to shift profits would be reduced as well. Note, however, that reducing the U.S. tax rate to within the range typically suggested, 25% to 28%, would still leave the United States as a high-tax country relative to tax havens, implying that the incentive to profit shift would remain. A reduction in the top tax rate may also reduce federal revenue because of lower tax rates being applied to corporate net income. Combining a rate reduction with a broadening of the corporate tax base and strong anti-base erosion provisions would help to offset any revenue loss. The OECD's BEPS Project At the request of the G20 finance ministers, the OECD has initiated the development of an Action Plan on Base Erosion and Profit Shifting. The goal is to develop 15 detailed actions governments can take that will reduce double non-taxation of corporate and individual income—a situation where profit shifting gives rise to so-called "stateless" or "homeless" income—and prevent the double taxation of income. If successful, the Action Plan should also lead to a more coherent and transparent international tax system. Some of the actions will require coordination and information sharing between governments, and potentially the amendment of over 3,000 existing tax treaties. As a result, success of the Action Plan will likely depend on widespread participation by G-20 and OECD member countries as well as nonmember countries. The OECD set three deadlines for producing "deliverables" consisting initially of reports and draft rules, and culminating with the finalized 15-point Action Plan. The first set of deliverables was presented to and endorsed by the G20 finance ministers on time in September 2014. It was later endorsed by the G20 heads of government at the Brisbane Summit in November 2014. The second set of deliverables is scheduled for September 2015, and the third set of deliverables, which will include the final Action Plan, is scheduled for December 2015. Appendix A provides more details on the Action Plan and its current status. The OECD has been careful to stress that many of the strategies used by multinational corporations are likely legal. The Director of the OECD's Centre for Tax Policy and Administration, Pascal Saint-Amans, said in a 2013 interview, "What we say at the OECD, [is] that we shouldn't put the blame on the business. The business and the companies are doing their job, which is to plan their taxes, to do aggressive tax planning. It can be more or less aggressive, sometimes it's too aggressive, but basically this is legal." Thus, for the most part, the BEPS project does not appear to be driven primarily by concerns over the legality of corporate tax planning. Instead, the OECD has argued that BEPS is important for three other reasons. First, the ability of multinational corporations to artificially lower their taxes gives them a competitive advantage over companies that primarily operate in their home market. Second, profit shifting and base erosion distort investment by altering the relative rates of return across locations. An efficient tax system would direct capital to locations based on real economic returns. Instead, profit shifting can result in more capital investment in jurisdictions with a lower economic return but a higher after-tax return because of tax differentials. And third, the OECD argues BEPS is important based on fairness concerns. If multinational corporations have the means to avoid or reduce taxes, and other taxpayers (including individuals) do not, then it may create the perception that the tax system is unfair. Furthermore, tax avoidance by some may encourage tax avoidance by others. There are a number of reasons why Congress may want to consider the implication of the BEPS Action Plan even though it is still being formalized. The objective of the OECD's project is to build consensus among countries on a more coherent and transparent international tax system. So far, the Treasury Department has been the primary representative of the United States in BEPS-related negotiations and meetings, although the business community has also been actively involved in providing feedback on proposed rules. In the end, however, several of the proposed actions may require modification of existing tax treaties. The Senate would need to ratify any tax treaty modifications. Treaty modification and negotiations under the Action Plan framework may suggest a multilateral approach which is different than the bilateral approach the United States traditionally has followed for tax treaties. It is unclear at this point if particular tax laws would be subject to change too. Harmonization of tax bases and anti-abuse policies could potentially call for modification to the IRC, which would require congressional approval. Additionally, even if the U.S. does not implement any of the proposed actions, U.S. multinationals will likely still be impacted. For example, some countries have already taken unilaterial actions to preserve their tax bases and there is concern more may follow, which could impact U.S. multinationals. While unilaterial action may sound encouraging, it runs contrary to the OECD's goal of creating a coordinated, multilaterial, and transpartent international tax regime. The U.K.'s diverted profits tax proposal has been identified as one such example. The tax, which went into effect on April 1, 2015, subjects income deemed to have been articifially shifted out of the U.K. to a 25% tax. The tax is aimed at curbing profit shifting by MNCs, particularly American MNCs with U.K. operations, with the tax being referred to by some as the "Google tax." Once the Action Plan is finalized and adopted, American MNCs could also be subject to some of its base erosion rules even if the U.S. does not adopt the rules. For example, a country that adopts the BEPS country-by-country reporting standards could require U.S. companies to report detailed operating information for each country they operate in to that country's tax authority so that the tax authority can determine whether their domestic tax base is being eroded by profit shifting. It has been pointed out by practioners that this in turn, could result in non-adopting countries (including the U.S.) requesting such information for their own purposes (since they know the firm has already had to compile it). Likewise, if other countries adopt the OECD's suggestions for targeting hybrid mistmatch arrangements, or the taxation of income associated with intangible assets, American multinationals may find it more difficult to shift profits regardless if the U.S. adopts such recommendations. Lastly, concerns exist over the OECD's approach. For example, some commentators have raised the posibility that in an attempt to reduce BEPS, the OECD's efforts may end up stifling trade and international investment. To the extent this happens, the extra revenue governments collect as the result of reduced profit shifting may not be enough to compensate for the decline in economic activity. Appendix A. OECD'S BEPS Action Plan Status The OECD set three deadlines for producing "deliverables" leading to the finalized proposed Action Plan: September 2014, September 2015 and December 2015. The first set of deliverables was presented to and endorsed by the G20 Finance Ministers on time in September 2014. They were later endorsed by the G20 heads of government at the Brisbane Summit in November 2014. The first set of deliverables was comprised of the following items: 1. A report identifying tax challenges raised by the digital economy and the necessary actions to address them (Action 1) 2. Recommended rules for dealing with hybrid mismatch arrangements (Action 2) 3. A report reviewing member country regimes in order to counter harmful tax practices by increasing transparency (Action 5) 4. Recommended rules regarding the design of domestic and tax treaty measures to prevent abuse of tax treaties (Action 6) 5. Recommended rules for transfer pricing involving intangibles (Action 8) 6. Recommended rules for transfer pricing in relation to country-by-country documentation requirements (Action 13) 7. A report on the development of a multilateral, as opposed to a bilateral, mechanism to implement BEPS measures, particularly with regard to treaty modification (Action 15) According to the OECD, the following deliverables (as well as the completed Action Plan) are on schedule. The remaining deliverables include the following: September 2015 8. Recommendations regarding the design of domestic rules to strengthen Controlled Foreign Companies (CFC) Rules (Action 3) 9. Recommendations regarding the design of domestic rules to limit base erosion via interest deductions and other financial payments (Action 4) 10. Strategy to expand participation to non-OECD members to counter harmful tax practices more effectively (Action 5) 11. Tax treaty measures to prevent the artificial avoidance of permanent establishment status (Action 7) 12. Changes to the transfer pricing rules in relation to risks and capital, and other high-risk transactions (Actions 9 and 10) 13. Recommendations regarding data on BEPS to be collected and methodologies to analyze them (Action 11) 14. Recommendations regarding the design of domestic rules to require taxpayers to disclose their aggressive tax planning arrangements (Action 12) 15. Tax treaty measures to make dispute resolution mechanisms more effective (Action 14) December 2015 16. Changes to the transfer pricing rules to limit base erosion via interest deductions and other financial payments (Action 4) 17. Revision of existing criteria to counter harmful tax practices more effectively (Action 5) 18. The development of a multilateral instrument (Action 15) 19. Completion of the full 15 item Action Plan

Congress and the Obama Administration have expressed interest in addressing multinational corporations' ability to shift profits into low- and no-tax countries with little corresponding change in business operations. Several factors appear to be driving this interest. Economists have estimated that profit shifting results in significant tax revenue losses annually, implying that reducing the practice could help address deficit and debt concerns. Profit shifting and base erosion are also believed to distort the allocation of capital as investment decisions are overly influenced by taxes. Fairness concerns have also been raised. If multinational corporations can avoid or reduce their taxes, other taxpayers (including domestically focused businesses and individuals) may perceive the tax system as unfair. At the same time, policymakers are also concerned that American corporations could be unintentionally harmed if careful consideration is not given to the proper way to reduce profit shifting. Consistent with the findings of existing research, the analysis presented in this report provides indications that the magnitude of profit shifting may be significant. For example, of the $1.2 trillion in overseas profits American companies reported earning in 2012, $600 billion was attributed to seven "tax haven" or "tax preferred" countries: Bermuda, Ireland, Luxembourg, the Netherlands, Singapore, Switzerland, and the U.K. Caribbean Islands. The Netherlands was the most popular location to report profits, accounting for 14.1% of all overseas earnings of American companies. Further analysis reveals that the share of profits reported is significantly disproportional to the amount of hiring and investment made by American companies in these countries. Data on the foreign direct investment (FDI) positions of American companies are also analyzed. Examining FDI data allows for an indirect investigation into the degree of profit shifting. The FDI data show that the same seven "tax haven" or "tax preferred" countries accounted for nearly half (47%) of the worldwide FDI position of the United States. The data also show that an increasing share of FDI is being held via holding companies. The report discusses that some of the increased use of holding companies may be tax motivated. Lastly, data from the International Monetary Fund (IMF) and the United Nations (UN) on the location of the FDI positions of all countries indicate that profit shifting is likely an international issue. Several policy options for addressing base erosion and profit shifting are briefly discussed. Included in the discussion are the tradeoffs and considerations involved in moving closer to either a pure worldwide tax system or a pure territorial tax system. The adoption of a minimum tax or a formula apportionment system is also discussed, as well as the effects of modifying current tax policy such as broadening the definition of Subpart F income or reducing corporate tax rates. The report concludes with a discussion of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) plan, which may have implications for American corporations even if the U.S. does not adopt the OECD's recommendations. This report is intended to assist Congress as it considers what, if any, action to take to curb profit shifting. It is one of several CRS products related to the subject of profit shifting. Where appropriate, reference is made to related CRS products that discuss the more technical issues in the international corporate tax debate.

Political Background Azerbaijan enjoyed a brief period of independence in 1918-1920, after the collapse of the Tsarist Russian Empire. However, it was re-conquered by Red Army forces and thereafter incorporated into the Soviet Union. It re-gained independence when the Soviet Union collapsed at the end of 1991. Upon independence, Azerbaijan continued to be ruled for a while by its Soviet-era leader, but in May 1992 he was overthrown and Popular Front head Abulfaz Elchibey was soon elected president. Military setbacks in suppressing separatism in the breakaway Nagorno Karabakh (NK) region contributed to Elchibey's rise to power, and in turn contributed to his downfall. In June 1993, forces in Ganja challenged Elchibey's power, spurring Elchibey to invite Heydar Aliyev—the leader of Azerbaijan's Nakhichevan region and a former communist party head of Azerbaijan—to Baku to mediate the crisis. The Ganja forces marched on Baku, causing Elchibey to flee the city. Heydar Aliyev was elected chairman of the National Assembly of Azerbaijan, and was granted temporary presidential powers. A national referendum held in August 1993 formally stripped Elchibey of the presidency, and Heydar Aliyev was elected president of Azerbaijan in October 1993. In July 1994, a ceasefire agreement was signed in the NK conflict (see below). Heydar Aliyev served until October 2003, when under worsening health he stepped down. His son Ilkham Aliyev was elected president a few days later. The Azerbaijani constitution, approved by a popular referendum in November 1995, strengthened presidential power and established an 125-member legislature (Milli Mejlis) with a five-year term for deputies. The president appoints and removes cabinet ministers (the Milli Mejlis consents to his choice of prime minister), submits budgetary and other legislation that cannot be amended but only approved or rejected within 56 days, and appoints local officials. The U.S. State Department viewed an August 2002 constitutional referendum as flawed and as doing "very little to advance democratization." After the October 2003 presidential election, protests alleging a rigged vote resulted in violence, and spurred reported government detentions of more than 700 opposition party "instigators." Trials reportedly resulted in several dozen prison sentences. In early 2005, the OSCE issued a report that raised concerns about credible allegations of use in the trials of evidence derived through torture. Aliyev in March 2005 pardoned 114 prisoners, including many termed political prisoners by the OSCE. A presidential election was held on October 15, 2008. In early June 2008, the legislature approved changes to the electoral code. Some of the changes had been recommended by the Venice Commission, an advisory body of the Council of Europe. However, other recommendations of the Venice Commission were not considered, including those on eliminating the dominance of government representatives on election commissions. The opposition Azadliq (Freedom) party bloc decided on July 20 that it would boycott the election on the grounds that the election laws were not fair, their parties faced harassment, and media were constrained. Incumbent President Aliyev won a resounding victory, gaining nearly 89% of the vote against six other candidates. According to a report by election monitors sponsored by the OSCE, the voting process was peaceful, well organized, and efficient, but there was a "lack of robust competition" and there appeared to be "significant procedural shortcomings [in vote counting] in many cases, and manipulation in some instances." The next presidential election is scheduled for October 2013. Proposed amendments to the constitution were overwhelmingly approved by citizens in a referendum held on March 18, 2009. According to a small delegation from PACE, the voting "was transparent, well organized, and held in a peaceful atmosphere." They criticized the dearth of discussion in the media of the merits of the constitutional amendments and voiced regret that some changes to the amendments proposed by the Venice Commission were not made before they were voted on. Some opposition parties had in particular objected to an amendment lifting term limits on the presidency during a "state of war," and had called for a boycott of the referendum. On December 23, 2009, municipal elections were held throughout the country. Opposition parties and local election monitors reported interference in the candidate registration process. A Council of Europe delegation alleged that there were shortcomings in the counting of voters in the polling stations, the legibility of ballot papers, and the reliability of the vote count. The November 2010 Milli Majlis Election In June 2010, the Azerbaijani Milli Majlis (National Assembly) approved a bill calling for it to coordinate its yearly agenda with the presidential administration. Oppositionists criticized the law as further demonstrating that the legislature was controlled by the executive branch of government. A constituency-based election for Azerbaijan's 125-member Milli Majlis was held on November 7, 2010. Candidates wishing to run were required to gather 450 signatures. About 1,400 individuals were nominated by parties or by voter initiatives or self-nominations, but only about 1,100 reportedly submitted the required signature sheets and other information. Electoral officials accepted all of the prospective candidates of the ruling New Azerbaijan Party (NAP) but rejected many from other parties and blocs, so that eventually 690 candidates were approved (or won appeals). These rejections seriously impacted the ability of the opposition to field candidates in more than a few constituencies. While the NAP was able to field candidates in 111 constituencies, the opposition PFP-Musavat bloc, for instance, could only field candidates in 38 constituencies. In addition to candidates nominated by parties, 387 were self-nominated "independent" candidates or were nominated by voter initiative groups, although many of these candidates in fact were members of parties. Historically, most independents who have won election have supported the NAP in the legislature. In the run-up to the election, three major developments appeared to assure that the ruling NAP would retain or increase its dominance in the legislature: (1) media, assembly, and campaign laws and practices greatly restricted the ability of opposition parties to publicize their concerns and counter claims of the ruling party; (2) the numerous opposition parties failed to unite and instead ran as party blocs and as individual parties; and (3) rising incomes for most of the population may have predisposed a large measure of support for the ruling party, despite some stresses caused by the global economic downturn. According to the OSCE, restrictions on an open campaign environment and a free and fair vote included reducing the number of campaign days to about three weeks; eliminating an electoral provision permitting individuals to run by submitting a financial deposit; doing away with public financing of elections; denying the holding of campaign rallies except in far-flung, officially approved locations; filing of defamation lawsuits and carrying out other harassing measures against journalists; providing dominant representation to the ruling NAP on electoral commissions and expert electoral appeal panels; and allowing opaque military voting. As a result of these restrictions, there were no public debates between candidates and virtually no television coverage of opposition candidates except for four minutes of time permitted for candidates to set forth their platforms. According to the Central Electoral Commission, about 50% of 4.9 million registered voters turned out, and most voted for members of the NAP. The NAP increased its number of seats in the Majlis from 61 in 2005 to 74 in 2010. The number of nominal independents also increased from 37 in 2005 to 39 in 2010. Nine minor parties won 12 seats, down from 20 in 2005. One opposition party candidate—İgbal Agazade of the Umid (Hope) Party—won a seat in the new Majlis. The Popular Front-Musavat bloc, which had won six seats in 2005 (as individual parties), won no seats in 2010. According to one report, about two-thirds of the deputies of the outgoing Majlis were reelected. Many of the reelected and new members are officials or are related to current officials, according to this report. OSCE election monitors reported that the election was peaceful but "was not sufficient to constitute meaningful progress in the democratic development of the country." They stated that "fundamental freedoms of peaceful assembly and expression were limited and a vibrant political discourse facilitated by free and independent media was almost impossible. A deficient candidate registration process, a restrictive political environment, unbalanced and biased media coverage, disparity in access to resources to mount an effective campaign, misuse of administrative resources as well as interference by local authorities in favor of candidates from the ruling party created an uneven playing field for candidates." The OSCE monitors assessed voting procedures negatively in 11% of 1,247 polling stations visited, and the vote count was assessed negatively in over 30% of 152 polling stations visited. In one case, the monitors received a filled-out precinct results sheet before the election that closely matched what the precinct reported after the race. The court of appeals and the Supreme Court rejected all complaints by opposition candidates about the election. The Election Monitoring and Democracy Studies Center, a local non-governmental organization (NGO), alleged that their monitors witnessed ballot-box stuffing in over one-fourth of polling places it covered. Addressing the newly elected NAP deputies just before the convocation of the Milli Majlis on November 29, 2010, President and NAP head Aliyev hailed the election as "held in a fully transparent and democratic manner." He reappointed all of the members who held top posts in the previous legislature, including Oqtay Asadov, who was reappointed speaker. In the run-up to the election, Secretary Clinton had stated during a July 2010 visit to Azerbaijan that the country had made "tremendous progress" in democratization since it gained independence and reported that the United States was providing democratization assistance to help facilitate a free and fair election. Just after the election, however, the U.S. Department of State issued a statement on November 8, 2010, that concluded that while peaceful, the election "did not meet international standards." The State Department remarked that the inclusion of record numbers of domestic observers and an increase in the number of female candidates were improvements over past elections, but reported that observers from the U.S. embassy witnessed "serious violations of election procedures, including ballot box stuffing." The State Department urged that the Azerbaijani government "focus now on adjudicating election grievances fairly, transparently, and expeditiously [in order to ensure] accountability for officials who are suspected of interfering with the proper conduct of elections." The next day, the Azerbaijani Foreign Ministry criticized the State Department's assessment, viewing it as less favorable than that issued by the OSCE. The Foreign Ministry claimed that the OSCE monitoring report, while noting some shortcomings, "show[ed that] the elections have gained the people's confidence." The Civic Movement for Democracy/Public Chamber was established in early 2011 by the Popular Front, Musavat, and other opposition parties that failed to win seats in the Majlis election. The aim of the Public Chamber was proclaimed by Musavat head Isa Gambar to be the establishment of representational government that was denied by the fraudulent Majlis election. Political Developments in 2011-2013 Accusing foreign-based NGOs of fomenting dissent, on March 7, 2011, the Justice Ministry sent the U.S.-based National Democratic Institute (NDI) a letter referencing permissible actions of NGOs in the country, and police reportedly closed down NDI's Baku office in mid-March 2011. The Cabinet of Ministers subsequently issued a new regulation requiring foreign NGOs applying for registration in Azerbaijan to swear to uphold "national spiritual values and not [to] carry out political or religious propaganda." They also are forbidden to carry out activities in NK. NDI reportedly was permitted to resume some activities in Azerbaijan in late 2011. An Internet-launched "great people's day" protest was planned for March 11, 2011, reportedly supported by thousands of Internet users. Organizers of the protest stated that the date was set to commemorate the date a month previously that Egyptian President Hosni Mubarek had been ousted. In the days leading up to March 11, up to a dozen or more Internet users reportedly were detained, and some allegedly were held secretly. One organizer, Bakhtiyar Hajiyev, a Harvard-educated resident of Ganja, was arrested on March 4, 2011, on charges of draft evasion. Several dozen people were arrested on March 11, and some received prison sentences of a few days. The next day, the Musavat Party held a protest at Baku's Fountain Square that reportedly involved several hundred people, but many were prevented from entering the square and several activists were detained in advance or arrested the day of the protest. In the run-up to the Internet-launched protest, authorities reportedly deployed military troops in Baku and teachers at universities and secondary schools reportedly were ordered to lecture their students not to attend protests or otherwise become involved in "anti-Azerbaijani" actions. On March 9, 2011, the Interior Ministry claimed that the protests were fomented by "radical oppositionists" financed by foreign countries aiming to trigger further "color revolutions" in Soviet successor states. Various Azerbaijani officials stated that it would be unpatriotic to protest while Azerbaijan is at war with Armenia and that heavy Internet users were mentally ill. Baku State University allegedly forbade students from leaving the campus on March 11. Reacting to Internet intimations that another protest might be held on March 14, the university closed and deployed police to the campus. This protest did not materialize. On March 18, youth branches of the Popular Front Party, the Hope Party, the Civic Solidarity Party, Democratic Party, Musavat, and various youth groups issued a statement calling on the security services to halt arrests of opposition youth and other activists. The next day, authorities arrested some officials of the Baku branch of Moscow Open University on grounds of fomenting dissent. The government detained several opposition activists ahead of a planned April 2, 2011, protest by the Public Chamber; a coalition of non-partisan politicians, members, and officials of the opposition Popular Front, Musavat, and National Independence parties; and sympathetic NGOs. Those attempting to gather on April 2, 2011, to call for the government's resignation, new legislative elections, and the freedom of speech and assembly were forcibly dispersed and several people were arrested. The U.S. Embassy in Baku raised concerns about the government actions. The Public Chamber announced that it planned another protest in Baku on April 17, 2011. Authorities denied the group permission for the requested venue. Police control was tightened before the planned protest and dozens who attempted to protest were detained. In April-May 2012, Azerbaijani security forces reportedly carried out operations against several terrorist cells in towns in the northern part of the country and in Baku, the capital. In Ganja, one security officer was killed by a suicide bomber, said to be the first such bombing in Azerbaijan. Authorities alleged that the suicide bomber was Azerbaijani citizen Vugar Padarov, head of an al Qaeda-linked terrorist group called the "forest brothers," largely based in the trans-border Dagestan republic of Russia. Azerbaijani state television reported that in early 2011, the "forest brothers" group allegedly had decided to carry out jihad in Azerbaijan and assigned Padarov to head the effort. Targets allegedly included Shiite mosques and shrines; Christian churches; Jewish synagogues; police, defense, and security offices; and hotels and the main hall to be used for the Eurovision singing contest. The group also planned to assassinate Azerbaijani President Ilkham Aliyev. Some of the Azerbaijanis in the group allegedly had been trained at al Qaeda-affiliated Islamic Movement of Uzbekistan camps in Pakistan and had then fought with Taliban forces in Afghanistan against coalition forces and in Dagestan. Other training had been received at al Qaeda camps in Iran and Syria. Over three dozen arrests were reported. In early May 2011, a protest against the ban on wearing the hijab in public schools by 150 or more people at the Education Ministry was forcibly suppressed. Reportedly, 65 were detained, with the government claiming that the protest was led by "radical" Muslims and resulted in property damage and injuries to 26 policemen. In late May 2011, reportedly 150 women wearing hijab held a march in Baku. In early October 2011, five men received sentences ranging from probation to 2.5 years in prison for organizing the early May 2011 protest and using force against government representatives. The chairman of the banned Islamic Renaissance Party of Azerbaijan, Movsum Samadov, also denounced the ban on the hijab, and he and six other party members subsequently were arrested and convicted in October 2011 on charges of planning a coup. On June 19, 2011, the Public Chamber attempted to hold an unauthorized protest, but police quickly thwarted the attempts of protesters to gather at various locations in Baku and detained about two dozen. In October 2011, four more participants in the April 2, 2011, demonstration received sentences ranging from 1.5 to 4 years for violating public order and using force against government representatives, bringing the number of those sentenced for this protest to 14. Those sentenced have included officials and members of the Popular Front and Musavat parties. Reportedly, the trials and sentences have elicited protests from family members and others. In December 2011, outgoing U.S. Ambassador Bryza stated that he did not think the "Arab Spring" would come to Azerbaijan. As in the attempted March 2011 protest, social media appeared to play a large role in triggering a protest in the northern town of Guba on March 1, 2012, against a local official whose filmed comments denigrating the populace were posted on the Internet. Reportedly, one thousand or more citizens rallied and marched to the local government headquarters to demand the official's resignation, but later that day some individuals vandalized government facilities and burned the official's home. Local police and security forces (augmented by forces rushed from Baku) shut down the local Internet and harshly attempted to disperse the crowds. The protesters only completely dispersed when it was announced the next day that the official had been sacked. Police announced that about two dozen residents of the city had been arrested, including several accused of posting the official's comments on the Internet. Some observers linked some easing of restrictions on assembly and other measures in early 2012 to Azerbaijan's desire to present itself in a good light during the May 22-26, 2012, Eurovision Song Contest in Baku. On March 16, 2012, Aliyev pardoned prisoners, including two regarded by activists as "political prisoners," including one alleged organizer of the April 2011 attempted protest, who reportedly pledged that upon his release, he would join the ruling party. After some delay, Baku authorities permitted the Public Chamber to hold a protest on April 8, 2012, at an obscure locale in the suburbs under tight security and alleged restrictions on access. The reported 3,000 protesters called for the release of political prisoners, democratic reforms, and other demands. Although seven oppositionists were sentenced for up to two weeks in jail for distributing leaflets, President Aliyev appeared to refer to this rally on April 16 when he stated that "the Azerbaijani public has seen that there is freedom of assembly in our country." Another rally by the Public Chamber, approved by the government, was held on April 22, 2012, also in the Baku suburbs. The government claimed that about 1,200 attended the rally, but the opposition estimated the crowd at between 5,000 and 10,000 individuals. There was a reportedly large police presence, and police allegedly attempted to restrict the number of demonstrators. Musavat Party head Isa Gambar reportedly called for President Aliyev to resign and for new elections to be held. The Public Chamber held several small demonstrations in the run-up to the May 22-26, 2012, Eurovision Song Contest, including a protest at the Baku mayor's office on May 14 to call for free elections and the freeing of political prisoners and a hunger strike at the Musavat Party headquarters beginning on May 15. During the Eurovision events, however, protests were efficiently prevented or quickly quashed by the authorities, according to some Western reports. Azerbaijani political and religious authorities were adamant in asserting that no diversity/gay rights demonstration would be permitted on the sidelines of the Eurovision Song Contest, countering rumors circulated by Iranian authorities and media that such an "un-Islamic" demonstration would occur. Democratic activist Bakhtiyar Hajiyev (mentioned above) was released from prison on probation on June 4, 2012, just before Secretary Clinton visited the country. On June 22, 2012, media reported that Aliyev had granted amnesty for 66 prisoners, including deputy Musavat head Arif Hajily and 8 other individuals who had been sentenced for involvement in the April 2011 demonstration. In another apparent effort to discredit opposition Popular Front Party leader Ali Karimli, a pro-government politician alleged in late August 2012 that former President and head of the Popular Front Abulfaz Elchibey had told him shortly before his death that Karimli had poisoned him. Other pro-government politicians and media reportedly supported the allegation. The Baku prosecutor's office opened an investigation of the charges, but Elchibey's family stated that he had died in Turkey after a long bout with cancer and demanded that no exhumation take place. In October 2012, about 200 individuals protesting an effective ban on wearing the hijab in educational establishments battled with police, raising concerns among some observers that the constrained political environment was leading to violence as an alternative means of expression. An amendment to the freedom of assembly law was passed in November 2012 greatly boosting the fines for taking part in unauthorized demonstrations, with those deemed to have organized such demonstrations facing fines of up to $38,000. Critics charged that the increased fines were intended to discourage the holding of rallies in the run-up to the presidential election in October 2013. In early 2013, several protests were suppressed by police, perhaps indicating rising popular discontent with government policies. On January 12, after a soldier had reportedly died following hazing, several dozen people staged an unauthorized protest in Baku, including many relatives of soldiers who had similarly died. Police arrested over two dozen of the demonstrators and the courts levied heavy fines of up to nearly $800 against each of them. A fund on the Internet quickly gathered over $13,000 to pay the fines. On January 19, a protest in Baku by about 2,000 merchants against rising fees for stalls turned violent and was forcibly suppressed, and about 100 individuals were detained. On January 23, a protest broke out in the town of Ismayilli, northwest of Baku, allegedly after the local governor's relative had been involved in a traffic accident and was not detained. Over 2,000 protesters demanded the resignation of the "corrupt" governor and burned property belonging to his family. The protesters were forcibly dispersed two days later and many were arrested. Reacting to what he termed "hooligan" activity by the family, President Aliyev fired the governor. Authorities, however, widely blamed the political opposition for the unrest, and detained Tofiq Yaqublu, the deputy chairman of the Musavat Party, and prospective presidential candidate Ilgar Mammadov, who had visited the town during the protest. The European Union and OSCE raised concerns about the detentions. On January 26, a rally in Baku against police violence was forcibly suppressed and about 100 individuals reportedly were arrested and heavily fined. Among other police actions, a conference in Khachmaz, in northern Azerbaijan, sponsored by the Election Monitoring and Democracy Studies Center, a local non-governmental organization, was forcibly shut down on February 12. The conference had been partly funded by NDI. Human Rights In its assessment of political rights and civil liberties in the world in 2012, Freedom House, a non-governmental organization, ranked Azerbaijan as "not free," grouping it among such countries as Angola, Brunei, Cambodia, Djibouti, Kazakhstan, Qatar, and Russia. Azerbaijan was deemed to not have improved its ranking from that of the previous year. In a vote on January 23, 2013, the Parliamentary Assembly of the Council of Europe (PACE) approved a resolution that raised ongoing concerns about the rule of law and respect for human rights in Azerbaijan and called on the country to step up its democratization efforts. PACE highlighted concerns about increased penalties for organizing and participating in unauthorized gatherings (mentioned above), reports that police were fabricating charges against opposition political activists and journalists, reports of detainee torture, and reports of unjust property expropriations. On the same day, however, PACE failed to pass a draft resolution on political prisoners in Azerbaijan that called for retrying or releasing dozens of listed alleged political prisoners, and for refraining from arresting peaceful demonstrators or criminalizing the expression of religious or political views. The Azerbaijani and Russian delegations reportedly had opposed the draft resolution as subjective. According to the State Department's most recent Country Reports on Human Rights Practices for 2011, there were three significant areas of human rights problems during the year. The first involved the lack of due process, police violence, and politically motivated court cases; the second involved restrictions on freedom of expression, assembly, and association; and the third involved violations of property rights. On the first area, arbitrary arrest, often based on spurious charges of resisting police, remained a problem. There were credible reports that police beat detainees to extract confessions and assaulted demonstrators and journalists. Human rights advocates reported that police tortured or abused 136 persons in custody during the year, slightly fewer than in 2010, and seldom were held accountable. The judiciary remained corrupt and reportedly took orders from the executive branch in sensitive cases. The bar association allegedly also was under government influence. Some NGOs claimed that there were several dozen political prisoners. Police continued to intimidate and harass members of some human rights NGOs and their relatives, and there were reports that individuals were fired from jobs in retaliation for the political or civic activities of other family members. On the second area, the government continued to limit media independence. Broadcast media adhered almost exclusively to a pro-government line in their news coverage. The government reportedly constricted the publication and distribution of opposition newspapers, including by discouraging businesses from advertising in the newspapers. One media-monitoring group reported that there were 90 physical assaults on journalists, slightly fewer than in 2010, but still very high compared to other countries. Many reporters and newspapers were sued for libel, which remained a criminal offense. Authorities continued to require all rallies to be preapproved and held at designated locations far from city centers, and they usually ignored such requests, effectively barring the freedom to assemble. Unsanctioned rallies were forcibly broken up and demonstrators were detained. The OSCE's Venice Commission complained in late 2011 that the law on NGOs violated civil rights by setting strict constraints on the views, activities, and conduct of NGOs as conditions for granting them legal status. The Ministry of Justice routinely denied registration to NGOs whose names contained the words "human rights" or "democracy." The Council of State Support to NGOs provided $2.5 million to 338 NGOs, a few of which were sometimes critical of the government. The government continued to restrict the religious freedom of some unregistered Muslim and Christian groups. On the third area, according to one international survey, private property rights are only weakly protected in Azerbaijan. One NGO reported that about 20,000 inhabitants of 400 buildings in Baku had lost their residences and had often received compensation well below market value and had few options for legal recourse. According to the State Department's 2012 Trafficking in Persons Report , Azerbaijan continued to be a source, transit, and destination country for forced labor and sex trafficking, and the government made less progress this year than last year in investigating, prosecuting, or convicting labor trafficking offenses or in identifying victims of forced labor. The government did increase funding and support for victims at its one shelter. Since 2008, the State Department has placed Azerbaijan on its Tier 2 Watch List for countries that do not fully comply with the minimum standards for the elimination of trafficking. Economic Conditions The collapse of the Soviet Union and the NK conflict in the early 1990s contributed to the decline of Azerbaijan's GDP by over 60% by 1995. Beginning in the late 1990s, rising oil and gas exports (and rising world prices for oil) fueled GDP growth in Azerbaijan. The global economic downturn and decline in oil prices contributed to lower, but still positive, GDP growth in 2008 through 2010. In 2011, however, GDP growth slowed substantially to a scant 0.1%, mainly because maintenance work in the oilfields contributed to reduced oil exports, according to the Economist Intelligence Unit (EIU). This reduced economic activity was compensated somewhat by growth in the construction, agricultural, and service sectors, marking the growing impact of such non-energy sectors on economic growth. In 2012, the Azerbaijani government reported that the economy grew 2.2% and that inflation was a modest 1.8%. The EIU and other sources suggest that GDP growth rate may actually have been less and inflation may have been more, and that the economy remained sluggish because of lagging oil production, which was mitigated somewhat by growth in the manufacturing sector. Inflation may have eased in 2012 from 8.1% in 2011 partly due to an improved harvest and moderating food prices. The EIU predicts that GDP growth will average about 2.3% per year for the next few years, due to the leveling-off of oil production until new oil and gas fields come on-line. In January 2013, British Petroleum (BP), the main foreign energy firm operating in Azerbaijan, estimated that the Shah Deniz Phase Two offshore gas fields would come on stream in 2018. Until then, the government may continue to draw on the assets of the State Oil Fund—a sovereign wealth fund containing profits from energy exports—to alleviate budget deficits. In 2013, the government plans its largest transfer to date from the wealth fund to support rising social expenditures in the run-up to the presidential election planned for October 2013. In its 2009 Doing Business report, the World Bank commended Azerbaijan as one of the top 10 global economic reformers because of business regulatory reforms it had undertaken over the previous two years that protected investors and simplified taxes. Azerbaijani authorities had hoped that the reforms would facilitate Azerbaijan's admission to the World Trade Organization (WTO). In its 2013 Doing Business report, however, the World Bank raised concerns that reforms had stalled, as indicated by a fall in Azerbaijan's rankings from 33 in 2009 to 67 in 2012 out of 185 countries surveyed. Positive developments included comparative ease in registering business property and resolving contract enforcement cases, but construction permits remained difficult to obtain, and substantial corruption and monopolies continued to constrain business development, according to the World Bank. On February 12, 2013, President Aliyev insisted that local officials step up their support for entrepreneurs and not "interfere" with them by making "illegal demands," perhaps alluding to calls for bribes. The government claims that the unemployment rate has decreased in recent years to about 5% and the poverty rate to about 8%. About 38% of the population is employed in agriculture, although it contributes to under 10% of GDP. It is reported that there are still substantial numbers of Azerbaijanis who work in Russia—by some estimates up to 1 million—although in recent years Azerbaijan also has hosted varying numbers of legal and illegal migrant workers in the energy, construction, and trade sectors. The U.S. Commerce Department reports that U.S. exports to Azerbaijan were $514 million in 2012 and imports were $1.1 billion. While exports had risen from the previous year, imports had declined by over one-half, mainly due to slowing demand for Azerbaijani oil. The United States exported mainly machinery and transport equipment and food to Azerbaijan in 2012. Energy The U.S. Energy Department reports estimates of 7 billion barrels of proven oil reserves, and 30 trillion cubic feet of proven natural gas reserves in Azerbaijan. In addition, added gas has been discovered in 2011 at the Umid and Apsheron offshore fields. Critics argue that oil and gas from Azerbaijan will amount to a tiny percent of world exports of oil and gas, but successive U.S. Administrations have argued that these exports could nonetheless boost energy security somewhat for European customers currently relying more on Russia. Azerbaijan is hoping that its gas exports will be greatly boosted when phase two production begins at its offshore Shah Deniz gas fields in 2017-2018. In testimony in June 2011, Richard Morningstar, the then-U.S. Special Envoy for Eurasian Energy, stated that U.S. policy encourages the development of new Eurasian oil and gas resources to increase the diversity of world energy supplies. In the case of oil, increased supplies may directly benefit the United States, he stated. A second U.S. goal is to increase European energy security, so that some countries in Europe that largely rely on a single supplier (presumably Russia) may in the future have diverse suppliers. A third goal is assisting Caspian regional states to develop new routes to market, so that they can obtain more competitive prices and become more prosperous. In order to achieve these goals, the Administration supports the development of the "Southern Corridor" of Caspian (and perhaps Iraq) gas export routes transiting Turkey to Europe. Of the vying pipeline proposals, the Administration will support the project "that brings the most gas, soonest and most reliably, to those parts of Europe that need it most." At the same time, Morningstar rejected views that Russia and the United States are competing for influence over Caspian energy supplies, stating that the Administration has formed a Working Group on Energy under the U.S.-Russia Bilateral Presidential Commission. According to some observers, the construction of such pipelines will bolster the strategic importance to the West of stability and security in the Caspian region. Building the Baku-Tbilisi-Ceyhan and South Caucasus Pipelines U.S. officials and others long have argued that Azerbaijani gas is central to the development of new pipeline routes (besides those transiting Russia) from the Caspian region to Europe. During the Clinton Administration, the United States in 1995 encouraged the building of one small oil pipeline (with a capacity of about 155,000 barrels per day) from Azerbaijan to the Georgian Black Sea port of Supsa as part of a strategy of ensuring that Russia did not monopolize east-west export pipelines. As part of this strategy, the United States also stressed building the Baku-Tbilisi-Ceyhan (BTC) pipeline (with a capacity of about 1 million barrels per day) as part of a "Eurasian Transport Corridor." In November 1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the "Istanbul Protocol" on construction of the 1,040-mile long BTC oil pipeline. In August 2002, the BTC Company (which includes U.S. firms Conoco-Phillips, Amerada Hess, and Chevron) was formed to construct, own, and operate the oil pipeline. The first tanker on-loaded Azeri oil at Ceyhan at the end of May 2006. Azerbaijan's state oil firm SOCAR reported in April 2012 that the BTC pipeline had transported 1.33 billion barrels of oil to the Ceyhan terminal since 2006. Reportedly, some Azerbaijani oil reaches U.S. markets. A gas pipeline from Azerbaijan to Turkey (termed the South Caucasus Pipeline or SCP) was completed in March 2007. Exports to Georgia, Turkey, and Greece were 53 billion cubic feet of gas in 2007, the first year of operation, and most recently were reported to be 159 billion cubic feet in 2011. The ultimate capacity of the SCP is about 706 billion cubic feet per year, according to British Petroleum. The joint venture for the SCP includes Norway's Statoil (20.4%); British Petroleum (20.4%); Azerbaijan's Ministry of Industry and Energy (20%); and companies from Russia, Iran, France, and Turkey. Some in Armenia object to lack of access to the BTC and SCP pipelines. The August 2008 Russia-Georgia conflict did not result in physical harm to the BTC pipeline or the SCP. The BTC pipeline was closed due to other causes. The SCP and the small Baku-Supsa oil pipeline were closed temporarily as a safety precaution. Russian gas shipments via Georgia to Armenia decreased in volume for a few days at the height of the conflict. Rail shipments of oil by Azerbaijan to the Kulevi oil terminal (owned by Azerbaijan) on Georgia's Black Sea coast were disrupted temporarily. At the end of October 2008, the first oil from Kazakhstan started to be pumped through the BTC pipeline, but a transit price increase by Azerbaijan in 2011 led Kazakhstan to restrict its use of the BTC. Some Kazakh oil is barged to Azerbaijan to be shipped by rail to Georgia's Black Sea port of Batumi, where Kazakhstan owns an oil terminal. Kazakhstan and Azerbaijan continue talks on expanding the barging of oil to the BTC pipeline. Some Turkmen oil began to be transported through the BTC pipeline in June 2010. Some observers argue that the completion of the BTC and SCP boosted awareness in the European Union and the United States of the strategic importance of the South Caucasus. Other Export Pipeline Proposals In mid-November 2007, Greek Prime Minister Kostas Karamanlis and Turkish Prime Minister Recep Tayyip Erdogan inaugurated a gas pipeline connecting the two countries. Since some Azerbaijani gas reaches Greece, the pipeline represents the first gas supplies from the Caspian region to the EU. It was proposed that a pipeline extension be completed to Italy—the Interconnector Turkey-Greece-Italy (ITGI) gas pipeline—that would permit Azerbaijan to supply gas to two and perhaps more EU members, providing a source of supply besides Russia. The Nabucco pipeline faced numerous delays, some of them attributable to Russia's counter-proposals to build pipelines that it asserted would reduce the efficacy of the Nabucco pipeline. In September 2010, the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank announced a commitment—pending environmental and social feasibility studies—to provide $5.2 billion to build the Nabucco pipeline. EU planning called for construction of the 1.1 trillion cubic feet capacity Nabucco pipeline to begin in 2012 and for shipments to begin in 2017. In 2011, new higher cost estimates for building the pipeline, and BP's call for building a "South East Europe Pipeline" (SEEP; see below), appeared to seriously threaten these plans. At a meeting in early May 2009 in Prague, the EU, Azerbaijan, Georgia, Turkey, and Egypt signed a declaration on a "Southern [energy] Corridor" to bolster east-west energy transport. The declaration called for cooperation among supplier, transit, and consumer countries in building the Nabucco gas pipeline, finishing the Italian section of the ITGI gas pipeline, and other projects. In 2009, Azerbaijan stepped up its efforts to diversify the routes and customers for its gas exports beyond the SCP and the planned Nabucco pipeline. President Aliyev attributed some of this increased interest in added gas export routes—including to Russia and Iran—to the country's difficult negotiations with Turkey over gas transit fees and prices (excluding the agreed-upon arrangements for Nabucco). In October 2009, Azerbaijan's State Oil Company (SOCAR) and Russia's Gazprom gas firm signed agreements that SOCAR would supply 17.7 billion cubic feet of gas per year to Russia beginning in 2010. The gas would be transported by a 140-mile gas pipeline from Baku to Russia's Dagestan Republic that was used until 2007 to supply Azerbaijan with up to 283 billion cubic feet of gas per year. During a visit by then-President Medvedev to Azerbaijan in September 2010, the two countries agreed that Azerbaijan would provide up to 35.4 billion cubic feet of gas per year beginning in 2011 (this increase had been under consideration since the signing of the 2009 accord). President Aliyev stressed that this small supply agreement would not jeopardize plans to supply gas for Nabucco, since Azerbaijan possessed huge gas reserves. As another alternative to gas shipments through Turkey, a memorandum of understanding was signed by Azerbaijan, Romania, and Georgia in April 2010 to transport liquefied natural gas (LNG) from Azerbaijan to the EU through Georgia and Romania. This Azerbaijan-Georgia-Romania-Interconnection (AGRI) project envisions the construction of a gas pipeline from Azerbaijan to the Georgian port of Kalevi, where the gas would be liquefied, shipped across the Black Sea, and regasified at the Romanian port of Constanta. The output is expected to be 247 billion cubic feet per year, with 71 billion cubic feet of the gas used by Romania and the rest by other EU countries. The presidents of the three countries (and the prime minister of Hungary, which joined the project) met in Baku on September 15, 2010, to sign the Baku Declaration of political support for the project. SOCAR reported in early 2013 that the AGRI project had been placed on the "back burner." Some of the tensions between Turkey and Azerbaijan involving energy issues appeared resolved in June 2010, during President Aliyev's visit to Turkey, when the two countries signed accords on the sale and transportation of Azerbaijani natural gas to Turkey and to other countries via Turkey. A memorandum of understanding permitting Azerbaijan to conclude direct sales with Greece, Bulgaria, and Syria involving gas transiting Turkey was signed. In January 2011, President Aliyev and the President of the European Commission, Jose Manuel Barroso, signed a joint declaration committing Azerbaijan to supplying substantial volumes of gas over the long term to the European Union. Nonetheless, some analysts raised concerns that there would not be enough Azerbaijani gas to fill the proposed ITGI and Nabucco pipelines (deliveries would be 406 billion cubic feet per year for ITGI and 158 billion to 459 billion cubic feet per year for Nabucco) and to provide for the proposed AGRI project without a trans-Caspian gas pipeline or participation by Iran or Iraq. Others suggested that Azerbaijan would be able to supply at least most of the needed gas for both the ITGI and Nabucco pipelines and the AGRI project, including because of recent results from exploratory drilling off the Caspian seacoast. Meeting an October 1, 2011, deadline, the Shah Deniz Export Negotiating Team—led by the State Oil Company of Azerbaijan (SOCAR) and including BP, Statoil, and Total—received what were then claimed to be final proposals for pipelines to export gas from the second phase development of the Shah Deniz offshore oil and gas fields. Proposals were received from consortia backing the ITGI, Nabucco, and Trans Adriatic Pipeline (TAP; from Turkey through Greece, Albania, and the Adriatic Sea to Italy) projects, as well as from BP, which reportedly proposed building an 808-mile "South East Europe Pipeline" (SEEP) from western Turkey through Bulgaria, Romania, and Hungary to Austria. On October 25, 2011, Azerbaijan and Turkey announced that they had signed accords on the final terms for the transit of Shah Deniz phase 2 gas through Turkey. The agreements—signed during President Aliyev's visit to Turkey—specified that 565-706 billion cubic feet of gas would transit Turkey, of which 212 billion cubic feet would be available for Turkey's domestic use. Another significant accord provided for the possible construction of a new Trans-Anatolian Pipeline (TANAP; from the Georgian-Turkish border to the Turkish-Bulgarian border), so that the gas from Shah Deniz Phase 2 would not have to go through the existing Turkish pipeline system. This pipeline could link to BP's proposed SEEP or to a new version of the Nabucco pipeline termed "Nabucco West" (stretching from the Turkish border to Austria). In late December 2011, the Azerbaijani and Turkish governments signed a memorandum of understanding on setting up a consortium involving SOCAR, the Turkish state-owned TPAO energy firm, and TPAO's pipeline subsidiary, BOTAS, to construct TANAP. SOCAR is designated initially to hold an 80% share in the consortium, although other members may be invited to join the consortium. Contract negotiations on setting up the consortium reportedly have been contentious, however. In May 2012, the Nabucco consortium submitted new pipeline proposals to the Shah Deniz consortium, reportedly including the original route as well as the shorter Nabucco West route. The Shah Deniz Export Negotiating Team reportedly indicated in February 2012 that it preferred the TAP proposal over the ITGI pipeline proposal. In mid-2012, it rejected SEEP, leaving TAP and Nabucco West as the choices. The Shah Deniz Team has indicated that it will make a final decision about the pipeline by June 2013. In late June 2012, the Azerbaijani and Turkish presidents and oil firm heads signed accords to build TANAP. The first stage, with a capacity of 565 bcf per year, is planned to be completed in 2018. Other investors are being invited to participate. In late 2012, Russia finalized arrangements with transit states for the construction of the South Stream gas pipeline, with a capacity of 2.2 bcf per year, under the Black Sea to European markets, and began construction of the onshore portion in Russia in December 2012. The undersea portion will extend nearly 600 miles. From Bulgaria, the pipeline is planned to transit Serbia, Hungary, and Slovenia to Austria. The first phase of construction is planned to be completed in 2015. According to some analysts, the pipeline is not economically viable, but is being built by Russia to counter proposals to build the Nabucco West pipeline and perhaps a trans-Caspian pipeline, so that Russia may maintain a dominant gas presence in Europe. To bolster prospects for building the Nabucco West pipeline, the Shah Deniz consortium agreed with the Nabucco consortium in January 2013 to finance up to one-half of the pipeline. Azerbaijan also has pledged to provide some financing for TAP if it chooses this pipeline. Discussions on a Trans-Caspian Pipeline In 1999, Turkmenistan signed an accord with two U.S. construction firms to conduct a feasibility study on building a trans-Caspian gas pipeline to Azerbaijan, but Turkmenistan failed to commit to the pipeline following objections from Iran and Russia. In September 2011, the Council of the European Union approved opening talks with Azerbaijan and Turkmenistan to facilitate an accord on building a trans-Caspian gas pipeline. Such a link would provide added gas to ensure adequate supplies for the planned Nabucco and other pipelines. Hailing the decision, EU Energy Commissioner Günther Oettinger stated that "Europe is now speaking with one voice. The trans-Caspian pipeline is a major project in the Southern Corridor to bring new sources of gas to Europe. We have the intention of achieving this as soon as possible." The Russian Foreign Ministry denounced the plans for the talks, and claimed that the Caspian Sea littoral states had agreed in a declaration issued in October 2007 that decisions regarding the Sea would be adopted by consensus among all the littoral states (Russia itself has violated this provision by agreeing with Kazakhstan and with Azerbaijan on oil and gas field development). It also claimed that the proposed pipeline was different from existing sub-sea pipelines in posing an environmental threat. In Baku in April 2012, Lavrov stated that the EU should show "respect" to the Caspian littoral states, and that it was "unacceptable" for the EU to advocate for a trans-Caspian pipeline before the littoral states have concluded a convention on the legal status of the sea. In June 2012, a Turkmen survey ship was turned back by Azerbaijani naval forces from areas considered by Azerbaijan to be within its Caspian Sea holdings, raising tensions that appeared to jeopardize a trans-Caspian pipeline. However, in September 2012, President Aliyev appeared conciliatory toward Turkmenistan in stating that "if Turkmenistan considers this [trans-Caspian] project important for itself and views it as a path to the West, then Azerbaijan supports this idea." At a meeting of the Frankfurt Gas Forum in November 2012, European Energy Commissioner Guenther Oettinger pointed out that the EU had envisaged the Southern Corridor to carry 45-90 bcm per annum, and that the gas from Shah Deniz phase 2 would only provide a fraction of this gas. He stated that to meet the EU goal for the Southern Corridor, more gas would be needed, and stated that Turkmenistan is viewed by the EU as a possible source. The United States has supported building a trans-Caspian pipeline and stated that no other country should be able to veto a decision by Azerbaijan and Turkmenistan to build such a pipeline. Regional Energy Cooperation with Iran Because of trade obstructions imposed by Azerbaijan and Turkey, Armenia has endeavored to build oil and gas pipelines to Iran as a means to diversify its reliance on Russian supplies that transit Georgia. Azerbaijan sees itself as a regional competitor of Iran in energy development in the Caspian region. Increasing international sanctions on Iran have reduced Iran's regional energy role, while Azerbaijan increasingly has cooperated with Western energy firms to develop and ship oil and gas to international markets. At the end of 2005, Azerbaijan began sending about 7 billion cubic feet of gas per year through a section of Soviet-era pipeline to the Iranian border at Astara, partly in exchange for Iranian gas shipments to Azerbaijan's Nakhichevan exclave. On November 11, 2009, Azerbaijan signed an accord with Iran to supply 17.7 billion cubic feet of gas annually through the pipeline. These gas supplies could increase in coming years. Iran's Naftiran Intertrade Company (NICO; a state-owned energy firm) has 10% of the shares in the consortium that developed the SCP. NICO also has a 10% share in the consortium developing the Shah Deniz gas fields. The Iran Threat Reduction and Syria Human Rights Act of 2012 ( P.L. 112-158 ; signed into law on August 10, 2012) has exempted the Shah Deniz gas field project from sanctions imposed on joint energy ventures with Iran. Foreign Policy and Defense President Ilkham Aliyev has emphasized good relations with the neighboring states of Georgia and Turkey, but relations with these and other countries have often been guided by their stance regarding the NK conflict. Azerbaijan has viewed Turkey as a major ally to balance Russian and Iranian influence, and Armenia's ties with Russia. Relations with Turkmenistan are strained by competing claims over offshore oil and gas fields (see below). Azerbaijan is a member of the OSCE, Black Sea Economic Cooperation group, Council of Europe (COE), Economic Cooperation Organization, and Organization of the Islamic Conference. In May 2011, Azerbaijan joined the Non-Aligned Movement, although it does not claim neutrality and its National Security Concept posits Euro-Atlantic integration as a "strategic goal." Ethnic consciousness among some "Southern Azerbaijanis" in Iran has grown, which Iran has countered through increasingly repressive actions. Azerbaijani elites fear Iranian-supported Islamic fundamentalism and question the degree of Iran's support for an independent Azerbaijan. Azerbaijan's relations with Iran were roiled in February 2012 when Iran accused Azerbaijan of harboring Israeli intelligence agents who had crossed the Azerbaijani-Iran border to carry out operations, allegedly including assassinations of Iranian nuclear scientists. That same month, Azerbaijan sentenced seven individuals it had arrested in 2008 that it claimed had been trained in Iran to carry out terrorism, including plans to bomb the Israeli embassy. In late February, Azerbaijan confirmed that it had reached a large arms deal with Israel, but stated that the weapons purchase was aimed not against Iran but to "liberate" occupied territories. Attempts to ease Azerbaijani-Iranian tensions included a meeting between the foreign ministers of Iran, Azerbaijan, and Turkey in Nakhichevan, Azerbaijan, on March 7, 2012, and a trip by Defense Minister Safar Abiyev to Tehran a week later. Abiyev stressed that Azerbaijani territory would not be used to launch attacks on Iran. Two days later, however, the Azerbaijan National Security Ministry announced that nearly two dozen terrorists trained in Iran had been arrested, who allegedly had been planning attacks on Israeli and U.S. embassies and other Western interests. At the end of the month, the ministry reported that two other Iranian spy networks had been uncovered in 2011. Also in late March 2012, Iran increased its accusations that Azerbaijan was providing Israel with military access to launch attacks on Iran after such allegations appeared in Western media. In early April, Iran arrested some individuals it claimed were Israeli agents being directed from an unnamed nearby country, presumably Azerbaijan. On April 12, Azerbaijani media reported that the government had arrested several Iranians and Azerbaijanis involved in weapons and drug smuggling from Iran. In early May 2012, Iran recalled its ambassador to Azerbaijan for "consultations" following anti-Iranian protests outside Iran's embassy in Baku against Iranian criticism of the Eurovision Song Contest to be held on May 22-26, 2012, in Baku. Iran claimed that the recall occurred because the protesters had maligned its Supreme Leader, Grand Ayatollah Sayyid Ali Khamenei, and had made other anti-Islamic statements. The Azerbaijani Foreign Ministry reportedly responded to the recall by announcing that "some people are jealous about Azerbaijan's development [and] the organization of a grand event such as Eurovision," and requested that Iran apologize for "insulting statements" about Azerbaijan. On May 8, 2012, Iranians protested against Azerbaijani "immorality" at the Azerbaijani consulate in Tabriz, Iran. In June 2012, the Azerbaijani Foreign Ministry warned citizens that travel to Iran was not safe, pointing to the holding of two Azerbaijani poets since May. In late June 2012, the Iranian ambassador returned to Baku. The two poets were convicted on spy charges in August 2012, but were released in early September 2012, and Azerbaijan also paroled an Iranian reporter convicted on drug charges just before a visit by the Iranian vice president to Azerbaijan. In October 2012, President Ahmadinezhad met with President Aliyev on the sidelines of the Economic Cooperation Organization summit in Baku, and both leaders reportedly expressed satisfaction with the development of political, economic, and cultural cooperation between their two countries, and called for further expanding economic ties. Azerbaijani officials reportedly have pledged to Iran that Azerbaijan will not be used as a launching pad for third-party aggression against Tehran, but also have vowed to support international sanctions against Iran. Frictions in Azerbaijani-Russian relations have included Azerbaijan's allegations of a Russian "tilt" toward Armenia in NK peace talks. In 1997, Russia admitted that large amounts of Russian weaponry had been quietly transferred to Armenia, and in 2000 and 2005-2007, Russia transferred heavy weaponry from Georgia to Armenia, fueling Azerbaijan's view that Russia supports Armenia in the NK conflict. Azerbaijani-Russian relations appeared to improve in 2002 when the two states agreed on a 10-year Russian lease for the Soviet-era Gabala (Qabala) early warning radar station in Azerbaijan and reached accord on delineating Caspian Sea borders. Perhaps seeking Russian support for his new rule, Ilkham Aliyev in March 2004 reaffirmed the 1997 Azerbaijani-Russian Friendship Treaty. After the August 2008 Russia-Georgia conflict, Azerbaijan appeared to move toward better relations with Russia. During Russian President Medvedev's late June 2009 visit to Baku, Azerbaijan agreed to send small amounts of gas to Russia (see below). Azerbaijan's relations with Russia appeared even closer in 2010 as a reaction against the Turkish initiative to improve relations with Armenia and U.S. Administration backing for this effort. Some strains have appeared in relations, however, since Vladimir Putin returned as Russia's president in early 2012. These have included Azerbaijan's demurral of Putin's invitation for it to join the Eurasian Customs Union and the breakdown of talks on renewing the Russian lease on the Gabala radar site (see below). According to former Armenian Foreign Minister Vartan Oskanyan, Article 4 of the Commonwealth of Independent States' Collective Security Treaty (signatories including Russia, Armenia, Belarus, and all the Central Asian states except Turkmenistan) pertains to aggression from outside the commonwealth, and therefore does not pertain to the NK conflict (since Azerbaijan is a member of the commonwealth). After the Collective Security Treaty Organization (CSTO) agreed to form large rapid response forces in February 2009, however, some policymakers in Armenia claimed the forces could be a deterrent to possible Azerbaijani aggression. Some policymakers in Azerbaijan likewise viewed the formation of the forces as a threat. The Secretary-General of the Collective Security Treaty Organization (CSTO), Nikolai Bordyuzha, has proclaimed that the CSTO would never intervene in the NK conflict, but also has stressed that Armenia and Russia have close bilateral military ties. In May 2011, Armenian Defense Minister Seiran Oganian reportedly asserted that Armenia would expect CSTO members to support Armenia in case of aggression against NK, which elicited a protest from the Azerbaijani presidential office. The agreement signed in August 2010 that extends the lease on Russia's military facilities in Armenia pledges Russia to defend Armenia's security, which appeared to be interpreted by Armenian President Serzh Sargisyan to include defense against a possible Azerbaijani attack on NK. In December 2012, President Sargisyan stated that in case of war with Azerbaijan, Armenia was counting on the support of its allies in the CSTO, rhetorically asking "why else are we in the organization?" In January 2013, President Sargisyan stressed in a speech at the Defense Ministry that the strategic partnership between Armenia and Russia is "the nucleus of Armenian security," and that membership in the CSTO also is the "real guarantee of Armenia's security." The CSTO has refused to state what it would do in case of the escalation of conflict between Armenia and Azerbaijan. In September 2012, however, the CSTO Rapid Reaction Forces held an exercise in Armenia that simulated repulsing an invasion of Armenia by "terrorists." One Russian newspaper reported in January 2013 that Russia recently had transformed its forces in Armenia to primarily professional contract troops, in anticipation of possible Azerbaijani military action against Armenia or Israeli action against Iran. The report depicted Azerbaijan as making unfriendly moves against Russia and quoted a Russian lieutenant general as stating that whether Russia will defend Armenia from an Azerbaijani action will be a "political decision," but that the Russian forces should be ready. In September 2008, Turkey's President Abdullah Gül visited Armenia, ostensibly to see a soccer game, and this thaw contributed to the two countries reaching agreement in April 2009 on a "road map" for normalizing ties, including the establishment of full diplomatic relations and the opening of borders. After further negotiations, Turkish Foreign Minister Ahmet Davutoglu and Armenian Foreign Minister Edvard Nalbandian initialed two protocols "On Establishing Diplomatic Relations," and "On Development of Bilateral Relations" on August 31, 2009, and formally signed them on October 10, 2009. Azerbaijan strongly criticized Turkey for moving toward normalizing relations with Armenia without formally linking such a move to a peace settlement of the NK conflict. This criticism quickly elicited pledges by Turkey's leaders that the Turkish legislature would not approve the protocols until there was progress in settling the NK conflict. On April 22, 2010, the ruling Armenian party coalition issued a statement that "considering the Turkish side's refusal to fulfill the requirement to ratify the accord without preconditions in a reasonable time, making the continuation of the ratification process in the national parliament pointless, we consider it necessary to suspend this process." The United States reportedly actively supported Switzerland in mediating the talks that led to the signing of the protocols. On April 14, 2010, President Aliyev warned that the Obama Administration's backing of the protocols threatened U.S. interests in Azerbaijan, stating that "how can we defend and support the interests of someone who is acting against our interests?" The next day, Azerbaijani presidential administration official Ali Hasanov asserted that "if the United States continues to demonstrate a biased position on the NK issue, Azerbaijan may reconsider its strategic partnership ties with the United States." The U.S. State Department responded that the United States remained evenhanded in its mediation efforts. A few days later, Azerbaijan cancelled a military exercise scheduled with the United States for May 2010. Azerbaijani armed forces consist of 66,940 army, air force, air defense, and navy troops. There also are about 5,000 border guards and more than 10,000 Interior (police) Ministry troops. The military budget has greatly increased in recent years, amounting to about $3.0 billion in 2012 and $3.7 billion in 2013. Azerbaijan has agreements for military training with Russia, Turkey, and NATO (see below), and purchases arms from Russia, Turkey, Ukraine, Israel, and others. A military doctrine approved by the legislature in mid-2010 terms the continued occupation of Azerbaijani land and external support for the occupation to be the major threats. About 1,400-1,500 Russian troops were deployed at the Gabala radar site (mentioned above) under a lease agreement that expired at the end of 2012, after which the troops were pulled out. Russia purportedly had rejected Azerbaijani requests for an increase in lease payments from $7 million per year to $300 million. Azerbaijan reportedly received foreign-made weapons of uncertain origin and armed volunteers from various Islamic nations to assist its early 1990s struggle to retain NK. In 1994, Azerbaijan joined NATO's Partnership for Peace (PFP) and began its first Individual Partnership Action Plan (IPAP) in 2005, but President Aliyev has not stated that the country seeks to join NATO. Some Azerbaijani troops have participated in NATO peacekeeping in Kosovo since 1997 and operations in Afghanistan since 2003 (see below). The bulk of Azerbaijani weapons reportedly come from Russia, Ukraine, and Belarus, although some NATO-compatible communications and other equipment has been received. In a June 2011 military parade, Azerbaijan showed S-300 air defense missiles supplied by Russia (following reports in mid-2010 that Russia would sell the S-300s to Baku, Armenia announced that it already had them). In accordance with recommendations by the IPAP, a civilian agency to manage conscription was established in 2012. The NK Conflict In 1988, NK petitioned to become part of Armenia, sparking ethnic conflict. In December 1991, an NK referendum (boycotted by local Azerbaijanis) approved NK's independence and a Supreme Soviet was elected, which in January 1992 futilely appealed for world recognition. Conflict over the status of NK continued until a ceasefire agreement was signed in July 1994 and the sides pledged to work toward a peace settlement. The "Minsk Group" of concerned member-states of what is now termed the Organization for Security and Cooperation in Europe (OSCE) was formed in 1992 to facilitate peace talks. The United States, France, and Russia co-chair the Minsk Group. The U.S. Department of State reports that "ethnic Armenian separatists, with Armenia's support ... control most of the NK region of the country and seven surrounding Azerbaijani territories. The [Azerbaijani] government did not exercise any control over developments in those territories." The non-governmental International Crisis Group (ICG) estimates that this area of control constitutes about 13%-14% of Azerbaijan's land area, while the Central Intelligence Agency estimates about 16%. The conflict resulted in about 30,000 casualties and over 1 million Azerbaijani and Armenian refugees and displaced persons. The U.N. High Commissioner for Refugees reports that there remain over 600,000 individuals considered refugees or displaced persons in Azerbaijan, one of the highest concentrations in the world, most of whom remain economically vulnerable. On November 29, 2007, then-Under Secretary of State Nicholas Burns, Russian Foreign Minister Sergey Lavrov, and French Foreign Minister Bernard Kouchner presented the Foreign Ministers of Armenia and Azerbaijan with a draft text— Basic Principles for the Peaceful Settlement of the Nagorno-Karabakh Conflict —for transmission to their presidents. These officials urged the two sides to accept the Basic Principles (also termed the Madrid proposals, after the location where the draft text was presented) that had resulted from three years of talks and to begin "a new phase of talks" on a comprehensive peace settlement. In the wake of the Russia-Georgia conflict in early August 2008, Armenian President Sarkisyan asserted that "the tragic events in [Georgia's breakaway South Ossetia region] confirm that every attempt in the South Caucasus to look for a military answer in the struggle for the right to self-determination has far-reaching military and geopolitical consequences." The presidents of the United States, France, and Russia publicized an updated version of the Basic Principles in July 2009 and June 2010 that calls for the return of the territories surrounding NK to Azerbaijani control; an interim status for NK providing guarantees for security and self-governance; a corridor linking Armenia to NK; future determination of the final legal status of NK through a legally binding expression of will; the right of all internally displaced persons and refugees to return to their former places of residence; and international security guarantees that would include a peacekeeping operation. Then-President Medvedev hosted Aliyev and Sargisyan in Sochi, Russia, in late January 2010, and the two sides reportedly agreed on many parts of a preamble to an agreement. In December 2010, a declaration by the Minsk Group co-chairing countries and the presidents of Armenia and Azerbaijan was signed during the Astana Summit of the OSCE that pledged the parties to a peaceful settlement of the conflict. However, the presidents of Armenia and Azerbaijan gave speeches criticizing each other's commitment to negotiations and refused to meet at the conclave. On June 24, 2011, Presidents Sargisyan and Aliyev met in the Russian city of Kazan, and issued a joint statement that agreement had been reached on some issues and that further talks would be held. A couple of weeks later, then-President Medvedev, reportedly disappointed that there was scant progress at the talks, sent letters to the two leaders calling for suggestions on how to move the talks forward. During Aliyev's summit with Medvedev in Sochi, Russia, in early August 2011, then-President Medvedev called for "an absolutely frank conversation with you about our future steps" to resolve the NK conflict. Aliyev called for the "settlement of the conflict, so that all displaced persons can return to their homes and peace, tranquility and cooperation are restored in the region." Azerbaijani analyst Khikmet Khadzhizade alleged that Medvedev warned Aliyev against military action against NK at this meeting. The presidents of Armenia and Azerbaijan denounced each other's perceived unwillingness to settle the NK conflict during the celebratory anniversary meeting of the Commonwealth of Independent States in Dushanbe, Tajikistan, in early September 2011. Mutual denunciations also were delivered at the late September 2011 opening session of the U.N. General Assembly. In his speech, President Sargisyan alleged that Azerbaijan had tried during the Kazan talks to "reject[] the previously elaborated arrangement and … in fact, to break down the negotiation process." In his speech, Azerbaijani Foreign Minister Eldar Mammadyarov protested that "Azerbaijan still maintains its interest, motivation and patience in this very hard and sensitive process of negotiations. We believe that the international community will convince the Armenian side to respect the generally accepted norms and principles of international law and cease abusing the right of Azerbaijanis to live within their own territory." In October 2011, the Minsk Group co-chairs issued a statement after talks with Presidents Aliyev and Sargisyan that the two presidents had agreed in principle on some border incident investigation procedures that the presidents had called for developing at their meeting in Sochi in March 2011. A call for finalizing these procedures was issued at the OSCE Ministerial Council Meeting in Vilnius in early December 2011. Before a planned meeting of the Armenian and Azerbaijani presidents in Sochi, Russia, on January 23, 2012, President Aliyev stressed that "no one wants war, least of all Azerbaijan, which has made such great achievements. However, this does not mean that negotiations ... will be focused on the prevention of war." At the Sochi meeting, the two presidents issued a joint statement pledging to "accelerate" talks to reach a settlement and requesting Russia to act to facilitate humanitarian ties between the two countries. The co-chairs of the OSCE Minsk Group also presented the Armenian and Azerbaijani presidents with a draft plan for setting up a group to investigate incidents along the line of contact, and the presidents called for further work on the plan. In March 2012, however, President Sargisyan reportedly condemned Azerbaijan for refusing to further discuss such an incident investigation mechanism or other "confidence building" measures, allegations that Azerbaijan rejected. In late March 2012, Azerbaijani presidential administration official Ali Hasanov acknowledged that Baku regards the talks mediated by the president of Russia as the most significant means to settle the NK conflict, given Russia's close ties to Armenia. Hasanov claimed that Russia has overwhelming influence over Armenia, and appeared to argue that Azerbaijan's major goal is to persuade Russia to use its influence to settle the conflict. On June 4-5, 2012, violence on the line of contact between Armenian and Azerbaijani forces resulted in three dead Armenian troops and five dead Azerbaijani troops, according to authorities in the respective countries. Secretary Clinton, visiting the region, deplored the violence and called for both countries to continue to seek a peaceful settlement of the NK conflict. Up to two dozen more casualties were alleged over the next few days. On June 19, 2012, the presidents of the United States, France, and Russia, meeting on the sidelines of the Group of Twenty (G-20; grouping of major developed and developing countries) summit in Mexico, issued a joint statement regretting that there had not been substantial progress since their last such appeal in mid-2011. The presidents called on both sides to eschew hostile rhetoric and argued that "military force will not resolve the conflict and would only prolong the suffering ... by peoples of the region." Appearing to reflect the rejection of the creation of an incident investigation mechanism, Azerbaijani Foreign Minister Mammadyarov stated on July 9, 2012 that "the problem is not in mechanisms, it is in the presence of the Armenian troops in the occupied Azerbaijani lands. If troops are withdrawn, both the problems with the incidents and mechanisms will be solved. This is Azerbaijan's position and we will not change it." Tense relations between Armenia and Azerbaijan were heightened at the end of August 2012 when Hungary extradited Azerbaijani citizen Ramil Safarov—who was sentenced to life in prison for killing an Armenian officer during NATO training—and he was immediately pardoned and rewarded by Azerbaijani President Ilkham Aliyev. Hungary protested that it had extradited the prisoner only after receiving assurances from Azerbaijan that he would serve out the balance of his sentence. Armenia broke off diplomatic relations with Hungary, and protests against the treatment of Safarov were held at the Hungarian and Azerbaijani embassies in several countries. The White House stated that it was communicating its "disappointment" to Azerbaijan and several Members of Congress were critical of the pardon. After President Aliyev pardoned Safarov, the OSCE Minsk Group met individually with the Armenian and Azerbaijani foreign ministers in Paris on September 2-3, 2012, and raised "deep concern" that the pardon had harmed peace efforts. Appearing to respond to the OSCE statement, President Aliyev argued in a speech on September 11, 2012, that the Minsk Group had been unsuccessful during its two-decade efforts in moving Armenia to settle the NK conflict, so that the solution might depend on Azerbaijan's use of military force. He asserted that since NK was "occupied" by Armenia, Azerbaijan's main focus was on "isolating Armenia from all international and regional [economic] projects." At the opening session of the U.N. General Assembly in late September 2012, the Armenian and Azerbaijani foreign ministers harshly characterized each other's positions on the NK conflict as "blatant distortions" and "lies." At the OSCE Ministerial Council Meeting in Dublin on December 6, 2012, the three Minsk Group co-chairing countries issued a statement regretting that there had been no progress in talks since the Armenian and Azerbaijani presidents had pledged more rapid progress in Sochi in January 2012. They also raised concerns about increased tensions between the two states in recent months, and called on the presidents to "prepare their populations for the day when they will live again as neighbors, not enemies...." In a presidential campaign speech in January 2013, President Sargisyan reportedly advised against Armenian recognition of the independence of NK "at the moment," stating that such recognition would end the peace talks and "in that case, we must be ready for military actions...." Other tensions between Armenia and Azerbaijan have included Armenia's plans to open regular civilian air travel between Armenia and NK. Civil Aviation official Arif Mammadov reportedly warned in late March 2011 that Azerbaijan could shoot down airplanes that have not received Azerbaijani permission to land at an airport being constructed in Stepanakert (Xankandi), the capital of NK. Armenia's defense ministry reportedly responded that its air defenses were capable of protecting the country's airspace. Then-U.S. Ambassador Bryza reportedly condemned the idea of attacking civilian aircraft and the Azerbaijani Foreign Ministry pledged that the country would not attack civilian aircraft. In late July 2012, however, Azerbaijan's Civil Aviation Department asserted that air flights into NK without Azerbaijani permission would be considered a violation of airspace and "relevant action" would be taken. As the airport has neared completion, an Azerbaijani air force official in January 2013 reportedly reiterated that "unpermitted flights ... will be prevented." Reportedly, new Azerbaijani government regulations call for forcing an intruding airplane to land, and if it does not comply and there is no information on civilian passengers, for shooting it down. In early February 2013, however, Azerbaijani Azeri Deputy Foreign Minister Araz Azimov stated that military forces would not shoot down civilian airliners flying over NK, but would "force" them down. He pledged that Azerbaijan would follow the rules on such action in accordance with the Convention on International Civil Aviation, ratified by Azerbaijan in 1992. U.S. Relations The United States has endeavored to reassure Azerbaijan that it continues to be a "strategic partner" in counter-terrorism cooperation and energy security and has appeared to balance these U.S. interests against its concerns about democratization in Azerbaijan. According to some observers, relations between the United States and Azerbaijan had cooled after the Administration supported reconciliation efforts in 2009 between Armenia and Turkey which Azerbaijan opposed, and after President Ilkham Aliyev was not invited to the U.S. Nuclear Security Summit in early 2010. Although relations may have cooled somewhat during this time, Azerbaijan continued to supply troops for NATO operations in Afghanistan and played a significant role as part of the Northern Distribution Network for the transit of U.S. and NATO supplies to Afghanistan (see below). To underline the significance of U.S.-Azerbaijan relations, then-Secretary of Defense Robert Gates visited Azerbaijan in June 2010 and Secretary of State Hillary Clinton visited in July 2010, and President Obama met with President Aliyev on the sidelines of the U.N. General Assembly in September 2010. During her July 4, 2010, visit to Azerbaijan, Secretary Clinton stressed that Azerbaijan was an important bilateral partner of the United States. She claimed that Azerbaijan had made "tremendous progress" in democratization and respect for human rights since its independence, but that "there is a lot of room for improvement" on such problems as restrictions on the media and civil society. She argued that such progress also has been a slow and incomplete process in the United States. She stated that "speaking personally, for myself, I would like to see [Section 907] repealed, but that's up to the [U.S. Congress]. And until the Congress agrees, then we will continue to waive its effects on Azerbaijan." President Obama also stressed the importance of U.S.-Azerbaijani relations when he met with President Aliyev on September 24, 2010. President Obama expressed his appreciation for Azerbaijan's contributions to supporting the NATO mission in Afghanistan, and the two presidents pledged to support closer bilateral ties. U.S.-Azerbaijani relations appeared to generally improve—with some fits and starts—in 2011 and thereafter with the recess appointment of Ambassador to Azerbaijan Matthew Bryza, after more than a year without an ambassador (the appointment expired at the end of the year, however). Perhaps reflecting tensions associated with U.S. criticism of human rights developments, in April 2011 Azerbaijan canceled participation in the U.S.-Azerbaijani military exercise Regional Response, planned for May 2011 (similarly, a 2010 military exercise was cancelled for reasons also subject to speculation of being linked to the status of bilateral ties). However, Azerbaijani Deputy Foreign Minister Araz Azimov and Assistant Secretary of State Andrew Shapiro met in Baku in June 2011 for the 12 th session of the U.S.-Azerbaijan security dialogue. Also, Azerbaijan participated in Romania in early August 2011 with U.S. forces in Black Sea Rotational Force training activities, and then in San Antonio, TX, in training for infantry officers. In October 2011, Deputy Secretary of State William Burns visited the three South Caucasian states. In Baku, he reportedly stated that "Azerbaijan is an important U.S. ally," praised Azerbaijan's troop support in Afghanistan and its important role in the diversification of energy exports to Europe, and stressed that resolving the NK conflict is a priority U.S. interest. In late 2011, the United States backed Azerbaijan's successful bid for a two-year term on the U.N. Security Council (UNSC). In early 2012, Azerbaijan's National Security Ministry and other sources reported that alleged Iranian-backed terrorists had planned attacks against the U.S. and Israeli embassies in Baku and their personnel and other targets, but that Azerbaijani security forces had carried out several arrests and operations that appeared to vitiate the threat. In April 2012, the Obama Administration "re-launched" meetings of the U.S.-Azerbaijan Intergovernmental Commission on Economic Cooperation, which had last convened in 2008. At the session in Washington, DC, Azerbaijani co-head Samir Sharifov reported that President Aliyev had instructed the delegation to "intensify efforts" to expand the current "strategic partnership" between the two countries. In May 2012, President Aliyev twice visited the United States. He presided at a U.N. Security Council meeting on counter-terrorism on May 4 and attended the NATO Summit in Chicago on May 19-22. In a speech on May 4, he stated that "Azerbaijan is a reliable partner of the United States and these relations have turned into a strategic partnership." In a speech at the NATO summit, he pledged that Azerbaijan would continue to assist Afghanistan after the pull-out of NATO forces in 2014. An extended meeting with President Obama was not reported. During her June 6, 2012, visit to Azerbaijan, Secretary Clinton stated that she discussed the key issues of security, energy, and democratization with President Aliyev. She thanked Azerbaijan for its "essential" role in the transit of personnel and supplies to Afghanistan, and its "central role" in Europe's efforts to diversify sources of energy and transport routes. She called for further democratization and for the release of individuals detained for expressing their views in print or on the streets. She commended the government for releasing Bakhtiyar Hajiyev (mentioned above) and held a meeting with civil society leaders. She also condemned violence along the line of contact between Armenian and Azerbaijani forces, and urged restraint. At his June 2012 confirmation hearing to become Ambassador to Azerbaijan, Richard Morningstar testified that the "wide range of shared interests" between the United States and Azerbaijan "intersects with many of the United States' highest foreign policy priorities." He outlined "three core areas of importance to the relationship: security, energy, and democratic and economic reform," and stressed that "the Administration believes we must intensify our cooperation in these areas." He also warned that security and prosperity in the South Caucasus could only be assured by the peaceful settlement of the NK conflict, and he pledged to, if confirmed, support the efforts of the Minsk Group. He was confirmed by the Senate at the end of June 2012 and presented his credentials to President Aliyev in September 2012. U.S. cumulative budgeted assistance to Azerbaijan from FY1992 through FY2010 was $975.75 million (all agencies and programs). Budgeted aid to Azerbaijan was $26.4 million in FY2011 and an estimated $20.9 million in FY2012 ("Function 150" foreign assistance programs, excluding Defense Department funding). Under the Continuing Appropriations Resolution for FY2013, signed into law on September 28, 2012 ( P.L. 112-175 ), regular foreign aid accounts are funded until late March 2013 at the same level as in FY2012 plus .612%, and most country allocations may be adjusted at agency discretion. Because of Azerbaijan's substantial economic development, the United States in recent years has cooperated with Azerbaijan to co-finance economic growth and other programs. In FY2013, the Administration's budget request called for devoting the largest share of assistance to democratization, followed by peace and security and support for economic growth. In the realm of democratization, the Administration planned to ameliorate "a restrictive environment for democratic activists" by assisting in training journalists, increasing Internet access, and providing legal assistance for citizens and activists. Peace and security assistance was planned to support Azerbaijan's participation in U.S. and NATO operations in Afghanistan, developing maritime security, and modernizing the military. Other aid was planned to support counter-terrorism and counter-narcotics efforts, prevent trafficking in persons, bolster border security, improve arms stockpile security, and destroy landmines. Economic aid was planned to bolster agricultural income and exports; share best practices on banking supervision; and to increase competitiveness, the investment climate, foreign trade, and Azerbaijan's efforts to join the WTO. Since FY2004, Azerbaijan has been designated as a candidate country for enhanced U.S. development aid from the Millennium Challenge Corporation, but it has not been selected as eligible for aid because of low scores on measures of political rights, civil liberties, control of corruption, government effectiveness, the rule of law, accountability, and various social indicators. Congressional concerns about the ongoing NK conflict led in 1992 to Section 907 of the FREEDOM Support Act ( P.L. 102-511 ) that prohibited most U.S. government-to-government assistance to Azerbaijan until the President determined that Azerbaijan had made "demonstrable steps to cease all blockades and other offensive uses of force against Armenia and Nagorno-Karabakh." Congress eased many Section 907 restrictions on a year-by-year basis until the terrorist attacks on the United States in September 2001, after which it approved an annually renewable presidential waiver ( P.L. 107-115 ). The conference managers stated that the waiver was conditional on Azerbaijan's cooperation with the United States in combating terrorism and directed that aid provided under the waiver not undermine the peace process. Foreign Military Financing (FMF), International Military Education and Training (IMET), and other security programs were launched in Azerbaijan. Congress has called for equal funding each year for FMF and IMET for Armenia and Azerbaijan. Other congressional initiatives have included the creation of a South Caucasus funding category in FY1998 to encourage an NK peace settlement, provide for reconstruction, and facilitate regional economic integration. Congress also has called for humanitarian aid to NK, which has amounted to over $36 million expended from FY1998 through FY2011. Congress passed "The Silk Road Strategy Act" in FY2000 (as part of consolidated appropriations, P.L. 106-113 ) calling for enhanced policy and aid to support conflict amelioration, humanitarian needs, democracy, economic development, transport and communications, and border controls in the South Caucasus and Central Asia. Contributions to Counter-Terrorism After the terrorist attacks on the United States on September 11, 2001, Azerbaijan "granted blanket overflight clearance, engaged in information sharing and law-enforcement cooperation, and approved numerous landings and refueling operations at Baku's civilian airport in support of U.S. and Coalition military operations" in Afghanistan. Azerbaijan has contributed troops to the International Security Assistance Force (ISAF) in Afghanistan since 2003. It increased its contingent from 45 to 90 personnel in 2009, and there are currently 94 personnel deployed, including medical and civil affairs specialists. Azerbaijan also has contributed to Afghan demining and civil service training. From 2003-2008, about 150 Azerbaijani troops participated in the coalition stabilization force for Iraq. Azerbaijan and Kyrgyzstan reportedly are the main overflight, refueling, and landing routes for U.S. and coalition troops bound for Afghanistan, and Azerbaijan also is a major land, air, and sea transport route for military fuel, food, and construction supplies. The Azerbaijani route is one of three main routes through Russia, the South Caucasus, and Central Asia to Afghanistan, together termed the NDN, that have supplemented—and for several months in 2011-2012, supplanted—supply routes through Pakistan. According to former Ambassador to Azerbaijan Matthew Bryza, in recent years, "virtually every U.S. soldier deployed to Afghanistan has flown over Azerbaijan." He also reported that over one-third of all non-lethal equipment, fuel, clothing, and food used by U.S. troops in Afghanistan transited by ground and sea through the Port of Baku. One media source reported in late 2012 that USCENTCOM was working out plans for shipping equipment and materials out of Afghanistan and across the Caspian Sea to Azerbaijan, where the goods would then be transported through Turkey to Europe. According to this account, USCENTCOM envisaged using this route for about 5% of goods exiting Afghanistan in 2013-2014.

Azerbaijan is an important power in the South Caucasus by reason of its geographic location and ample energy resources, but it faces challenges to its stability, including the unresolved separatist conflict involving Nagorno Karabakh (NK). Azerbaijan enjoyed a brief period of independence in 1918-1920, after the collapse of the Tsarist Russian Empire. However, it was re-conquered by Red Army forces and thereafter incorporated into the Soviet Union. It re-gained independence when the Soviet Union collapsed at the end of 1991. Upon independence, Azerbaijan continued to be ruled for a while by its Soviet-era leader, but in May 1992 he was overthrown and Popular Front head Abulfaz Elchibey was soon elected president. Military setbacks in suppressing separatism in the breakaway NK region contributed to Elchibey's rise to power, and in turn to his downfall just over a year later, when he was replaced by Heydar Aliyev, the leader of Azerbaijan's Nakhichevan region and a former communist party head of Azerbaijan. In July 1994, a ceasefire agreement was signed in the NK conflict. Heydar Aliyev served until October 2003, when under worsening health he stepped down. His son Ilkham Aliyev was elected president a few days later. According to the Obama Administration, U.S. assistance for Azerbaijan aims to develop democratic institutions and civil society, support the growth of the non-oil sectors of the economy, strengthen the interoperability of the armed forces with NATO, increase maritime border security, and bolster the country's ability to combat terrorism, corruption, narcotics trafficking, and other transnational crime. Cumulative U.S. assistance budgeted for Azerbaijan from FY1992 through FY2010 was $976 million (all agencies and programs). Almost one-half of the aid was humanitarian, and another one-fifth supported democratic reforms. Budgeted aid to Azerbaijan was $26.4 million in FY2011 and an estimated $20.9 million in FY2012 (including "Function 150" foreign aid and excluding Defense and Energy Department funds). Under the Continuing Appropriations Resolution for FY2013, signed into law on September 28, 2012 (P.L. 112-175), regular foreign aid accounts are funded until late March 2013 at the same level as in FY2012 plus .612%, and most country allocations may be adjusted at agency discretion. After the terrorist attacks on the United States on September 11, 2001, Azerbaijan granted over-flight rights and approved numerous landings and refueling operations at Baku's civilian airport in support of U.S. and coalition military operations in Afghanistan. More recently, the country is a major land, air, and sea conduit of the Northern Distribution Network for supplies entering and leaving Afghanistan to support U.S. and International Security Assistance Force (ISAF) stabilization operations. Azerbaijan has contributed troops for the ISAF since 2003. The country increased its contingent from 45 to 90 personnel in 2009, including medical and civil affairs specialists. From 2003 to 2008, about 150 Azerbaijani troops participated in the coalition stabilization force for Iraq.

Background In 1891, Congress granted the President the authority (now repealed) to establish forest reserves from the public domain. Six years later, Congress stated that the forest reserves were to improve and protect the forest within the reservation, or for the purpose of securing favorable conditions of water flows, and to furnish a continuous supply of timber for the use and necessities of the citizens of the United States. Initially, the reserves were administered by the Division of Forestry in the Department of the Interior's General Land Office. In 1905, this division was combined with the USDA Bureau of Forestry (renamed the Forest Service), and the administration of the 56 million acres of forest reserves (renamed national forests in 1907) was transferred to the new agency within the Department of Agriculture. NFS management is still one of the three principal FS responsibilities. The other two principal responsibilities are providing assistance programs to nonfederal forest owners and conducting forestry research programs. In 1906 and 1907, President Theodore Roosevelt more than doubled the acreage of the forest reserves. In response, Congress limited the authority of the President to add to the system in certain states in 1907. In 1910, Congress continued the limitation, but then in 1911, Congress passed the Weeks Act to authorize additions to the NFS through the purchase of private lands. Presidential authority to proclaim new national forests was terminated in 1976. Under the Weeks Act and other authorities, the system has continued to grow slowly, from 154 million acres in 1919 to 193 million acres in 2014. This growth has resulted from purchases and donations of private land and from land transfers, primarily from the BLM. Organization The NFS includes 154 national forests with 188.4 million acres (97.6% of the system), 20 national grasslands with 3.8 million acres (2.0%), and 108 other areas—such as land utilization projects, purchase units, and research and experimental areas—with 0.9 million acres (0.5%). Each national forest unit (which may consist of one or more national forests) is administered by a forest supervisor. The NFS units are arranged into nine administrative regions, each headed by a regional forester. The nine regional foresters report to the NFS deputy chief, who reports to the chief of the Forest Service. The chief has traditionally been a career employee of the agency. The chief reports to the USDA Secretary through the Under Secretary for Natural Resources and Environment. The NFS regions are often referred to by number rather than by name. Table 1 identifies the number, states encompassed, and acreage for each of the regions. NFS lands are concentrated in the seven western FS regions (see Figure 1 ). Inholdings , shown in Table 1 , are lands (primarily private) within the designated boundaries of the national forests (and other NFS units) that are not administered by the FS. Inholdings sometimes pose difficulties for FS land management, because the agency does not regulate their development and use, which may be incompatible with desired uses of the federal lands, and constraints on access across inholdings may limit access to some federal lands. Many private landowners, however, object to the idea of possible federal restrictions on the use of their lands and especially to unfettered public access across their lands. Management of the National Forest System Overview and Land Management Planning The management goals for the national forests were articulated in Section 1 of the Multiple-Use Sustained-Yield Act of 1960, which states: It is the policy of the Congress that the national forests are established and shall be administered for outdoor recreation, range, timber, watershed, and wildlife and fish purposes. The purposes of this Act are declared to be supplemental to, but not in derogation of, the purposes for which the national forests were established as set forth in the Act of June 4, 1897.... The establishment and maintenance of areas as wilderness are consistent with the purposes and provisions of this Act. The act directs land and resource management of the national forests for the combination of uses that best meets the needs of the American people. Management of the resources is to be coordinated for multiple use —considering the relative values of the various resources but not necessarily maximizing dollar returns nor requiring that any one particular area be managed for all or even most uses. The act also calls for sustained yield —a high level of resource outputs maintained in perpetuity but without impairing the productivity of the land. Other statutes that apply to all federal agencies—such as the National Environmental Policy Act of 1969 (NEPA) and the Endangered Species Act of 1973 (ESA) —as well as other FS-specific statutes, also apply. FS planning and management are guided primarily by the Forest and Rangeland Renewable Resources Planning Act of 1974 (RPA), and the National Forest Management Act of 1976 (NFMA). Together, these laws encourage foresight in the use of the nation's forest resources and establish a long-range planning process for the management of the NFS. RPA assessments are published approximately every 10 years, and the assessments report the status and trends of the renewable resources on all forests and rangelands. Planning Regulations NFMA requires that the FS prepare a comprehensive land and resource management plan for each NFS unit, coordinated with the national RPA planning process. Plans must be revised every 10 to 15 years to address changing conditions, management goals, and public use. The plans must use an interdisciplinary approach, including economic analysis and the identification of costs and benefits of all resource uses. The plans must also be developed and revised with public involvement and must be prepared in accordance with NEPA. Regulations (often called the planning rules) to establish the procedures to develop, amend, and revise plans were issued in 1979 and then revised in 1982, 2000, 2005, 2008, and 2012. Since the Clinton Administration began debating the regulations in the 1990s, each successive presidential administration has revised the planning rule at least once, and several regulations have been overturned by the courts. The Clinton Administration's 2000 regulations ("2000 planning rule") would have increased emphasis on ecological sustainability during the forest planning process. The George W. Bush Administration delayed implementation of the Clinton regulations three times out of concerns about implementation and the emphasis on biological sustainability and then replaced them before they went into effect. The Bush Administration promulgated final rules in 2005 ("2005 planning rule") to balance ecological sustainability with economic and social considerations. The rules would have also exempted NFMA plans from NEPA and ESA. Interests successfully challenged the 2005 planning rule, arguing that the new rules reduced environmental protection without adequate public comment and ESA consideration. The Administration reissued the 2005 rule as a proposed rule to provide for the court-ordered public comment and issued new final rules in April 2008. The court also invalidated the 2008 planning rule for violating NEPA and ESA, after which the FS reverted to using 1982 procedures. The Obama Administration promulgated final planning regulations in 2012 (2012 planning rule). The 2012 planning rule establishes an adaptive, three-phase planning framework to emphasize ecological sustainability, landscape-scale restoration, and science-based decisions informed by public values. Plans are to also account for the potential impacts of climate change. Logging, ranching, and off-highway vehicle groups have filed several lawsuits challenging the ecological sustainability provisions in the 2012 planning rule, among others. The FS has developed 125 plans to guide the management of the 154 national forests and 20 national grasslands in the NFS. As of FY2015, 60 plans had been revised, and 33 units were in the process of revising their plans. Of those in process, 14 were using the 1982 procedures under the 2000 planning rule to conduct the revisions; the others were using the procedures established in the 2012 planning rule. National Forest System Uses As noted above, NFS lands are administered for sustained yields of multiple uses, including outdoor recreation, range (livestock grazing), timber, watershed, wildlife, and fish purposes; wilderness, which was added as a use in 1964; and mineral extraction, as well as other uses and services. The various uses of NFS lands are to be balanced in the "combination that will best meet the needs of the American people" with the "harmonious and coordinated management of the various resources, each with the other ... in perpetuity of a high-level annual or regular periodic output ... without impairment of the productivity of the land." Although not a stated statutory purpose of the national forests, many of the uses and services of the national forests generate revenue. This revenue may be used to offset agency costs, shared with the communities containing the national forests, or deposited into the General Treasury, depending on the use, location, and varying statutory requirements. In FY2014 (the most recent year available), the FS generated a total of $242.2 million (see Figure 2 ). Table 2 lists the revenue generated by type for FY2010-FY2014. The single largest source of revenue for the FS over FY2010-FY2014 was recreation. However, the next three largest sources of revenue—KV sales, salvage sales, and timber production —are all associated with timber harvests. In FY2014, these three sources combined for a total $116.0 million, representing nearly half of the revenue generated. Timber One of the first uses of the early forest reserves was to "furnish a continuous supply of timber." The first chief of the FS, Gifford Pinchot, initially believed the agency could eventually become self-supporting through the production of timber, although he eventually abandoned the idea. However, FS timber sales and revenue generation were negligible until the 1950s, when the post–World War II housing boom, combined with declining competition from private timber sales, led to increasing NFS timber sales (see Figure 3 ). For many years after, the FS was a major provider of timber for the wood products industry, generally selling between 10 billion and 12 billion board feet of timber annually (about 20%-25% of total U.S. wood supply). Since the 1990s, FS timber harvests have fallen, totaling around 2 billion board feet—less than a quarter of the historic level—annually since 1999. The decline in harvest levels and value in the 1990s is attributable to a multitude of factors, including (but not limited to) changing legislative directives and related forest management policies and practices—such as increased planning and procedural requirements—as well as changing market dynamics for wood products, public preferences, and litigation. For the last 15 years, harvest volume has remained relatively constant around 2.0 billion board feet harvested annually, with a slight upward trend over the last few years. Starting in FY2005, the price of lumber dropped significantly, mostly in response to instability in the U.S. housing market. This drop contributed to the value of FS harvests declining annually from FY2005 through FY2010, although the value has been modestly increasing since then. In FY2015, the FS harvested a reported total of 2.5 billion board feet of timber—the largest production since FY2000—for a total of $162.7 million. The FS is increasingly using timber harvests as a tool to achieve various land and resource management objectives or in the context of larger restoration objectives—such as enhancing ecosystem or watershed conditions—in addition to timber production. For example, the FS has permanent authority to enter into stewardship contracts—contracts with private parties for stewardship activities (e.g., thinning to reduce potential wildfire fuels) that include commercial timber to offset some of the stewardship costs. The FS may also harvest trees damaged or killed in fires or other disturbance events—called salvage harvesting—in part to facilitate forest restoration and recovery and also to capture some of the economic value of the federal resources and generate revenue to fund other restoration activities. Recreation Outdoor recreation is one of the most popular uses of the national forests. The FS reports that there are more than 166 million annual recreational visits for activities such as hunting, fishing, wildlife viewing, hiking, camping, skiing, snowboarding, horseback riding, and more. Private companies also provide additional recreational opportunities on the national forests through recreation special use authorizations for downhill ski resorts, campgrounds, resorts, marinas, recreational events, outfitters, and guides. Some recreation uses, such as the use of off-highway vehicles and snowmobiles in the national forests, have generated controversy. In 2004, the FS chief identified unmanaged recreation —"increasing use of the national forests for outdoor activities ... including the use of off-highway vehicles"—as one of the four major threats to the ecological integrity of NFS lands. In response, the agency has been conducting a travel management planning process to designate which national forest roads and trails are available for motorized use and prohibiting their use outside the designated system. Recreation on NFS lands also generates significant revenue for the FS. In FY2014, recreation receipts totaled $72.0 million (30% of the total revenue generated). In 2004, the Federal Lands Recreation Enhancement Act established a recreation fee program for the FS (and the other federal land management agencies). The program was set to expire in 2014 but was extended until September 30, 2016. The act authorizes different kinds of fees, outlines criteria for establishing fees, prohibits certain fees, and allows the FS to use collections without further appropriation. While Congress sought to make the actual users pay fees, some users object to fees for national forest recreation, arguing that the fees amount to paying twice (once through taxation) to support the agency. Congress may consider allowing the recreation fee program to sunset or may consider extending the program again, with or without modifications. Fish and Wildlife Habitat The NFS contains important fish and wildlife habitats as well as botanically significant resources, which contribute ecological, recreational, economic, and cultural benefits to the nation. These resources include fishable streams, lakes, wetlands, and wildlife—such as elk, bighorn sheep, and wild turkey—which are enjoyed by a variety of recreational users. In addition, the NFS contains over 400 species of plants and animals listed as threatened or endangered and 3,500 that have been designated as sensitive and require special management. Range The FS issues permits and leases for grazing private livestock on approximately 93 million acres of NFS lands. Permits and leases generally cover a 10-year period and may be renewed. Further, expired permits and leases may be automatically renewed through FY2015 while the agencies process a backlog of permits and leases needing evaluation. Fees are charged under a formula established by law in 1978, then continued indefinitely through an executive order issued by President Reagan in 1986. The federal grazing fees for 2016 will be $2.11 per head month. Grazing levels have generally declined very slowly over the past several decades. BLM lands provide more grazing than do the national forests, and the BLM typically leads federal efforts on grazing management. Watersheds Protecting watershed health was one of the original purposes of the national forests. This includes the management of surface and groundwater resources as well as water uses and rights on NFS lands. Nearly one-fifth of the nation's water originates on NFS lands. In addition, watersheds support ecological services such as productive soils, biological diversity, and fish and wildlife habitat, including spawning and rearing habitat for sport and commercial fish species. Watersheds also provide flood control benefits. The FS established the Watershed Condition Framework to assess and prioritize the conditions of the 15,000 watersheds containing significant portions of NFS lands. The initial assessment, completed in FY2011, classified the conditions of 52% of the watersheds as good, 45% as fair, and 4% as poor. In FY2012, the FS developed watershed action plans to guide restoration activities and improve the condition class of priority watersheds. Since FY2012, the FS reports that the condition class of 30 watersheds has improved. Other watershed restoration activities include decommissioning roads and restoring or enhancing stream habitat. Wilderness and Other Special Land Designations Congress has also provided management direction within the NFS by creating special designations for certain areas. Some of these designations—wilderness areas, wild and scenic rivers, and national trails—are part of larger management systems affecting several federal land management agencies. The NFS also includes several other types of land designations. The NFS contains many national game refuges and wildlife preserves, national recreation areas and scenic areas, national monuments, and other congressionally designated areas. Resource development and use is generally more restricted in these specially designated areas than on general NFS lands, and specific guidance is typically provided with each designation. Finally, management to preserve or develop FS roadless areas (areas that have been reviewed for wilderness designation but have not been designated as wilderness by Congress) continues to be controversial. Questions persist over the extent to which FS should manage to protect the wilderness characteristics of the approximately 58.5 million acres of roadless areas by prohibiting or permitting certain uses to occur. In 2001, President Clinton proposed a new rule to prohibit most road construction and timber harvesting in these areas. President George W. Bush delayed implementation of the Clinton rule and proposed an alternative policy. Both were heavily litigated; however, the Clinton roadless rule remains intact after the Supreme Court refused to review a lower court's decisions in 2012. Other Uses NFS lands are also used for other purposes and services supporting national policies and federal land laws, such as electricity transmission, telecommunication sites, and commercial filming. The use of the national forests for such activities (and various recreation programs) is permitted through special use authorizations (SUAs). SUAs establish the terms and conditions for the use of the NFS lands. Much of the NFS is open to mineral and energy resource exploration and development. Oil, natural gas, and coal exploration and production is governed by the Mineral Lands Leasing Act of 1920, which also requires the BLM to manage the subsurface rights to virtually all federal lands, including NFS lands. Approximately 5.6 million acres underlying NFS lands are currently leased for oil, gas, coal, and geothermal operations. There are an estimated 4,200 federal oil and gas wells on NFS lands, and coal produced from NFS land accounted for 25% of the nation's coal production. The FS also administers approximately 160,000 mining claims. Receipts and royalties generated for energy and mineral activities are collected by the Office of Natural Resources Revenue. In January 2016, DOI announced a moratorium on issuing new coal leases on federal lands while BLM identifies and evaluates potential reforms on the federal leasing system. Renewable energy projects—such as solar and wind projects—are allowed on NFS lands, generally through a right-of-way SUA. Although FS has not approved any SUAs for solar projects to date, the agency did approve a utility-scale wind power facility SUA in 2012. However, implementation of the project to construct and operate a 15-turbine facility on the Green Mountain National Forest is pending the outcome of ongoing litigation. Wildfire Since 2000, much of the focus of discussions and legislative proposals on FS management has been on the risk of catastrophic wildfires, especially in the intermountain West. Several recent fire seasons were, by most standards, among the worst since 1960, including the 2015 wildfire season, in which more than 10 million acres burned. Many believe these fires reflect degraded forest ecological conditions derived from excessive accumulations of biomass—dead and dying trees, heavy undergrowth, and dense stands of small trees, also called fuels—exacerbated by drought and climate change and by the increasing numbers of homes in the wildland-urban interface (i.e., wildlands near communities threatened by potential wildfire conflagrations). These observers advocate rapid action to improve forest resilience, including prescribed burning, thinning, and salvaging dead and dying trees, to protect NFS forests and nearby private lands and homes. Critics counter that authorities to reduce fuel levels are adequate, treatments that remove commercial timber degrade forest health and waste taxpayer dollars, and expedited processes for treatments are a device to reduce public oversight of commercial timber harvesting. NFS Appropriations The FS receives both discretionary and mandatory appropriations. Although it is an agency within the USDA, the FS receives its discretionary appropriations through Title III of regular Interior, Environment, and Related Agencies appropriations bills. Annual mandatory appropriations are provided under existing authorizing statutes. Laws authorizing mandatory appropriations allow the FS to spend money without further action by Congress, and the budget authority for several of these mandatory spending accounts is dependent on revenue generated by activities on the national forests. In FY2016, the FS received $7.06 billion in total funding, of which $6.36 billion (90%) was discretionary funds and an estimated $691.91 million (10%) was mandatory funds. Management of the NFS is primarily funded as one of the FS's main discretionary accounts. However, several of the mandatory accounts also fund NFS activities, although this report focuses on discretionary appropriations. In FY2016, Congress appropriated $1.51 billion to the NFS discretionary account. On average over the last five fiscal years, the NFS account has received approximately 28% of the FS discretionary appropriations. FS budget requests and Interior Appropriations Subcommittee documents typically allocate monies in each account among various subaccounts and, in some cases, among specific programs and activities. The FS further allocates its appropriations—at the account, subaccount, and program activity levels—among the nine FS regions, five research stations, two service centers and laboratories, and the national headquarters office in Washington, DC. Once the funds have been allocated to the regions and programs, the money is then further allocated to each national forest. This can make analyzing appropriations by region or by forest challenging. The NFS account includes several subaccounts, programs, and activities, many of which reflect the different ways the national forests are used. The largest subaccount is Forest Products, which generally receives around one-quarter of the NFS appropriation and funds the Timber Sale program. The NFS subaccounts generally include the following (listed in the order they generally appear in congressional appropriations documents): Land Management Planning funds the development, maintenance, and revision of the forest plans (FY2016: $37.0 million, 2% of NFS). Inventory and Monitoring funds the acquisition, analysis, and storage of data that support planning and other programs, such as restoration activities, climate change impact evaluations, and watershed condition assessments (FY2016: $148.0 million, 10% of NFS). Recreation, Heritage, and Wilderness funds activities related to the management of recreation opportunities on the NFS, administering recreation special use authorizations, supporting the protection of heritage resources, and protection of designated wilderness areas and wild and scenic rivers (FY2016: $261.7 million, 17% of NFS). Grazing Management funds the administration of livestock grazing use permits on the NFS and implementing environmental reviews of all FS grazing allotments as statutorily mandated (FY2016: 56.9 million, 4% of NFS). Forest Products funds activities to analyze, prepare, offer, award, and administer timber sales, stewardship contracts, and special forest products permits on NFS lands (FY2016: $359.8 million, 24% of NFS). Vegetation and Watershed Management funds restoration-related management activities to improve forest and rangeland conditions, fish and wildlife habitat, water quality, quantity, and timing of stream flows, among others (FY2016: $184.7 million, 12% of NFS). Wildlife and Fish Habitat Management funds activities to restore, recover, and maintain wildlife and fish—particularly rare animal and plant species—and their habitats on NFS lands (FY2016: $140.5 million, 9% of NFS). Collaborative Forest Landscape Restoration Program Fund (CFLR P ) , authorized in 2009, funds 23 landscape-scale restoration projects for 10 years in priority landscapes (FY2016: $40.0 million, 3% of NFS). Minerals and Geology Management funds the administration of mineral operations on NFS lands, management and mitigation of abandoned mine lands, management of geologic resources and hazards, and management of environmental compliance and restoration related to mineral activities (FY2016: $76.4 million, 5% of NFS). Landownership Management provides funds for the basic land management or real estate activities necessary to support all NFS programs, such as granting special use authorizations for energy transmission corridors and processing land exchanges (FY2016: $77.7 million, 5% of NFS). Law Enforcement Operations responds to emergencies, investigates illegal activities (such as illegal drug activities), and conducts crime prevention activities on NFS lands (FY2016: $126.7 million, 8% of NFS). Table 3 provides appropriations data for the NFS subaccounts over the last five fiscal years. Integrated Resources Restoration Budget Line Item Pilot67 The FS proposed a new budget structure for the NFS account by combining its restoration-focused work into one budget line item, Integrated Resources Restoration (IRR), in FY2011. The FS argued that the current budgeting policy constrained multiple use management, because management activities are often hard to categorize, and they provide benefits for a variety of programs. The IRR proposal combined the forest products, wildlife and fish habitat management, vegetation and watershed management, and CFLRP subaccounts into one budget line item. Congress did not enact the FY2011 proposal. The IRR request was repeated in FY2012. Congress authorized up to $68 million transferred from other NFS subaccounts to implement the IRR as a pilot program in FY2012. The pilot was authorized to be conducted in three regions (1, 3, and 4). While the committee report stated that the "proof of concept" pilot should occur for at least three years, the FY2012 law did not specify a sunset date for the pilot. Implementation of the authority and program began late in FY2012. Congress has continued to authorize the transfer of funds to implement the pilot IRR program through FY2016. Congress may consider implementing the IRR across the NFS, continuing the IRR in the three pilot regions, discontinuing the pilot, or implementing other proposals to modify the NFS discretionary account structure. IRR proponents—notably, the FS—assert that the increased budgetary flexibility facilitates integrated land and resource management objectives to reduce the risk of catastrophic wildfire and improve forest resistance and resiliency to disturbance events. IRR critics, however, are concerned that the increased budgetary flexibility will lead to decreased congressional oversight over NFS management decisions. Wildland Fire Management Appropriations The FS receives appropriations to conduct wildfire management activities—preparedness, suppression, fuel reduction, and site rehabilitation—on NFS lands through two separate discretionary accounts: the Wildland Fire Management (WFM) account and the FLAME Wildfire Suppression Reserve Fund. Together, WFM and FLAME appropriations have accounted for more than half of the FS discretionary appropriation over the past five years (FY2012-FY2016). For FY2016, FS received $3.9 billion in WFM and FLAME appropriations, which included a supplemental appropriation of $700 million to repay money transferred from other accounts to cover the high costs of the FY2015 wildfire season. Suppression activities generally account for a large portion of the regular WFM appropriation (including appropriations to the FLAME fund). Two other WFM subaccounts—preparedness and hazardous fuels—receive the bulk of the remaining WFM funds, although there are also four relatively smaller research assistance programs funded through the account. Suppression activities include all of the work associated with extinguishing or confining fires on NFS lands and other federal or nonfederal lands under fire protection agreements with the FS. Due to the emergency nature of fire control activities, the FS is also authorized to transfer money out of other discretionary accounts if suppression funds become depleted. In addition, the FS may also receive additional funding through emergency or supplemental appropriations if suppression funds are insufficient to cover continued fire control operational needs. For example, Congress appropriated $700 million in FY2016 as a supplemental to cover the costs of the FY2015 wildfire season. Congress has been concerned about the cost of WFM generally and suppression activities specifically. Congress has expressed concern about the impact of fire transfers on other NFS management activities and about the increasing portion of the FS budget going toward suppression funding. Congress has considered options for financing suppression activities, including proposals to provide funds outside of statutory and procedural constraints on discretionary spending. NFS Land Ownership: Designation, Acquisition, and Disposal75 As noted above, in 1891, the President was authorized to reserve lands from the public domain as forest reserves, but this authority was subsequently limited by Congress. However, many presidential proclamations and executive orders have modified NFS boundaries and changed names, including establishing new national forests from existing NFS lands. National forests in the East were generally established between 1910 and 1951. Today, establishing a new national forest or significantly modifying the boundaries of an existing national forest requires an act of Congress. The Secretary of Agriculture has numerous authorities to add lands to the NFS. Often, though, the acquisitions are restricted to land within or contiguous to the proclaimed exterior boundaries of a national forest. The first and broadest authority is in the Weeks Act of 1911, which allows the Secretary to purchase "such forested, cut-over, or denuded lands within the watersheds of navigable streams ... the regulation of the flow of navigable streams or for the production of timber." Additional authorities are provided by the Bankhead-Jones Farm Tenant Act of 1937, which authorized the Secretary to acquire submarginal lands and lands not suitable for cultivation. Under this authority, the FS acquired and established the 20 national grasslands and six land utilization projects that account for 2% of the NFS. Other laws authorize land acquisition for the national forests, typically in specific areas or for specific purposes. For example, the Secretary is authorized to acquire access corridors to national forest lands across nonfederal lands. The Secretary also has numerous authorities to dispose or convey national forest land out of federal ownership, all constrained in various ways and seldom used. Often, the authority requires the federal government to dispose of the land at fair market value. The 1897 Organic Act and the 1911 Weeks Act authorize the disposal of land better suited for other uses, such as agriculture or mining. Other authorities include the following: The 1958 Townsites Act authorizes the Secretary to transfer up to 640 acres adjacent to communities in Alaska or the 11 western states for townsites if the "indigenous community objectives ... outweigh the public objectives and values which would be served by maintaining such tract in Federal ownership." The 1983 Small Tracts Act authorizes the Secretary to dispose of certain lands by sale or exchange if they are valued at no more than $150,000 and meet certain size specifications. Congress authorized the FS to transfer up to 80 acres of NFS land for a nominal cost upon written application of a public school district. The lands may revert back to the federal government, however, if not used for the educational purposes for which they were acquired. Issues for Congress Congress considers many issues regarding NFS management. Current debates tend to focus more on particular issues that involve land and resource allocation and valuation, such as balancing increasing demands for commodity and non-commodity uses and services from the national forests. Simultaneously, public interest in how these resource allocation decisions are made and the lands are used has increased. NFS management and administration has thus become more complex and contentious. However, these controversies often derive from questions about the fundamental management principles of multiple use and sustained yield. The meaning and application of the dual concepts of multiple use and sustained yield have been debated since Congress first authorized the reservation of federal land. The debates generally revolve around questions such as these: Is multiple use achieved through adjacent or sequential allowance of single resource uses or by simultaneous application of several uses? Is sustained yield management to provide a regular flow of products for human use or to assure the maintenance of the biological productivity of the forest resources? When these management principles were established, Congress conferred considerable discretion on the FS to make those decisions. As concerns arose and persisted about the agency's interpretation of multiple use and sustained yield, Congress began to restrict that discretion by enacting legislation specifying that certain uses occur (or not occur) in specified areas. However, Congress has not enacted legislation directly addressing the concepts of multiple use or sustained yield. Therefore, conflicts arise as users and land managers attempt to balance multiple uses and services and produce a sustained yield of resources from the national forests. Congress often considers legislation to prioritize various national forests uses over others or to define or specify levels of production. For example, Congress has considered legislation to prioritize timber production over other uses or to specify a certain annual output of timber production. In contrast, Congress has also considered legislation that would prioritize recreation, hunting, and fishing over other uses. There are several ongoing concerns regarding wildfire management, including the total federal costs of wildfire management, the strategies and resources used for wildfire management, and the impact of wildfire on both the quality of life and the economy of communities surrounding wildfire activity. Fire control expenditures continue to climb, affecting the implementation of other programs (and thus affecting national forest uses) through personnel and funds transferred to fire control. It is unclear when, whether, and how this cost spiral can be contained.

The 193 million acres of the National Forest System (NFS) comprise 154 national forests, 20 national grasslands, and several other federal land designations. Management of the NFS is one of the three principal responsibilities of the Forest Service (FS), an agency within the U.S. Department of Agriculture (USDA). The other two principal responsibilities are providing assistance to nonfederal forest owners and conducting forestry research. Most NFS lands are concentrated in the western United States, although the Forest Service administers more federal land in the East than all other federal agencies combined. The original forest reserves were established to improve and protect federal forests and watersheds and provide a source of timber. Today, the statutory mission of the National Forest System is to provide a variety of uses and values—timber production, watershed management, livestock grazing, energy and mineral development, outdoor recreation, fish and wildlife habitat management, and wilderness—without impairing the productivity of the land. Although there is not a statutory mandate to do so, many of the uses and services available on NFS lands generate revenue. The revenue may be used to offset agency costs, shared with the local communities containing the NFS lands, or returned to the Treasury. Growing demands for the various uses, values, and services have led to conflicts over the location and timing of activities. In FY2016, the Forest Service received $1.5 billion to fund National Forest System management, approximately 24% of the $6.4 billion the agency received in discretionary appropriations. The NFS account includes several subaccounts, programs, and activities, many of which reflect the different ways in which national forests are used. These uses include activities related to recreation and wilderness, grazing, wildlife and fish habitat management, forest products and timber sales, and energy and minerals management. However, in FY2012, Congress authorized a pilot budget structure that consolidated several of the budget line items for three Forest Service regions. The Forest Service asserts that the budget flexibility provided in this Integrated Resources Restoration (IRR) program will facilitate various land and resource management objectives across the NFS. Reducing the risk and expense of catastrophic wildfires on National Forest System lands has been a major focus of Congress, the Forest Service, and the public. Reducing the risk of catastrophic wildfires involves land and resource management activities to restore the resilience and resistance of the forest ecosystem, such as reducing accumulated levels of biomass (which fuels fires) through timber sales, stewardship contracts, or prescribed burns. Many are also concerned about the cost of wildfires. Although wildfire management is funded separately from NFS management, some are concerned about the rising proportion of fire suppression costs on the rest of the Forest Service budget. In FY2006, wildfire management activities accounted for 44% of the agency's total discretionary appropriations; in FY2016, the $3.9 billion appropriated to wildfire management is 61% of the agency's total discretionary appropriation. This report provides an overview of the history and management of the National Forest System, including a discussion of the statutory framework for making land management plans and decisions as well as for acquiring or disposing of system lands. The report also discusses the multiple uses of the NFS and the revenue generated by those activities, appropriations to manage the NFS, and wildfire management issues and costs. It concludes with a discussion of the issues that Congress often debates regarding national forest management.

Introduction The Rohingya—a predominately Sunni Muslim minority of northern Rakhine State in Burma (Myanmar)—are facing several concurrent crises precipitated by the reported attack on August 25, 2017, on Burmese security facilities near the border with Bangladesh. The attacks, allegedly conducted by a relatively new and little known Rohingya nationalist group, the Arakan Rohingya Salvation Army (ARSA), and an ensuing "clearance operation" conducted by Burma's security forces have resulted in the rapid displacement of more than 600,000 Rohingya into makeshift camps in eastern Bangladesh, and the internal displacement of an unknown number of people within Rakhine State. These events have created two immediate humanitarian crises in Bangladesh and in Rakhine State. In addition, long-standing policies and attitudes in Burma regarding the Rohingya are creating major challenges to the possibility of their voluntary return. Starting in the 1960s under Burma's military juntas and continuing until today under a mixed civilian/military government, Burma's laws and policies have deprived most of the Rohingya of many of their human rights, including their citizenship. According to some observers, it is likely that many of the displaced Rohingya will not wish to return to Burma unless their safety can be secured, the discriminatory laws and policies are changed, and their human rights restored. If conditions in Burma are not suitable for repatriation, the international community may need to consider other assistance for the Rohingya, including longer-term accommodation in camps in Bangladesh and exploring local integration and resettlement options. Allegations of organized, systematic, and severe human rights abuses by Burmese security personnel, ARSA and its supporters, and local Rakhine "vigilantes" have given rise to claims of possible crimes against humanity, ethnic cleansing, or genocide taking place in Rakhine State. Beyond ensuring that such violence stops, the allegations of human rights abuse present Burma and the rest of the world, including the United States, with the challenge of adequately investigating and documenting the possible human rights abuses, and if necessary, establishing suitable measures for accountability of those found responsible. The ongoing violence in Rakhine State reportedly is another factor contributing to the reluctance of many Rohingya to return to Burma. The displacement of the Rohingya, combined with the alleged violence of the Burmese security force's clearance operation, has also created an environment that could give rise to the radicalization of portions of both the Rohingya and predominately Buddhist Rakhine population. Some Rohingya may join the ranks of ARSA or become supporters of other more militant extremist organizations. Islamist militant groups, in particular, may attempt to recruit Rohingya. In addition, some Rakhine may enlist with the extant Rakhine-based ethnic armed organizations (EAOs) or form local militias to defend themselves from the perceived ARSA threat. The Trump Administration has responded to the crises by making gradual and limited changes to U.S. policy. The initial response from the State Department was to denounce the alleged ARSA attacks, and call upon the Burmese government and military to exercise restraint in responding to the attacks. As the number of displaced persons increased, the Trump Administration provided additional funding for humanitarian assistance, but refrained from commenting on the allegations of serious human rights abuses. More recently, the State Department announced new restrictions on relations with the Burmese military, but indicated that its focus was on solving problems, not punishing people. Congress may choose to consider what actions, if any, the United States should take in response to these various crises and challenges. Among the issues the Rohingya crises raise are the following: Humanitarian Policies and Issues : How much humanitarian assistance is needed in Bangladesh and in Rakhine State, and for how long? What role should the United States play in providing that assistance? How should international assistance be coordinated? Repatriation/Resettlement Issues : What are the prospects for safe and voluntary repatriation of the displaced Rohingya? What arrangements should be made for the resettlement of those who do not wish to return to Burma, and what role should the United States play in such a resettlement program? Issues of Discrimination in Burma : How important is rectifying Burma's discriminatory laws and policies for the voluntary repatriation of the Rohingya and reconciliation between the Rakhine and Rohingya? What measures should the United States take to encourage or pressure the Burmese government to repeal or amend discriminatory laws and policies? Human Rights Abuse Issues : What efforts should be made to investigate and document the alleged human rights abuses, and what role should the United States play in supporting or conducting such efforts? What are the options for securing accountability for those people or organizations determined to be responsible for human rights abuses? Issues Regarding the Risk of Radicalization : How serious is the risk of radicalization of Rakhine or Rohingya, or their recruitment by existing EAOs or Islamist militant groups? What measures, if any, should the United States take to assist the Bangladesh government and the Burmese government to counteract efforts to radicalize members of either ethnic community? Does the treatment of the Rohingya minority pose a radicalization risk for communities elsewhere in the region? Issues R elated to P otential D estabilization of the R egion : Will the displaced Rohingya in Bangladesh raise domestic political tensions related to Islamist agendas for Bangladesh? Will this have an impact on Bangladesh domestic politics and Bangladesh-Burma relations? Issues for U.S. P olicy T oward Burma : Do the events in Rakhine State warrant a rethink or adjustment in current U.S. policy toward Burma? Should some of the previously waived U.S. sanctions on Burma be reinstated to encourage or promote changes in the policies and behavior of the Burmese government or the Burmese military? What forms of assistance should the United States provide to the Bangladesh government and the Burmese government to respond to the various crises coming out of the events in Rakhine State? How will the issue affect U.S. geopolitical interests, given China's substantial influence in Burma? On November 2, 2017, companion bills were introduced in the House of Representatives and the Senate that offer an approach to addressing the Rohingya crises, as well as a reformulation of U.S. policy toward Burma. The Burma Unified through Rigorous Military Accountability Act of 2017 (BURMA Act; H.R. 4223 ) and the Burma Human Rights and Freedom Act of 2017 ( S. 2060 ) would impose sanctions on selected Burmese military leaders, limit security and military assistance, and place conditions on multilateral assistance until the Burmese government and military meet certain criteria to address the various crises in Rakhine State. The Burma Human Rights and Freedom Act of 2017 would also appropriate $104 million for humanitarian assistance to "the victims of the Burmese military's ethnic cleansing campaign targeting Rohingya in Rakhine State." Precipitating Events On August 25, 2017, ARSA members and local Rohingya supporters reportedly attacked 30 security facilities, including border outposts and one military base, killing over a dozen Burmese security personnel. The Burmese military, or Tatmadaw, almost immediately began a "clearance operation," deploying more than 70 battalions, or an estimated 30,000-35,000 soldiers, into Rakhine State. According to State Counsellor Aung San Suu Kyi, the clearance operation ended on September 5, 2017. The "clearance operation" in the townships of Buthidaung, Maungdaw, and Rathedaung in northern Rakhine State was a major factor leading to the displacement of more than 600,000 Rohingya into Bangladesh, as well as the internal displacement of an unknown number of Rakhine, Rohingya, Hindu, Magyi, Mro, and Thet in Rakhine State. The current crisis in Rakhine State can be traced further back to October 10, 2016, when ARSA allegedly attacked three border outposts, killing nine police officers. The Tatmadaw responded by initiating a similar "clearance operation" that resulted in approximately 87,000 Rohingya crossing into Bangladesh, and the internal displacement of an unknown number of Rohingya into temporary camps. Background on Rakhine State and the Rohingya Rakhine State (also known as Arakan State) is located in western Burma, east of the Bay of Bengal and on the border with Bangladesh. The state is 14,200 square miles in size (slightly larger than the State of Maryland), with an estimated population (pre-crises) of 3.2 million. The largest ethnic group in Rakhine State is the Rakhine (or Arakan), a predominately Theravada Buddhist community. The next largest ethnic group is the Rohingya, a predominately Sunni Muslim community. Other ethnic groups living in Rakhine State include Bamar, Chin, Daingnet, Hindu, Kamar (also Sunni Muslims), Magyi, Mro, and Thet. Various sources estimate the pre-crises Rohingya population of Rakhine State at 1.0 million-1.1 million; the ethnic Rakhine population is thought to be about 2 million. Most of the Rohingya live in the northern Rakhine townships of Buthidaung, Maungdaw, and Rathedaung; the Rakhine are the majority population in central and southern Rakhine State. According to the Rohingya, their ancestors have lived in what is now northern Rakhine State since at least the 9 th century. Prior to the military coup of 1962, the Rohingya were Burmese citizens, and were elected to Burma's parliament, served in the government, and were officers in the military. After the coup, Burma's military leaders began a systematic policy of discrimination against the Rohingya, and carried out military campaigns to drive the Rohingya out of Burma. For example, in 1978, under General Ne Win, the Burmese military swept across northern Rakhine State as part of Operation Dragon King, pushing an estimated 200,000-250,000 Rohingya into Bangladesh. In 1982, Burma's military junta promulgated the Citizenship Law that effectively stripped the Rohingya of their citizenship. The 1982 Citizenship Law remains in effect. The Burmese military, the government led by Aung San Suu Kyi, as well as a majority of Burma's population—including the Rakhine—maintain that most of the Rohingya are illegal immigrants from Bangladesh, and should therefore be identified as "Bengali." According to this narrative, the influx of "Bengalis" into Burma began during the period of British rule, when Burma was part of the British Raj, and continued after Burma's independence in 1948, as "Bengalis" freely moved across the porous border with then-East Pakistan, now Bangladesh. Relations in Rakhine State between the Rakhine majority and the Rohingya minority have vacillated between periods of relatively peaceful coexistence and times of violent confrontation. Predominately Rakhine and Rohingya villages often exist in close proximity, with regular social and economic interaction. Interethnic violence typically arises, however, when members of one ethnic group allegedly mistreat members of the other ethnic group. Such an event precipitated the outbreak of interethnic violence in June to October 2012 that resulted in dozens of deaths, approximately 200,000 Rohingya fleeing to Bangladesh, and another 120,000 Rohingya becoming internally displaced persons (IDPs) living in camps in Rakhine State. Scope of the Humanitarian Crises in Burma and Bangladesh UNHCR and other humanitarian organizations report that 94% of the more than 600,000 displaced people in Bangladesh are Rohingya, with a smaller number of ethnic Hindu and Rakhine known to be among them. An estimated 54% of the displaced are children and 4% are elderly. The remaining 42% are adult refugees, roughly 52% of whom are women. Concerns have been raised about the status and whereabouts of "missing men" (mostly men of military age) who are reportedly not among those fleeing the country. As of early November 2017, the estimated range of the total number of displaced (mostly Rohingya) in Bangladesh (including from this crisis and from previous waves of displacement during the past five years) is estimated at between 700,000 to just over 900,000. U.N. Secretary General António Guterres stated, "The situation has spiraled into the world's fastest-developing refugee emergency and a humanitarian and human rights nightmare." Precise figures on the overall number of people displaced—either within Burma's Rakhine State or across the border in Bangladesh—are not available because the situation remains fluid, and access to affected areas of northern Rakhine State is limited. While the pace at which newly displaced persons are entering Bangladesh varies, experts say that at one time up to 20,000 people attempted to cross the border each day. Their ability to enter Bangladesh is reportedly being hampered by Burmese security forces building fencing and allegedly placing landmines along the border. Lack of transport and cost also limit people's ability to cross the border. Bangladesh has so far kept its borders open. Neither Bangladesh nor Burma are States Parties to the 1951 Convention relating to the Status of Refugees or its 1967 Protocol. The Humanitarian Situation in Rakhine State Little is known about the number of IDPs and the conditions under which they are living within Rakhine State, because Burmese security forces have restricted media access and most humanitarian assistance to that area. Tens of thousands are estimated to have been displaced internally. Many of those who have fled their homes and villages are reportedly being hosted by relatives and friends. Some are living in schools or monasteries, while others are thought to be on the border with Bangladesh or hiding in forests. According to the U.N. Office for the Coordination of Humanitarian Affairs (UNOCHA), an estimated 27,000 IDPs who are ethnic Daingnet, Hindus, Mro, and Rakhine have relocated from northern to southern Rakhine State since August 25, 2017. Some humanitarian organizations are concerned that those Rohingya who remain in Burma may eventually be forced to flee due to a lack of medical care, food, and other basic needs. On October 2, 2017, the Burmese government gave 20 diplomats, several U.N. officials, and local media a guided tour of parts of northern Rakhine State. U.N. Under-Secretary-General for Political Affairs Jeffrey Feltman visited Burma from October 13-17 at the invitation of the Burmese government. Most of the discussions reportedly focused on the situation in Rakhine State and the plight of those displaced since August 25, with an emphasis on unhindered humanitarian access to northern Rakhine State and voluntary and safe returns. Separately, the Burmese government has escorted international and local reporters into the three affected townships. The Burmese government has stated that the humanitarian response is being led by the government under the responsibility of the Minister for Social Welfare and will continue to draw on the support of the Red Cross Movement—which includes the International Committee of the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent Societies (IFRC), and the Myanmar Red Cross Society (MRCS)—to provide humanitarian assistance in Rakhine State. Various national Red Cross societies from other countries are also providing support as the Red Cross Movement scales up its response. Access to northern Rakhine is blocked to all other agencies, and most humanitarian activities across central Rakhine remain suspended or severely interrupted. International aid groups continue to urge the Burmese government to provide unfettered access to Rakhine State. Efforts to move supplies from the capital city of Sittwe to the affected area reportedly have been hampered by Rakhine protesters who oppose the provision of assistance to Rohingya. The Humanitarian Situation in Bangladesh Bangladesh is a poor, majority-Muslim country with over 160 million people in a nation approximately the size of Iowa. As such, its capacity to accommodate the approximately 600,000 newly displaced Rohingya is limited. It is reported that Border Guard Bangladesh sources estimated in early November 2017 that a further 50,000 Rohingya had gathered on the border seeking entry into Bangladesh. The situation has created enormous humanitarian needs in an area of Bangladesh already affected by earlier refugee influxes since the 1990s, recent floods, and a lack of capacity to cope with a large number of new arrivals. The two existing refugee camps near the city of Cox's Bazar are overflowing with more than double the previous population of 33,000, and well beyond capacity. With the assistance of UNHCR, Bangladesh has reportedly started biometric registration of Rohingya at camps near Cox's Bazar. While new arrivals initially moved into established sites and host communities, due to limited space and severe overcrowding, they have been establishing new, spontaneous settlements. Many of the recently displaced Rohingya are living in the open. Humanitarian partners are continuing to deliver basic assistance, but there are significant gaps and a critical need to scale up health, water, and sanitation interventions due to the risk of disease outbreaks in densely populated areas in addition to basic food assistance, shelter, and protection. Respiratory infections, dysentery, and other ailments are reportedly spreading among the Rohingya in Bangladesh, and there is a great need for clean drinking water, food, and sanitation. Bangladesh is establishing a new 3,000-acre camp at Kutupalong that is to reportedly accommodate 800,000 people in a single, enormous camp.   (This new camp is in addition to the two existing official camps near Cox's Bazar mentioned previously.) The Ministry of Disaster and Relief Management is to coordinate with humanitarian partners to install basic facilities. Besides the new "mega camp" at Kutupalong, Bangladesh has also considered a plan to relocate Rohingya to an island in the Bay of Bengal. The island, Thengar Char, which has been previously suggested by the Bangladesh government in this context, is located near Jaliyar Char (also known as Bhashan Char), where work has reportedly begun to accommodate Rohingya. It is reported that parts of the Thengar Char flood at high tide. Bangladesh's Response An estimated 8-10 million Bangladeshis fled to India in 1971 in the wake of atrocities committed by the West Pakistan army and local sympathizers in East Pakistan during Bangladesh's struggle for independence from Pakistan. Hundreds of thousands of Bengalis died during this conflict. This experience informs many Bangladeshis' perspective on the plight of the Rohingya. Bangladesh Minister of State for Foreign Affairs Mohammed Shahriar Alam has stated that the Rohingya issue is a security issue, as well as a humanitarian one, and that Bangladesh would take prompt action if ARSA tries to enter Bangladesh. It is Bangladesh's policy not to allow ARSA to establish a base in Bangladesh: Prime Minister Sheikh Hasina articulated a five point policy for the Rohingya in a speech to the United Nations in September 2017. Prime Minister Hasina proposed the following.... that Myanmar unconditionally, immediately and forever stop violence and ethnic cleansing in Rakhine State; that the Secretary-General immediately send a fact-finding mission to Myanmar; and that all civilians, irrespective of religion and ethnicity, be protected in Myanmar, including through the creation of United Nations-supervised safe zones. She also proposed the sustainable return of all forcibly displaced Rohingya in Bangladesh to their homes in Myanmar, and the immediate, unconditional and full implementation of the recommendations of the Advisory Commission on Rakhine State. Foreign Secretary M. Shahidul Haque has stated that Bangladesh considers the Rohingya to be "forcibly displaced Myanmar nationals" and not migrants, illegals, or refugees. Bangladesh has called on Burma to repatriate the displaced Rohingya and on international organizations to assist Bangladesh in caring for the Rohingya until they can return to Burma. Foreign Minister A.H. Mahmood Ali stated that Bangladesh would not agree to Burma's proposal to use the 1992 Memorandum of Understanding (MoU) between the two nations as the basis for returning Rohingya to Burma because the situation has changed. The 1992 MoU is based on the Rohingya's ability to "establish their bona fide residency in Myanmar." Bangladesh favors United Nations involvement to assist in discussions on Rohingya repatriation to Burma. While Bangladesh has received international praise for its support for the displaced Rohingya, there are some indications that it is nearing its limit, including the following: Bangladesh's Border Guard has indicated that Bangladesh is planning on fencing the border with Burma. Bangladesh has reportedly barred three NGO organizations, Muslim Aid Bangladesh, Islamic Relief, and the Allama Fazlullah Foundation, from providing assistance to the Rohingya. Bangladesh's Rapid Action Battalion (RAB) has reportedly set up a base camp at Teknaf to monitor the Rohingya to prevent them from becoming militants. Prime Minister Hasina called on the 63 rd Commonwealth Parliamentary Conference to pressure Burma to stop the persecution of its Rohingya people. The International and U.S. Humanitarian Response In addition to national and local capacity in Bangladesh, U.N. entities and numerous international nongovernmental organizations (INGOs) have been providing critical humanitarian protection and assistance to those fleeing Burma. Response efforts are having an impact through the provision of food assistance, water, sanitation and hygiene support, health care, and shelter kits. Vaccination campaigns are underway against measles and rubella, polio, and cholera. Overcrowding is a critical problem. Addressing protection concerns, including the risks of human trafficking, is part of the humanitarian response. Prior to August 25, 2017, the Burmese government and military reportedly limited many national and international humanitarian efforts to provide assistance and protection to IDPs and others affected by conflict, including those in Rakhine State. Most international representatives did not have access to affected areas beyond the main towns. Where access was granted, Burmese staff have often been restricted. Since August 25, 2017, as previously mentioned, access in northern Rakhine State has been suspended for most humanitarian organizations, except the Red Cross Movement. U.N. and Other Appeals In December 2016, the United Nations, along with humanitarian partners, launched Myanmar's 2017 Humanitarian Response Plan (HRP) for $150 million, in response to the displacements caused by the October 2016 attacks and the subsequent "clearance operation" conducted by the Burmese military. In addition, the U.N. Central Emergency Response Fund (CERF), which provides rapid, initial funding in protracted crises, provided Burma with a total of $104 million between 2006 and 2016. The Myanmar Humanitarian Fund, a multidonor fund that enables organizations to access flexible funding to address gaps in the humanitarian response, also provided funds. These funding appeals have now changed. In September 2017, UNOCHA and its partners released a preliminary response plan requesting $77 million in funding for the situation unfolding in Burma and Bangladesh. The Joint Response Plan has since been revised upwards to $434 million and aims to assist 1.2 million people, including Rohingya refugees and host communities, between September 2017 and February 2018. As of October 16, 2017, $106 million (24%) had been committed or disbursed in support of the appeal. A further $19 million has been allocated from CERF. Individual U.N. agencies and other international organizations are also launching separate appeals. A pledging conference organized by UNOCHA, UNHCR, and the International Organization for Migration (IOM) and cohosted by the European Union and Kuwait took place on October 23, 2017, and raised $360 million as part of an effort to share in the cost of the response. U.S. Humanitarian Assistance to Burma In recent years, U.S. humanitarian policy in Burma has been guided by concerns about access and protection within Burma, as well as with Burmese refugees and asylum seekers in the region and more broadly in Southeast Asia. On November 15, 2016, U.S. Ambassador Scot Marciel reissued a disaster declaration for Burma after the October attacks on security posts and the subsequent "clearance operation." In FY2016, the United States allocated more than $50 million to help meet humanitarian needs in Burma using global humanitarian accounts to fund implementing partners. On September 20, 2017, the State Department announced that it would provide an additional $32 million in humanitarian assistance for the displaced people in Bangladesh and northern Rakhine State, with approximately $28 million allocated to assistance in Bangladesh and $4 million for Rakhine State. According to the State Department, this is in addition to $63 million in humanitarian assistance provided since October 2016 "for vulnerable communities displaced in and from Burma throughout the region." Trump Administration policy on humanitarian assistance to Burma is not known and the amount of humanitarian assistance to be provided in FY2018 has not been determined. The key U.S. agencies and offices providing humanitarian assistance to Burma include the U.S. Agency for International Development (USAID) through the Office of Foreign Disaster Assistance (OFDA) and Food for Peace (FFP) and the State Department's Bureau of Population, Refugees, and Migration (PRM). The Repatriation/Resettlement Crisis Although accurate figures are not available, it is estimated that between 700,000 to just over 900,000 displaced (mostly Rohingya) are currently in camps in Bangladesh. Thousands of Rohingya are displaced in other nations in South and Southeast Asia, including India, Malaysia, and Thailand. Potentially more than 1 million Rohingya may wish to return to northern Rakhine State, depending on the conditions set for their return, as well as the likely situation they would face once they do so. If conditions are not acceptable and/or inadequate measures are taken for the security of the returnees, then it is possible that many of the displaced Rohingya would not voluntarily return to Burma, and other provisions would need to be made. Aung San Suu Kyi has indicated that her government would like the repatriation to be managed in accordance with a 1992 agreement between Bangladesh and Burma negotiated following a previous case of mass displacement. As previously stated, Bangladesh does not accept this proposal, and has called for the United Nations to be involved in resolving the conditions of return to Burma. The 1992 agreement stipulated that Burma would accept the return of anyone who could provide evidence of their prior residence in Burma. One Burmese official has stated that this may mean proof of eligibility for Burmese citizenship, which would significantly reduce the number of Rohingya who would be permitted to return to Burma. It is unlikely that many of the displaced Rohingya possess documents to establish their prior residence in Burma given the circumstances under which they fled to Bangladesh. Burma's Discriminatory Laws and Policies The Burmese government—whether under past military rule or under the current mixed civilian-military government—enforces a number of discriminatory policies specifically toward the Rohingya. Among these policies are the following: Denial of Citizenship —The 1982 Citizenship Law effectively revoked the citizenship of most of the Rohingya in Burma. Prior to August 2017, the U.N. High Commissioner for Refugees (UNHCR) reported that nearly 1 million people (mostly Rohingya in Rakhine) were stateless. Denial of Suffrage and Representation —In 2015, then-President Thein Sein invalidated the temporary identification cards ("white cards") possessed by many Rohingya that had permitted them to vote in past elections. As a result, the Union Election Commission did not allow the Rohingya to vote in the 2015 parliamentary elections, and prohibited Rohingya political parties and candidates from participating in the elections. Denial of Education and Employment —Because they are not citizens, most Rohingyas cannot attend public universities, work for the government, or join the military or the Myanmar Police Force. Restrictions on Movement —Rohingya in rural areas are prohibited from moving out of their home villages without the permission of local authorities. Restrictions on Marriage, Religious Conversion , and Procreation — In 2015, Burma's Union Parliament passed four "Race and Religion Protection Laws" that seemingly targeted Burma's Muslim population and, in particular, the Rohingya. The laws banned cohabitation with someone who is not one's spouse (to ban de facto polygamy), prohibited interfaith marriages and conversion to Islam within a marriage without government approval, and required that women living in certain regions—regions with a high percentage of Muslim households—space pregnancies at least 36 months apart. Aung San Suu Kyi responded to the October 2016 attacks and the ensuing unrest by forming an international commission, the Advisory Commission on Rakhine State, headed by former U.N. General Secretary Kofi Annan, to "identify the factors that have resulted in violence, displacement, and underdevelopment" in Rakhine State. On August 24, 2017, the commission released its final report, cautioning that "a highly militarized response is unlikely to bring peace to the area." Among the commission's recommendations are to promote greater economic development in Rakhine State, to align Burma's 1982 Citizenship Law with international standards and enable the Rohingya to obtain citizenship, and to make arrangements for the resettlement of IDPs. Aung San Suu Kyi has said that the Burmese government is willing to abide by most of the commission's recommendations, and on October 9, 2017, appointed a committee tasked to implement the recommendations of the Advisory Commission, as well as those of the Maungdaw Regional Investigation Commission. The new implementation committee consists entirely of government officials, and while it includes at least one Rakhine member, it has no Rohingya representative. Allegations of Human Rights Violations The United Nations, the local and international media, human rights organizations, and international humanitarian organizations have accused Burma's security forces of serious human rights abuses that may constitute ethnic cleansing, crimes against humanity, or possibly genocide during both "clearance operations" conducted following the October 2016 and August 2017 attacks on security installations. U.N. High Commissioner for Human Rights Zeid Ra'ad Al Hussein told the U.N. Human Rights Council the following on September 11, 2017: We have received multiple reports and satellite imagery of security forces and local militia burning Rohingya villages, and consistent accounts of extrajudicial killings, including shooting fleeing civilians. Last year I warned that the pattern of gross violations of the human rights of the Rohingya suggested a widespread or systematic attack against the community, possibly amounting to crimes against humanity, if so established by a court of law. Because Myanmar has refused access to human rights investigators the current situation cannot yet be fully assessed, but the situation seems a textbook example of ethnic cleansing. The Tatmadaw has denied the allegations; the Burmese government and the Tatmadaw assert that ARSA is responsible for any human rights violations that may have occurred in Rakhine State. Many of the Rohingya and others who have arrived in Bangladesh following the two "clearance operations" claim that Tatmadaw soldiers entered their villages, and proceeded to kill civilians, rape women and girls, and then burn down the entire village. International medical teams treating the Rohingya in these camps report that some people bear gunshot wounds consistent with being shot from behind, and some women and girls have injuries consistent with sexual assault. One BBC reporter who obtained access to the area witnessed the looting and destruction of a Rohingya village by what appeared to be a group of Rakhine men. The Tatmadaw soldiers escorting the reporter reportedly made no effort to interrogate or detain those involved. Utilizing satellite imagery, Human Rights Watch and other organizations have documented the destruction of nearly 300 villages and thousands of houses and businesses in northern Rakhine State. According to its assessment of satellite imagery, Human Rights Watch claims that at least 288 villages in northern Rakhine State have been partially or totally destroyed by fire since August 25, 2017. Some of the images show that Rohingya structures have been burned, but neighboring Rakhine buildings are unharmed. In addition, reports say at least 66 villages have been damaged after September 5, 2017, the day the second "clearance operation" supposedly stopped. Burma's Response Commander-in-Chief Senior General Min Aung Hlaing has denied these allegations. In a meeting with U.S. Ambassador to Burma Scot Marciel on October 12, 2017, he said that "unlawful acts [by Burmese security forces] are not allowed," and that "no action goes beyond the legal framework." He also reportedly told Ambassador Marciel that the international media was intentionally exaggerating the number of Rohingya who have fled to Bangladesh. Senior General Min Aung Hlaing, however, has agreed to establish a military investigatory team to examine the allegations of human rights abuses by security personnel. A similar Burmese military investigation conducted after the "clearance operation" following the October 2016 attacks reportedly found no evidence of systemic human rights abuses by Burmese security forces. Senior Burmese government officials have also denied the human rights abuse allegations. Vice President Henry Van Thio stated the following before the U.N. General Assembly on September 20, 2017: The security forces have been instructed to adhere strictly to the Code of Conduct in carrying out security operations, to exercise all due restraint, and to take full measures to avoid collateral damage and the harming of innocent civilians. Human rights violations and all other acts that impair stability and harmony and undermine the rule of law will be addressed in accordance with strict norms of justice. Addressing the U.N. Security Council on September 28, 2017, Burma's National Security Advisor Thaung Tun said, "There is no ethnic cleansing and no genocide in Myanmar." Thaung Tun continued, stating, "I can assure you that the leaders of Myanmar, who have been struggling so long for freedom and human rights, will never espouse policy of genocide or ethnic cleansing and that the government will do everything to prevent it." The Tatmadaw and the Burmese government claim that ARSA and its supporters have committed serious human rights violations. During his meeting with Ambassador Marciel, Senior General Min Aung Hlaing implied that ARSA and its supporters may have been responsible for alleged human rights violations, stating, "Local Bengalis were involved in the attacks under the leadership of ARSA. That is why they might have fled as they feel insecure." The Burmese government also says that ARSA killed over 50 civilians in Rakhine State prior to the attacks on August 25, 2017, because ARSA claimed they were informants for the Tatmadaw. According to Aung San Suu Kyi, it was principally because of these alleged killing of civilians that her government declared ARSA a terrorist organization on August 28, 2017. Official Burmese government and military descriptions have been selective in providing information about the Tatmadaw's "clearance operation" or allegations of human rights abuse. For example, the government-run newspaper, Global New Light of Myanmar , has run several detailed articles about the alleged mass killings of Hindus in one village by ARSA, but has provided little coverage of the reported destruction of Rohingya villages. Evidence has surfaced that questions the accuracy of the Global New Light of Myanmar account of the alleged Hindu mass killings, as some of the women quoted in the article had previously stated the Burmese military, not ARSA, had killed the Hindu villagers. Addressing the Alleged Human Rights Abuses Various military operations in northern Rakhine State over the last 40 years have consistently been followed by the displacement of thousands of Rohingyas, and usually have involved allegations of serious human rights violations of Rohingya by Tatmadaw soldiers. In general, the Tatmadaw speak of and seemingly consider the Rohingya as inferior to the Bamar majority, and by extension, seem to tolerate discrimination and maltreatment of Rohingya. Some Tatmadaw officers have defended their soldiers accused of raping Rohingya women by stating that Rohingya women are too "dirty" and "ugly" for their soldiers to even consider rape. One lingering question is the goal or objective of the Tatmadaw's recent treatment of the Rohingya. As previously stated, U.N. High Commissioner for Human Rights Zeid Ra'ad Al Hussein has concluded the Tatmadaw's activities constitute "ethnic cleansing" of Rohingya. Others maintain the objective is to reduce the percentage of Rohingya in northern Rakhine State by forced displacement plus the immigration of Bamar, Rakhine, and other ethnic minorities into the region. There is some past evidence of the Burmese government's desire to see the removal of all Rohingya from Burma. In July 2012, then-President Thein Sein said that the Burmese government was prepared to hand over the Rohingyas to the UNHCR so they could be resettled in any countries "that are willing to take them." The United Nations rejected President Thein Sein's offer. In March 2017, the U.N. Human Rights Council approved a fact-finding mission to investigate alleged human rights violations in Rakhine State, but Aung San Suu Kyi has so far refused to permit the mission entry into Burma, stating that their presence "would have created greater hostility between the different communities." On August 31, 2017, U.N. Special Rapporteur on the Human Rights Situation in Myanmar Yanghee Lee stated, in reference to the situation in Rakhine State, "The humanitarian situation is deteriorating rapidly and I am concerned that many thousands of people are increasingly at risk of grave violations of their human rights." On September 19, 2017, the United Nations reiterated its request for its fact-finding mission to be granted access to Rakhine State. Under the auspices of the U.N. Human Rights Office of the High Commissioner (OHCHR), on September 26, 2017, seven U.N. experts, or Special Rapporteurs, together called on the Government of Myanmar to stop all violence against the minority Muslim Rohingya community and halt the ongoing persecution and serious human rights violations. Other international actors have taken steps to address the human rights issues. The U.N. Security Council released a presidential statement on November 6, 2017, that, among other things, expressed grave concern over reports of human rights violations and abuses in Rakhine State, including by the Myanmar security forces, in particular against persons belonging to the Rohingya community, including those involving the systematic use of force and intimidation, killing men, women, and children, sexual violence, and including the destruction and burning of homes and property. The statement also called on the Burmese government to "swiftly and in full" implement the recommendations of the Advisory Commission on Rakhine State, and "cooperate with all relevant United Nations bodies," including the Office of the United Nations High Commissioner for Human Rights (OHCHR). The World Bank has postponed a $200 million loan to Burma, stating that it was "deeply concerned about the violence, destruction and forced displacement of the Rohingya," and would withhold the loan until conditions in Rakhine State had improved. The United Kingdom has suspended all its defense cooperation and training programs with Burma's security forces until the violence against the Rohingya has ceased. On October 12, 2017, the European Union said it would halt all ties to Burma's senior military leaders, and is considering additional measures if the situation in Rakhine State does not improve. Risk of Radicalization in Rakhine State and Bangladesh The displacement of more than 600,000 Rohingya into Bangladesh, the internal displacement of presumably thousands of Rakhine and other ethnic groups within Rakhine State, and the alleged violence associated with those displacements has created a potentially fertile environment for the radicalization of previously apolitical populations. There is speculation that some of the disgruntled and abused Rohingya may choose to support ARSA or more militant Islamic or nationalist organizations. Displaced Rakhine may look to groups such as the Arakan Army, a Rakhine-based ethnic armed organization reportedly active in southern Chin State and northern Rakhine State, to defend them from ARSA. This could open a new front in Burma's long-standing low-grade civil war, and have an impact on the ongoing efforts to negotiate an end to the conflict. There is much uncertainty related to ARSA and the extent to which it has outside support. ARSA has denied its alleged ties to international terrorist groups and portrays itself as an ethno-nationalist group seeking to defend its own people. Despite this, some observers view ARSA as a militant group with ties to international terrorists. Others emphasize that the recent attacks against the Rohingya have created a situation that may present opportunities for recruitment of Rohingya by international terrorist organizations even if ARSA itself has no ties to such groups. An International Crisis Group (ICG) report of December 2016 described the emergence of a Muslim insurgency, the Harakah al-Yaqin (HaY), in Burma. HaY is now known as the Arakan Rohingya Salvation Army (ARSA). ICG described HaY as led by a committee of emigres in Saudi Arabia. ICG described the group as not having a terrorist agenda. The ICG report warned that a disproportionate response by Burma "could create conditions for further radicalizing sections of the Rohingya population." Unconfirmed Indian media reports point to ties between elements within the Rohingya community and Pakistan's ISI and Pakistan- and Bangladesh-based terrorist groups. Some analysts believe that the IS or AQIS may use the Rohingya issue to boost recruitment to their ranks. Even if ARSA has no links with terrorist groups, the presence of so many dispossessed and abused Rohingya in Bangladesh would appear to make it a fertile ground for recruitment by terrorist groups. Recent analysis is highlighting the potential that the Rohingya issue could become a new focus of international jihadism both as a cause to fight for and as a motivating issue for recruitment and support. One February 2017 think tank report said: "Leaders of global terrorist organizations, including al-Qaeda and the Islamic State, have sought to rally their supporters behind a much wider campaign against the Myanmar government and military.... These terrorist groups have defined Myanmar ... as the next great battleground for Islamists worldwide, following the wars in Syria and Iraq." It has also been observed that "marginalized refugees and angry sympathizers are vulnerable to recruitment by extremists who can exploit their causes." The Rohingya issue also has the potential to have an impact on Bangladesh's domestic political landscape and its international relations. The Bangladesh National Party has reportedly criticized the Awami League government for failing to describe the human rights crisis as genocide against the Rohingya and for failing to bring India and China in to resolve the crisis. The Bangladesh Islamist movement Hefazat-e-Islam, which reportedly runs 25,000 madrassas in Bangladesh and is based in Chittagong, has called for the liberation of Rakhine and threatened to wage jihad on Burma if it does not stop torturing Rohingya Muslims. An estimated 20,000 Hefazat supporters and other hardliners marched against the violence against the Rohingya in September 2017. This demonstration followed an earlier rally that gathered in support of the Rohingya in September 2017. Some of the demonstrators have urged the Bangladesh government to go to war with Burma and liberate Rakhine for the Rohingya. Some in the Bangladesh media have also gone as far as contemplating the arming of the Rohingya. Regional Dynamics Beyond the risk of rising radicalization in the region, the Rohingya crises are creating pressure on regional relations. The Association of Southeast Asian Nations (ASEAN), Southeast Asia's primary regional forum, was unable to agree upon the text of a joint statement issued in September 2017 regarding the situation in Rakhine State, as Malaysia withheld its support, calling the text, "a misrepresentation of the reality of the situation." Malaysia, a predominately Muslim nation that has a moderate-sized Rohingya community, has been pushing ASEAN and the international community for a more active response to the crises, particularly regarding the alleged human rights violations. Indonesia, ASEAN's other predominately Muslim nation, has backed a more measured response, but its government also has to contend with pro-Rohingya political protests advocating a stronger stance on the issue. Other ASEAN members, such as Singapore, have maintained ASEAN's tradition of noninterference in the internal affairs of other nations, while supporting greater humanitarian assistance, condemning ARSA's attacks of October 2016 and August 2017, and calling for an end of violence in Rakhine State. ASEAN's internal disagreement on addressing the Rohingya crisis may preclude it playing a significant role in addressing the short-term and long-term challenges in responding to the crisis. Evolving geopolitical dynamics between China and India may influence those governments' responses to the Rohingya humanitarian crisis. China's approach to the issue may be influenced by its investment in oil and gas pipelines that link Kunming in southern China with the Rakhine coast in Burma as part of its Belt and Road Initiative (BRI). In addition to this energy link, China is seeking to build a deep water port and develop a special economic zone at Kyaukphyu in Rakhine state in order to lessen China's dependence on the Strait of Malacca. The importance of these trade and energy routes may mean that humanitarian or human rights concerns are secondary considerations relative to China's strategic and economic interests in its relationship with Burma. India's response to the Rohingya crisis will also likely be influenced by geopolitical concerns relative to countering rising Chinese influence in the Indian Ocean littoral. Prime Minister Modi has described Burma as a key pillar in India's "Act East" policy. As a result, India may also determine that its economic and security priorities may influence its approach to humanitarian or human rights issues in its relations with Burma. Overview of U.S.-Burma Policy Congress and past Administrations have generally agreed that the overall objective for U.S. policy in Burma is to see the establishment of a democratically elected civilian government that respects the human rights and civil liberties of all of Burma's citizens or residents, regardless of ethnicity or religion. During the period of military rule (1962-2011), Congress passed progressively stricter sanctions on Burma to press Burma's military junta to stop the repression of the Burmese people and possibly transfer power back to a civilian government. From 2009 to 2016, the Obama Administration adopted a strategy of enhanced engagement under which greater contact was made with Burma's military leaders, while the sanctions were to remain in place until sufficient changes had taken place in Burma to warrant the removal of the sanctions. During President Obama's second term, that strategy shifted to removing sanctions to encourage further political and economic reforms in Burma. The Trump Administration's Response The Trump Administration's response to the Rohingya crisis has evolved over time. The initial statements from the State Department denounced the alleged ARSA attacks on the border outposts and expressed concern about "serious allegations of human rights abuses, including mass burnings of Rohingya villages and violence conducted by security forces and also armed civilians." As the scope of the crisis expanded, Secretary of State Rex Tillerson expressed his appreciation of the "difficult and complex situation" facing Aung San Suu Kyi, but called for the violence and persecution which "has been characterized by many as ethnic cleansing" to stop. Secretary Tillerson also said, "We need to support Aung San Suu Kyi and her leadership but also be very clear to the military that are power-sharing in that government that this [the violence] is unacceptable." On October 18, 2017, Secretary Tillerson responded to a question about the Rohingya crises by saying the following: What's most important to us is that the world can't just stand idly by and be witness to the atrocities that are being reported in the area. What we've encouraged the military to do is, first, we understand you have serious rebel/terrorist elements within that part of your country as well that you have to deal with, but you must be disciplined about how you deal with those, and you must be restrained in how you deal with those. And you must allow access in this region again so that we can get a full accounting of the circumstances. During the U.N. Security Council meeting held on September 28, 2017, U.S. Ambassador Nikki Haley accused the Burmese government and the Tatmadaw of conducting "a brutal, sustained campaign to cleanse the country of an ethnic minority." She also said it was time for the United Nations to "consider action against Burmese security forces who are implicated in abuses and stoking hatred among their fellow citizens," and called for a global ban on arms sales to Burma's military. Following the October 2, 2017, escorted tour of northern Rakhine State, the U.S. embassy joined 19 other embassies in a joint statement reiterating "our condemnation of the ARSA attacks of 25 August and our deep concern about violence and mass displacement since." The statement also welcomed Aung San Suu Kyi's commitment to investigate and address the allegations of human rights violations, and urged the Burmese government to permit the investigation team established by the U.N. Human Rights Commission to visit Rakhine State. On October 23, 2017, the State Department announced that it would no longer grant visa ban waivers to Burmese military officers and was cutting off assistance to military units and officers involved in operations in Rakhine State (pursuant to the Leahy Law). The State Department also indicated that it was assessing authorities under the Tom Lantos Block Burmese JADE (Junta's Anti-democratic Efforts) Act of 2007 (JADE Act; P.L. 110-286 ) and the Global Magnitsky Human Rights Accountability Act ( P.L. 114-328 , Subtitle F) to impose sanctions on those responsible for human rights violations. Deputy Assistant Secretary of State for Southeast Asia W. Patrick Murphy indicated that the State Department was still assessing "how best to describe the appalling treatment of the Rohingya," and that it was "not shying away from the use of any appropriate terminology." In testimony to both the House Committee on Foreign Affairs and the Senate Committee on Foreign Relations, Murphy would not refer to the situation in Rakhine State as ethnic cleansing, as the State Department had not made such a determination. The State Department's assessment is still pending. A U.S. delegation headed by Acting Assistant Secretary of State for the Bureau of Population, Refugees, and Migration Simon Henshaw travelled to Bangladesh and Burma from October 29 to November 4, 2017, to discuss humanitarian and human rights issues. During the trip, Henshaw reportedly said the following: During our meetings with Myanmar government officials, we told them that is their responsibility to return a secure and stable situation in Rakhine State. It is also their responsibility to investigate the reports of atrocities. While in Dhaka, Under Secretary of State for Political Affairs Thomas Shannon stated, "We have a variety of sanctions available to us should we decide to use them. But right now ... our purpose is to solve the problem, not to punish." Following the trip, Henshaw said about humanitarian assistance, "the situation requires a lot more work ... our commitment has been followed by generous contributions from other donors. However, more is needed." U.S. Sanctions Policy and Restrictions The United States started imposing sanctions on Burma in 1990 as the result of a general, but uneven decline in U.S. relations with Burma and the Tatmadaw since World War II. For the most part, the decline was due to what the U.S. government saw as a general disregard by Burma's ruling military junta for the human rights and civil liberties of the people of Burma. Despite the cooling of relations, U.S. policy toward Burma remained relatively normal until 1990. The United States accepted Burma as one of the original beneficiaries of its Generalized System of Preference (GSP) program in 1976. It also granted Burma Most Favored Nation (MFN, now referred to as Normal Trade Relations, or NTR) status, and supported the provision of developmental assistance by international financial institutions. There were also close military-to-military relations (including a major International Military Education and Training [IMET] program) until 1988. The implementing of sanctions on Burma did not begin until after the Tatmadaw brutally suppressed a peaceful, popular protest that has become known as the 8888 Uprising. Starting in fall 1987, popular protests against the military government sprang up throughout Burma, reaching a peak in August 1988. On August 8, 1988, the military squashed the protest, killing and injuring an unknown number of protesters. In aftermath of the event, the military junta regrouped and the State Law and Order Restoration Council (SLORC) assumed power. Between 1990 and 2008, Congress passed several laws, such as the Burmese Freedom and Democracy Act of 2003 and the Tom Lantos Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 (JADE Act), imposing various types of political and economic sanctions on Burma. In addition, U.S. Presidents have imposed sanctions on Burma, such as the imposing of an arms embargo and the withdrawal of GSP benefits. The types of sanction imposed in the past included a prohibition on issuing visas to certain Burmese nationals; a general ban on the import of goods of Burmese origin; a ban on the import of goods produced by certain Burmese companies or containing materials originating in Burma; a prohibition of new U.S. investments in Burma; the suspension of Burma's trade benefits under the Generalized System of Preferences (GSP) program; the freezing of assets owned by certain Burmese nationals and held by U.S. financial institutions; a prohibition of providing financial services to certain Burmese nationals; a prohibition on the sales of arms to Burma; restrictions on the types of bilateral and multilateral aid that can be given to Burma; and limitations on interaction with the Burmese military, or Tatmadaw. The sanction laws typically permitted the President to suspend or waive the imposition of the specified sanctions, if the President determined it was in the national interest or national security interest of the United States to grant such a suspension or waiver. Former President Obama used his authority to waive most of the sanctions on Burma. On October 7, 2016, President Obama issued E.O. 13472, waiving the economic sanctions described in Section 5(b) of the JADE Act. On December 2, 2016, President Obama released Presidential Determination 2017-04, ending restrictions on U.S. assistance to Burma as provided by Section 570(a) of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997. Several non-economic restrictions, however, remain in effect, including a prohibition on issuing visas to enter the United States to certain categories of Burmese officials, as provided by Section 5(a) of the JADE Act; restrictions limiting the types of U.S. assistance to Burma; and an embargo on arms sales to Burma. In addition, Congress has set limits on bilateral relations in appropriations legislation, including limitations on relations with the Tatmadaw (see section below). Section 7043(b) of the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), for example, places a number of restrictions on bilateral, international security, and multilateral assistance to Burma. Those restrictions remain in effect under the provisions of the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017 ( P.L. 115-56 ). U.S. Relations with the Burmese Military The United States has limited engagement with the Burmese military in part due to existing legal restrictions. On June 9, 1993, the State Department's Bureau of Political-Military Affairs issued Public Notice 1820 suspending "all export licenses and other approvals to export or otherwise transfer defense articles or defense services to Burma." Section 5(a)(1)(A) of the JADE Act states that former and present leaders of the Burmese military "shall be ineligible for a visa to travel to the United States." Section 5(a)(1)(B) of the same act also makes officials of the Burmese military "involved in the repression of peaceful political activity or in other gross violations of human rights in Burma or in the commission of other human rights abuses" ineligible for a visa. The JADE Act provides for a presidential waiver of the visa restriction, which has been utilized with some regularity. Section 7043(b) of the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) contains the following restriction on relations with the Burmese military: "Funds appropriated by this Act under the heading 'Economic Support Fund' [ESF] for assistance for Burma ... may not be made available to any organization or entity controlled by the military of Burma." In addition, the section stipulates, "None of the funds appropriated by this Act under the headings 'International Military Education and Training' and 'Foreign Military Financing Program' may be made available for assistance for Burma." The same section also states that ESF funds "may not be made available to any individual or organization if the Secretary of State has credible information that such individual or organization has committed a gross violation of human rights, including against Rohingya and other minority groups, or that advocates violence against ethnic or religious groups and individuals in Burma." Finally, the section states, "the Department of State may continue consultations with the armed forces of Burma only on human rights and disaster response in a manner consistent with the prior fiscal year, and following consultation with the appropriate congressional committees." As previously stated, these restrictions remain in effect under the provisions of the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017 ( P.L. 115-56 ). Despite these restrictions, the Department of Defense and the Department of State have had limited interaction with the Burmese military. The Department of Defense has utilized unrestricted funding to support some Burmese officers to attend training courses at the Daniel K. Inouye Asia-Pacific Center for Security Studies (APCSS) in Honolulu, HI. The training courses have included Advanced Security Cooperation, Comprehensive Security Responses to Terrorism, and Transnational Security Cooperation. Burmese military personnel have also participated in workshops hosted by the APSCC. Burmese military officers, as observers, have also attended regional military exercises with U.S. assistance, including "Cobra Gold," the largest annual multinational exercise in Asia. Issues for Congress The various crises emerging from Burma's treatment of the Rohingya present Congress with a variety of issues on which it may wish to take action. The humanitarian assistance crises in Bangladesh and Rakhine State have outstripped the current resources available and threaten to worsen, unless better access to affected people is permitted. Problems with repatriation of the refugees raise issues of either finding ways for Bangladesh and Burma to resolve their differences on the repatriation process, and/or preparing for long-term support for the displaced, including making arrangements for resettlement in other nations. Burma's discriminatory laws and policies not only undermine efforts to repatriate the displaced Rohingya, but also contribute to a systemic human rights problem and could lead to the radicalization of some members of both ethnic communities. The continuing use of "force and intimidation" by Burma's security forces also reduces the likelihood that the Rohingya would voluntarily return to Rakhine, raises prospects for radicalization, and brings up issues of accountability for alleged atrocities, including crimes against humanity, ethnic cleansing, and possibly genocide. The Rohingya crises also have the potential to become a security issue for the region. This could unfold if the plight of the Rohingya becomes a cause for international and/or Bangladesh-based terrorist groups. The issue could also affect the domestic political balance between the Awami League and other political factions and movements in Bangladesh that are relatively more Islamist in their ideology. It could also become a regional security issue should it lead to increased tensions between Bangladesh and Burma. It also has the potential to impact regional geopolitical dynamics by facilitating Burma-China relations at a time when the United States and the West are critical of Burma. The Burma Unified through Rigorous Military Accountability Act of 2017 (BURMA Act; H.R. 4223 ) and the Burma Human Rights and Freedom Act of 2017 ( S. 2060 ) were introduced on November 2, 2017, providing similar formulations of U.S. policy toward Burma, and comparable efforts to address the Rohingya crises (see Table 1 ). Both bills would impose a visa ban on senior military officers involved in human rights abuses in Burma, place new restrictions on security assistance and military cooperation, reinstate the jadeite and ruby import ban of Section 3A of the Burmese Freedom and Democracy Act, and require U.S opposition to international financial institution (IFI) loans to Burma if the project involves an enterprise owned or directly or indirectly controlled by the military of Burma. Both bills also call for additional humanitarian assistance to Burma. S. 2060 explicitly appropriates $104 million in funding. S. 2060 also requires the President to review Burma's eligibility for the Generalized System of Preferences (GSP) program.

A series of interrelated humanitarian crises, stemming from more than 600,000 ethnic Rohingya who have fled Burma into neighboring Bangladesh in less than 10 weeks, pose challenges for the Trump Administration and Congress on how best to respond. The flight of refugees came following attacks on security outposts in Burma's Rakhine State, reportedly by the Arakan Rohingya Salvation Army (ARSA), an armed organization claiming it is defending the rights of the region's predominately Muslim Rohingya minority, and an allegedly excessive military response by Burma's military. Some of the displaced Rohingya report that Burmese soldiers systematically killed civilians, sexually assaulted women and girls, and burned down their homes. The Burmese government and military have denied the veracity of these reports. An unknown number of Rohingya, Rakhine, and other ethnic minorities have been forced out of their villages into temporary camps within Rakhine State, while others remain isolated in their home villages under a government-imposed curfew. In Bangladesh, an estimated 700,000-900,000 Rohingya—including people who fled Burma during earlier instances of violence—require urgent humanitarian assistance. In Burma, tens of thousands are in need of humanitarian assistance, but the Burmese government and military have restricted access to the affected areas. Efforts to facilitate the voluntary and safe return of the displaced Rohingya and other ethnic minorities to their original villages face several problems. Bangladesh and Burma have been unable to agree to terms for repatriation. Many of the villages have been destroyed, raising questions about when the people can return and where they will go. It is also uncertain how many of the displaced Rohingya are willing to return to Burma, given the nation's history of discriminatory policies and practices, including a 1982 law that effectively stripped them of their citizenship. The crises raise questions about U.S. policy toward Burma, following its transition to a civilian/military government after six decades of military rule. The day before the August 2017 attacks, a special commission established by Burma's de facto leader, State Counsellor Aung San Suu Kyi, and headed by former U.N. Secretary General Kofi Annan, made a series of recommendations on how to end ethnic tensions in Rakhine State, including calling for the repeal of the anti-Rohingya laws and regulations. While Aung San Suu Kyi accepted most of those recommendations, it is unclear how soon and to what extent they will be implemented. The human rights allegations have led some observers to say the Burmese military is guilty of crimes against humanity, ethnic cleansing, and genocide. The Burmese government and others assert that ARSA is a terrorist organization. The United Nations Human Rights Council has created a special, fact-finding mission to investigate human rights violations in Burma, but the Burmese government and military have dismissed the allegations of widespread human rights violations and have refused to allow the fact-finding mission into Burma. The displaced Rohingya in Bangladesh may also pose a serious radicalization risk. Some Rohingya may be recruited by ARSA or Islamist extremist groups. Some Rakhine may choose to join the Arakan Army, a Rakhine-based ethnic armed organization involved in active resistance against the Burmese government. The Trump Administration and the State Department have adopted a measured approach to the emerging challenges presented by the crises in Bangladesh and Burma. The initial response was to increase humanitarian assistance to both nations by a total of $32 million, raising the amount of assistance provided since October 2016 to $95 million. New restrictions on relations with senior Burmese military officers have been imposed using existing authority. Two bills have been introduced in the 115th Congress since the August attacks and the Burmese military's "clearance operations"—the Burma Unified through Rigorous Military Accountability Act of 2017 (BURMA Act; H.R. 4223) and the Burma Human Rights and Freedom Act of 2017 (S. 2060). Both bills would impose a visa ban on senior military officers responsible for human rights abuses in Burma, place new restrictions on security assistance and military cooperation, reinstate jadeite and ruby import bans, and require U.S opposition to international financial institution loans to Burma if the project involves an enterprise owned or directly or indirectly controlled by the military. S. 2060 also would provide an additional $104 million in humanitarian assistance, and would require the President to review Burma's eligibility for the Generalized System of Preferences (GSP) program. This report will be updated as circumstances require.

Introduction Over the last decade, driven in part by recognition that global health efforts help bolster broader U.S. foreign policy goals, global health programs have received unprecedented attention and resources ( Figure 1 ). U.S. support for global health has been rooted in humanitarian concerns, but since the 1990s, it has been especially motivated by concern over emergent and reemerging infectious diseases and the threats they pose to international development, stability, and security. Outbreaks of diseases like severe acute respiratory syndrome (SARS), pandemic influenza, and HIV/AIDS have led a succession of Presidents to give global health a high priority and to launch several health initiatives in response. In 1996, for example, President Bill Clinton issued a presidential decision directive (PDD) that deemed infectious diseases a threat to U.S. national and international security and called for U.S. global health efforts to be coordinated with those aimed at counterterrorism. Following the release of the directive, President Clinton requested $100 million in 1999 to fund the Leadership and Investment in Fighting an Epidemic (LIFE) Initiative to expand U.S. global HIV/AIDS efforts. President George W. Bush recognized the impact of infectious diseases on global security as well in his 2002 and 2006 national security strategy papers. Along with these statements, President Bush created several global health initiatives, including the President's Emergency Plan for AIDS Relief (PEPFAR), the President's Malaria Initiative (PMI), and the Neglected Tropical Diseases (NTD) Program. President Barack Obama also recognized the risk of infectious diseases and linked the capacity of developing countries to prevent and respond to disease outbreaks to U.S. national security. In 2009, President Obama announced the Global Health Initiative (GHI) to coordinate the health initiatives established during the Bush Administration as well as other United States Agency for International Development (USAID) and Centers for Disease Control and Prevention (CDC) bilateral health programs, increase investments in health areas that he deemed underfunded, and bolster the health systems of weak and impoverished states. Through the State Department's 2010 Quadrennial Diplomacy and Development Review (QDDR) and the 2010 National Security Strategy, the Obama Administration has emphasized the importance of coordinating defense, health, and development efforts and cited the strategic value of improving health around the world, particularly across the Middle East. The Administration sees the GHI as an integral part of a "smart power" approach to foreign policy, whereby diplomacy, development (including health), and defense are leveraged as mutually reinforcing tools. Congressional Priorities During the Clinton, Bush, and Obama administrations, successive Congresses have demonstrated strong support for global health programs and have, for the most part, appropriated funds for global health in excess of presidential requests. Congressional priorities for global health have largely aligned with those of past administrations, though there has been debate about how certain programs should be prioritized and implemented. In agreement with past administrations, Congress has aimed the majority of global health funding at HIV/AIDS. At the same time, since the launch of the Global Health Initiative, Congress has also supported calls by the Obama Administration to increase investments in health areas other than HIV/AIDS, particularly malaria, maternal and child health, and neglected tropical diseases. Despite strong support by past Congresses for global health programs, some Members of the 112 th Congress have questioned levels of non-security foreign aid in general and have argued for the reduction or elimination of development and health assistance. Although some Members of Congress contend 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. assistance. U.S. Global Health Assistance Congress funds bilateral and multilateral health assistance through three appropriations: State, Foreign Operations and Related Programs (State-Foreign Operations); Labor, Health and Human Services, and Education (Labor-HHS); and Department of Defense. These funds support global health efforts managed and conducted by USAID, CDC, and the Department of Defense (DOD) as well as PEPFAR-related efforts that are coordinated by the Department of State and implemented by several U.S. agencies ( Figure 2 ). Under PEPFAR, the United States also supports multilateral efforts to combat HIV/AIDS, including through contributions to the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) and the Joint United Nations Program on HIV/AIDS (UNAIDS). The Obama Administration's Global Health Initiative represents an effort to improve the alignment and coordination of these various programs, and to track the multiple lines of funding for these programs under a comprehensive global health budget. The Obama Administration named the State Department the head of this effort until September 2012, when leadership of GHI is supposed to transfer to USAID if certain benchmarks are achieved. Nearly 90% of U.S. global health programs are funded through the Global Health Programs (GHP) account (formerly called the Global Health and Child Survival (GHCS) account) in State-Foreign Operations appropriations. Funding through the GHP account supports bilateral and multilateral global health programs managed by USAID and HIV/AIDS programs coordinated and managed by the Department of State under PEPFAR. Charts outlining global health spending provided through State-Foreign Operations and Labor-HHS are included in the Appendix . Congress also makes funds available for global health through other accounts within State-Foreign Operations, including the Development Assistance and the Economic Support Fund accounts. Appropriators do not, however, specify how much should be made available for global health activities through these accounts. Through Labor-HHS appropriations, Congress finances bilateral health programs implemented by CDC, and provides resources to support international HIV/AIDS and malaria research conducted by the National Institutes of Health (NIH). Congress has historically supported an additional contribution to the Global Fund through Labor-HHS appropriations, although beginning in FY2012 the contribution has come from State-Foreign Operations appropriations alone. Defense appropriations fund HIV-prevention efforts conducted by DOD and provide resources to DOD to support global malaria research. In addition to funds Congress provides specifically for global health, U.S. agencies and departments may use other portions of their budgets on global health programs. For example, CDC uses some of its funds to support global TB programming, although it does not receive a direct appropriation to do so. U.S. agencies and departments also transfer funds among each other. For instance, the Department of State transfers the majority of the funds it receives from Congress for global HIV/AIDS activities to implementing agencies such as USAID and CDC. Likewise, USAID may transfer funds to CDC for field research and evaluation of global health programs. U.S. agencies also receive funds to implement programs that simultaneously address development and health challenges. These efforts may include improving access to clean water, addressing the negative consequences of climate change and rapid urbanization, supporting the vulnerable in conflict or post-conflict environments, and responding to natural emergencies. In light of these different funding streams and a lack of consensus on exactly which programs and activities constitute global health assistance, estimates of U.S. global health spending by U.S agencies, think tanks, and other observers vary. A number of advocacy groups, for example, consider water and sanitation activities as part of global health assistance. Similarly, the websites of some U.S. agencies and departments describe a broader view of global health aid than what is provided through congressional appropriations. For example, USAID cites its work related to health system strengthening and environmental health as global health activities. CDC also includes collaborative responses to global health emergencies, such as cholera outbreaks and pandemic influenza, with international organizations like the World Health Organization (WHO) and the United Nations Children's Fund (UNICEF) among its global health work. The section below describes bilateral health activities funded by Congress. This includes global health programs implemented by USAID and CDC as well as interagency presidential global health initiatives including the President's Emergency Plan for AIDS Relief (PEPFAR), the President's Malaria Initiative (PMI), the Neglected Tropical Disease Program (NTD Program), and the Global Health Initiative. While the presidential initiatives are described, activities conducted by each agency as part of these initiative are not detailed here, such as PEPFAR-related efforts by DOD and NIH. Likewise, funding for multilateral organizations, like the Global Fund, is not discussed in detail. USAID Global Health Programs8 Through State-Foreign Operations appropriations, Congress supports the following overarching USAID global health program areas: Saving Mothers and Children , which includes programs focusing on maternal and child health, malaria, nutrition, family planning and reproductive health, and social services (vulnerable children). This portfolio aims to save the lives of women and children through reduced morbidity and mortality from common diseases and undernutrition; provide services to vulnerable children and orphans; increase access to family planning and reproductive health; and improve awareness about birth spacing, contraception, and sexually transmitted diseases. Creating an AIDS-free Generation , which 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 supplying antiretroviral medicines, among other activities. Fighting Other Infectious Diseases , which aims to address a number of diseases and resultant outbreaks, including through programs targeting tuberculosis (TB), pandemic influenza and other emerging threats, and neglected tropical diseases (NTDs). CDC Global Health Programs10 Through Labor-HHS appropriations, Congress supports the following CDC global health program areas: HIV/AIDS , which aims to improve capacity in laboratory services and health systems; strengthen in-country capacity to design and implement HIV/AIDS surveillance systems and surveys; and support host-government capacity to monitor and evaluate the process, outcome, and impact of HIV prevention, care, and treatment programs. Parasitic Diseases and Malaria , which aims to reduce death and illness caused by parasitic diseases, including malaria, through the enhancement of vector control, case management, surveillance, monitoring and evaluation, and capacity building, as well as laboratory research to develop new tools and strategies to prevent and control malaria. Global Disease Detection (GDD) and Emergency Response , which aims to strengthen and support public health surveillance, training, and laboratory methods to detect and contain disease threats; build in-country capacity; and provide support for humanitarian emergencies. Global Immunization , which aims to immunize children younger than five years old against polio and measles, and other vaccine-preventable diseases. Global Public Health Capacity Development , which aims to build public health capacity among country leaders, particularly ministries of health. Although Congress does not appropriate funds to CDC specifically for global tuberculosis and pandemic influenza preparedness and response efforts, CDC allots a portion of its overall TB and pandemic preparedness funds for international assistance. State Department Global Health Programs In FY2003, the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act, P.L. 108-25 ) authorized the creation of the Office of the Global AIDS Coordinator (OGAC) at the U.S. Department of State. The mission of this office includes coordinating and overseeing all bilateral HIV/AIDS programs (see " President's Emergency Plan for AIDS Relief (PEPFAR) ") and U.S. contributions to multilateral HIV/AIDS organizations. As a coordinating office, OGAC transfers the majority of funds it receives from Congress to implementing departments and agencies (including USAID and CDC) and to multilateral groups like the Global Fund and UNAIDS. The State Department also engages to a small extent in programming at the country level. Presidential Global Health Initiatives The bulk of U.S. global health assistance is aimed at mitigating the impact of infectious diseases, especially HIV/AIDS, through three presidential initiatives: PEPFAR, PMI, and the NTD Program. The Global Health Initiative became the first U.S. global health effort that was not aimed at a particular disease or at a set of related diseases, such as the NTD Program. Instead, GHI intends to coordinate activities supported by ongoing presidential global health initiatives and other bilateral health efforts through USAID and HHS. Each of these initiatives has served to garner attention and resources for the targeted diseases or programs. President's Emergency Plan for AIDS Relief (PEPFAR)13 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, through the Leadership Act, Congress authorized $15 billion to be spent over five years in support of bilateral and multilateral HIV/AIDS programs. 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 $48 billion for bilateral and multilateral HIV/AIDS, TB, and malaria efforts, including $4 billion for TB and $5 billion for malaria, for five years. PEPFAR is overseen by the Office of the Global AIDS Coordinator at the State Department. In this capacity, the State Department distributes the funds it receives from Congress to support global HIV/AIDS programs implemented by several U.S. agencies and departments, including USAID, HHS and its implementing agencies (CDC, NIH, U.S. Food and Drug Administration, and U.S. Health Resources and Services Administration), DOD, Department of Commerce (DOC), Department of Labor (DOL), and the Peace Corps, as well as multilateral organizations (including the Global Fund and UNAIDS). President's Malaria Initiative (PMI)14 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 million 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, the Democratic Republic of the Congo, Guinea and Zimbabwe, 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). Neglected Tropical Disease (NTD) Program16 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 the seven NTDs to 30 countries. In 2009, the Obama Administration amended the targets of the NTD program and called for the United States to support halving the prevalence of NTS among 70% of the affected population. Under GHI, the program aims to be in 30 countries by 2014. The Global Health Initiative In May 2009, President Obama announced the Global Health Initiative, a six-year plan projected to cost $63 billion. GHI attempts to provide a comprehensive U.S. global health strategy for existing U.S. global health programs, including many of 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 existing global health programs. GHI outlines several targets for improving global health, which include the following: HIV/AIDS: support the prevention of more than 12 million new HIV infections; treatment for more than 4 million people; and care for more than 12 million people, including 5 million orphans and vulnerable children. Malaria: halve the burden (morbidity and mortality) of malaria for 450 million people, representing 70% of the at-risk population in Africa. Tuberculosis: contribute to the treatment of a minimum of 2.6 million new TB cases and 57,200 cases of multi-drug-resistant TB, and contribute to a 50% reduction in TB deaths and disease burden relative to the 1990 baseline. Nutrition: reduce child undernutrition by 30% across assisted food-insecure countries, in conjunction with the President's Feed the Future Initiative led by USAID. Family Planning and Reproductive Health: prevent 54 million unintended pregnancies, reach a modern contraceptive prevalence rate of 35%, and cut the proportion of women who have their first birth before age 18 from 24% to 20% across assisted countries. Maternal Health: reduce maternal mortality by 30% across assisted countries. Child Health: lower under-five mortality rates by 35% across assisted countries. Neglected Tropical Diseases: halve the prevalence of seven NTDs among 70% of the affected population and contribute to the elimination of onchocerciasis in Latin America and the elimination of lymphatic filariasis, blinding trachoma, and leprosy worldwide. GHI also proposes a set of core principles to guide programming in each of these areas and coordination between the various global health agencies. These core principles are to focus on women, girls, and gender equality; encourage country ownership and invest in country-led plans; build sustainability through health system strengthening; strengthen and leverage key multilateral organizations, global health partnerships, and private-sector engagement; increase impact through strategic coordination and integration; improve metrics, monitoring, and evaluation; and promote research and innovation. As of spring 2012, 29 "GHI Plus" countries have been chosen to receive additional resources and technical assistance to accelerate implementation of GHI and to serve as "learning laboratories" for best practices (GHI plans to ultimately be implemented in every country receiving health assistance). 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 late 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. The section below highlights actions that the government is undertaking to improve the implementation of U.S. bilateral health programs and meet GHI targets and principles. Coordination and Integration : The State Department, USAID, and CDC, in partnership with national governments, 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- or initiative-specific strategies, but rather to serve as an overarching strategic guide under which each program will operate. Prioritization of Broad Challenges : Most U.S. global health assistance is provided through disease-specific initiatives (PEPFAR, PMI, and the NTD Program). While these initiatives are core components of GHI, the Obama Administration has also signaled that the United States will increasingly respond to broader-based health challenges. GHI has a particular emphasis on health-system strengthening, including efforts to improve health-worker training and retention, strengthen laboratory capacity, enhance supply-chain mechanisms, and bolster information systems. Likewise, the Obama Administration supports increased attention to women and girls, including through integrated services that can respond to multiple health issues ranging from HIV/AIDS, TB, and malaria, to obstetric care and nutrition. Results-Oriented Programming : The Obama Administration has indicated that it will begin to reallocate its global health resources to the activities that maximize health impact. In this regard, the United States is shifting toward a more evidence-based and results-oriented approach to global health, rather than one focused on input or expenditure. The Obama Administration has stated that it will support efforts to scale up proven interventions, and that it will phase out activities that have not yielded positive results. GHI places new emphasis on monitoring and evaluation of global health programs to better assess outcomes, and it supports scale-up of operational and implementation research to identify best practices in the field. U.S. agencies have begun this process through the use of updated evaluation indicators and new attention to measuring program quality. FY2012 Funding On December 23, 2011, the President signed the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). In spite of the prolonged debate over potential cuts to global health programs, the act demonstrated continued congressional support for global health programs. The act made $8.2 billion available to USAID and the State Department for global health activities through the Global Health Programs (GHP) account, roughly $336 million more than FY2011 funding levels ( Figure 3 ). Compared to the FY2011 levels, the $8.2 billion included level or increased funding for most global health programs. In particular, the act included $2.6 billion for USAID global health programs (+$127 million) and $1.3 billion for the U.S. contribution to the Global Fund through the State Department (+$551 million). In contrast, the act included $4.2 billion for State Department HIV/AIDS programs (-$343 million), a decrease from FY2011 levels. FY2013 Budget Request The President's FY2013 budget request includes $8.5 billion for global health activities under the GHI, including $7.9 billion through the GHP account. The request represents a 3.8% decrease in GHI funding from FY2012-enacted levels and marks a potential shift in global health funding trends, which has seen increases for more than a decade. Compared to FY2012 funding levels, the request for funding through the GHP account includes decreases for almost every global health program area. Notable decreases include $3.7 billion for State Department HIV/AIDS programs, down 12.8% from FY2012; $578 million for USAID maternal and child health programs, down 4.6% from FY2012; $619 million for USAID malaria programs, down 4.8% from FY2012; $224 million for USAID tuberculosis programs, down 5.1% from FY2012; and $67 million for USAID neglected tropical diseases programs, down 24.7% from FY2012. The increases included in the request are $530 million for USAID family planning and reproductive health, up 1.2% from FY2012; and $1.65 billion for the Global Fund, up 27% from FY2012. The FY2013 budget request for CDC global health is $363 million, a slight increase from FY2012. When compared to FY2012 levels, the request includes steady funding or slight increases for most program areas. The largest increases occurred in two funding categories: global immunization (+9.4%) and NIH HIV/AIDS research (+6.7%). While the FY2013 budget request would represent a shift in global health funding trends, the Administration argues that the decreases do not reflect changes in its commitment to global health, U.S. global health goals, or overall program implementation strategies. Instead, it contends that proposed reductions in global health funding reflect increased efficiencies brought about by better integration between programs, greater use of community health workers and nurses, increased country contributions to programs, cheaper shipping costs of medicines, and reduced per-person treatment costs. Scaling back funding for PEPFAR programs in some countries also represents an attempt to transfer costs to countries with growing capacity and domestic investment in the HIV/AIDS response, such as South Africa, Ethiopia, and Kenya. OGAC has also stated that funding is being reduced in countries where significant resources from other donors are available or where HIV prevalence is particularly low, including, most prominently, Ethiopia. The Administration argues that despite reduced funding, it will still be able to fulfill the GHI targets, including the President's recent pledge to support treatment for 6 million HIV-positive people worldwide by the end of 2013. Early action and debate within both the House and the Senate on FY2013 appropriations indicate that Congress may not support proposed reductions in funding for many global health programs. Certain program areas, however, will likely be the subject of ongoing congressional debate, including family planning and reproductive health as well as the U.S. contribution to the Global Fund. Issues for the 112th Congress The United States is among the world's largest donors for global health, particularly for efforts related to HIV/AIDS. Not only does the United States spend more than any other country on addressing the global HIV/AIDS pandemic, it also accounts for roughly 30% of all donor pledges to the Global Fund. The U.S. role in global health has been both applauded and criticized. Supporters have celebrated the attention the United States has brought to several global health issues, particularly through PEPFAR, PMI, and the NTD Program. At the same time, critics have opposed some of the ways in which these programs have been implemented. For example, some experts have criticized the United States' past use of parallel health systems created for U.S programs in lieu of relying on existing national systems, arguing that they have led to unnecessary duplication and have done little to support country ownership of global health programs, the functioning of national health systems, or broader responses to global health issues. Regardless of opposing views of U.S. global health programs, there is consensus that the size of U.S. global health assistance affords the United States significant influence in how global health aid is carried out. This section analyzes some issues the second session of the 112 th Congress might face as it debates global health programs and spending levels. Developing a U.S. Global Health Strategy The United States has not traditionally articulated any overarching global health strategy. Rather, U.S. global health programs, including the various presidential global health initiatives, have been developed separately as health emergencies have arisen or health issues have gained increasing attention. Likewise, while distinct agencies involved in global health activities have collaborated on an ad-hoc basis, they have historically had separate planning, implementing, and reporting systems. The Obama Administration has initiated the process of establishing a comprehensive U.S. global health strategy through the Global Health Initiative. GHI emphasizes a whole-of-government approach to global health, including through the development of interagency country strategy plans. In particular, the GHI strategy document states, "the GHI team is accountable for achieving the common performance goals articulated in the country-specific GHI results framework. Shared ownership of these goals across U.S. agencies should fuel creative 'systems thinking' and motivate efficient and effective collaboration at all levels." The strategy also makes ambassadors the leaders in the field and the Secretary of State the overall head of GHI implementation. Some have criticized the GHI approach to global health assistance. For example, critics argue that the process of GHI implementation has lacked transparency and that it remains unclear how GHI has altered the implementation of bilateral health programs, if at all. Likewise, while many believe interagency cooperation can reduce unnecessary program duplication and lead to more efficient services, other observers question whether the interagency approach is slowing implementation of GHI or making it difficult to conduct disease-specific activities. Further, some argue that despite the Administration's attempt to articulate a U.S. global health strategy, it falls short of clarifying several long-standing issues with U.S. global health assistance, including ambiguous funding streams; distinct, disparate goals and objectives for health initiatives and agencies; and the vague role of each implementing agency as they relate to an overall strategy. For example, some contend that while the Obama Administration emphasizes a whole-of-government global health strategy, GHI documents limit discussion to activities undertaken by USAID and the State Department, and select activities undertaken by CDC. The reports do not clearly explain what part, if any, other agencies might play. The role of the Department of Defense (DOD), for instance, expends a significant amount of resources on global health compared to some of the other agencies engaged in global health activities, yet GHI documents do not outline the relationship between DOD and the other implementing agencies nor do they explain how agencies like DOD will further the goals of GHI. Also, the proposed timetable for transferring leadership from the Department of State to USAID leaves some uncertainty about who will ultimately be accountable for overseeing implementation of the GHI strategy and what USAID leadership of the initiative will mean operationally. Congress might consider a number of options to support making a working global health strategy more clear and feasible, including measures to require annual reports or other mechanisms that explain the role of each implementing agency, including the agency lead; explain how integrated services will be supported given the different funding streams to distinct organizations and program areas as well as existing disease-specific reporting requirements; clarify funding for global health activities undertaken by agencies other than USAID, CDC, and the State Department; detail metrics used across agencies to monitor and evaluate progress in making annual progress in GHI targets; illustrate annual progress in achieving GHI targets and spending by each agency; delineate U.S. spending and activities in related multilateral organizations including the Global Fund and UNAIDS; and describe the role of the recipient government in program design, implementation and evaluation, particularly as articulated in any signed bilateral frameworks or agreements. At the same time, field staff from implementing agencies have indicated that reporting requirements can be excessive and burdensome and may limit time spent on program implementation and quality assurance. Congress may consider reviewing reporting requirements, including mandatory annual reporting on the impact of U.S. assistance on efforts to control HIV/AIDS, TB, and malaria as well as other reports, and combining them where possible to ensure that they aid rather than detract from program effectiveness. Congressional debate on foreign aid reform may impact U.S. health assistance and encourage the Administration to develop a more clear global health strategy. The 112 th Congress has mostly limited discussions about GHI to specific global health programs, rather than questioning whether GHI is the appropriate strategy to advance U.S. global health policy. Similarly, Congress has not yet enacted legislation authorizing or otherwise directing how GHI should be carried out, if at all, as it has for most other presidential health initiatives. Funding the Global Health Initiative Some analysts have expressed concern over the possibility that Congress may not provide enough funds to meet the Administration's blueprint for GHI, which initially called for the United States to spend $63 billion on global health from FY2009 through FY2014. In the first four fiscal years of GHI, Congress provided $34.9 billion, an average of $8.7 billion annually, for global health programs under the initiative. Should Congress decide to meet the GHI $63 billion target, annual appropriations would need to reach, on average, $14 billion in FY2013 and FY2014. 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 in general. 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. Some Members of Congress have also argued that investing significant resources in global health represents "misplaced priorities" in a difficult fiscal environment. USAID is reportedly responding to concerns over aid effectiveness. For example, in 2011, USAID Administrator Rajiv Shah created a new suspension and debarment task force, led by Deputy Administrator Don Steinberg, to monitor, investigate and respond to suspicious activity. In the same year, USAID released a new evaluation policy that supports increasing independent evaluation of ongoing projects with results being released within three months of completion. In February 2012, President Obama signed an executive order establishing the President's Global Development Council, to be administered by USAID. According to the White House, the Global Development Council will inform and provide advice to the President and other U.S. officials on U.S. global development policies and practices and solicit input on current and emerging issues in the field. The debate about U.S. global health spending levels is complex and, some argue, distinct from the general debate over foreign aid levels because many U.S. global health programs offer immediate life-saving interventions. Likewise, some advocates argue that given advances in global health research and development, increased funding is critical for scaling up the use of new—and potentially very successful—tools to prevent and treat diseases, including HIV/AIDS and malaria. Finally, some global health experts contend that a decline or leveling off of global health spending could threaten U.S. efforts to develop multi-year agreements with governments that call for recipient countries to increasingly assume responsibility over the programs (see " Enhancing Country Ownership "). Maintaining HIV/AIDS Commitments Despite the Administration's intention to bolster health system strengthening activities and increase investments in other global health areas, tackling HIV/AIDS remains a priority of the Obama Administration. On World AIDS Day in December 2011, President Obama announced that the United States was committed to supporting treatment of 6 million people by the end of 2013. This announcement came soon after the summer 2011 release of new findings from an HIV prevention trial, which indicated that early initiation of HIV treatment, called anti-retroviral therapy (ART), in discordant couples reduced HIV transmission by 96%, by lowering the viral loads of infected people and therefore reducing the possibility of transmission. The finding has been hailed by many as a "game-changer" in the fight against global HIV/AIDS and has increased calls for U.S. support of HIV treatment around the world. Given the recent scientific advances and the Administration's new treatment target, some HIV/AIDS experts have expressed concern over declining funding for bilateral HIV/AIDS programs. Advocates argue that cuts to U.S. programs could squander the promise of newly available prevention and treatment tools and could directly or indirectly contribute to additional HIV/AIDS-related deaths. Most developing countries are heavily reliant on donors to fund their national HIV/AIDS plans. UNAIDS estimates that 90% of HIV/AIDS spending in low-income countries is financed by external donors. The United States government provides more funding for global HIV/AIDS assistance than any other country. One report estimates, for example, that U.S. spending on global HIV/AIDS programs amounted to 54.2% of all government donor spending in 2010. Some groups, particularly the Global Fund, have come to depend upon U.S. government contributions both to finance their programs and to attract additional funding. In November 2011, the Global Fund announced that it would be canceling the 11 th round of funding due to inadequate financial resources. The announcement has led advocates to express concern over sustaining progress made in the fight against global HIV/AIDS and has highlighted the importance of the United States' role as a donor. Some analysts are especially concerned about U.S. capacity to maintain life-long HIV/AIDS treatment programs. This issue is particularly sensitive since taking people off of medicine would inevitably have fatal consequences. Critics question whether the United States should seek to augment the number of patients receiving treatment in view of the fact that HIV-positive people need to be treated for a lifetime and the U.S. HIV/AIDS budget is not expected to increase. Likewise, while many of the costs associated with HIV treatment have declined over time, a growing proportion of patients may require more expensive second- and third-line treatments following the failure of first-line treatments. Finally, the recent findings about ART's preventative benefits raise new questions related to the appropriate distribution of limited—or decreasing—funding for global HIV/AIDS, including how funds should be divided between ART as treatment, ART as prevention, and other non-treatment-based forms of prevention. Congress might consider the following questions: Given decreasing funding for bilateral HIV/AIDS programs, how will the United States meet its goals related to HIV treatment? If HIV/AIDS spending decreases, will U.S. support for other HIV interventions like care and prevention be diverted for treatment? How long should U.S. investments in HIV/AIDS be expected, and when might the recipient governments assume ownership over PEFPAR programs since PEPFAR budgets typically exceed the entire health budgets of recipient countries? How might other U.S. global health priorities be affected by the long-term costs of AIDS treatment? Investing in New Areas The majority of U.S. global health funding is provided for HIV/AIDS activities. In FY2012, for example, roughly 57% of U.S. global health spending through the Global Health Programs (GHP) account was for bilateral HIV/AIDS efforts. Including contributions to the Global Fund to Fight AIDS, Tuberculosis, and Malaria (Global Fund), global HIV/AIDS spending accounted for more than 72% of GHP funding in FY2012. A significant proportion of congressional hearings and legislation aimed at improving global health have also focused on HIV/AIDS and how other issues are affected by the disease. In the past few years, however, Members of Congress and the Administration have supported increased funding for health areas other than HIV/AIDS, with some arguing that extending funding to programs tackling other health challenges can better maximize the health impact of U.S. assistance. Despite this support, given the U.S. commitment to individuals already receiving life-saving medicine under PEPFAR programs, some experts argue that reducing or leveling off global health funding might limit the United States' ability to invest in more recently identified global health priority areas. From FY2009 to FY2012, for example, spending by USAID on malaria, maternal and child health, and neglected tropical diseases saw significant increases ( Figure 4 ). While spending in these areas rose, the change in share of resources spent on these health challenges has been less pronounced, due to increases in spending on other health challenges through the GHP account. While debating FY2013 global health funding, Congress may face difficult questions related to allocation of finite resources and trade-offs between longstanding health programs, such as PEPFAR, and more recently identified global health priorities, such as those outlined above. Enhancing Country Ownership Several actions by the Obama Administration indicate an enhanced emphasis on country ownership of global health programs. Country ownership refers to strengthening the capacity of countries—including governments and civil society—to develop and manage their own health programs, particularly in the areas of developing health plans, forecasting monetary and infrastructural needs, ensuring that financing mechanisms can sufficiently manage and monitor fiduciary transactions, refining regulatory and procurement processes, and developing executive skills like writing grant proposals and making presentations. Advocates of country ownership assert that it makes assistance more effective and allows for an easier transition of program responsibility from foreign donors to recipient country governments and other stakeholders. The level of ownership that can be achieved varies widely, as countries have different degrees of capacity and health needs. Country ownership has been highlighted as a key goal of GHI and USAID Administrator Shah has made public statements endorsing the concept. OGAC advocates using "Partnership Frameworks" in PEPFAR programs to support country capacity and leadership. Partnership Frameworks describe the expected role of both the U.S. and recipient governments and outline how increased country ownership will be attained. In Nigeria, for example, the government commits to funding half of the national HIV/AIDS program by the end of the framework's five-year implementation. The State Department's Quadrennial Diplomacy and Development Review identifies a number of steps that the United States expects to take to enhance country ownership, including providing 20% of U.S. funds to partner country governments, local organizations, and local businesses; more than doubling direct grants to local nonprofit organizations so that they account for 6% of program funds; partnering with at least 1,000 local organizations, more than double the current number; granting local private businesses at least 4% of U.S. foreign assistance; supporting local supply chains; and transitioning the leadership of HIV/AIDS treatment programs from external organizations to national governments and indigenous organizations. Despite the fact that the Obama Administration has emphasized that increased country ownership does not necessarily mean reduced U.S. investments, some observers have expressed concern over the possible consequences of long-term decreases in U.S. global health spending, as recipient countries are expected to play a progressively predominant role. For example, if recipient countries are unable or unwilling to fill funding gaps due to declining U.S. support for global health programs, some argue that HIV infection and mortality rates could climb. Furthermore, some health experts are concerned that if HIV/AIDS infection and mortality rates begin to rise, other bilateral health efforts might become less effective as vulnerable populations succumb more quickly to diseases like malaria or TB; and advancements in other sectors, like agriculture, could be threatened as people become too weak to engage in income-generating activities. In addition, countries might employ a variety of strategies to cope with stagnant or decreased global health spending levels, such as reducing spending on other health problems, particularly those that disproportionately affect vulnerable groups, like neglected tropical diseases. Observes have also questioned the ability of many resource-poor countries to assume increased logistical, or technical control over global health programs. Finally, some have also expressed concern that the United States will be unable to hold countries sufficiently accountable while shifting control to host governments and other local actors. Balancing Bilateral and Multilateral Assistance The United States is a leading contributor to several multilateral health organizations, including the Global Fund, UNAIDS, the World Health Organization (WHO), the International AIDS Vaccine Initiative (IAVI), and the GAVI Alliance, among others. Despite this support, the vast majority of U.S. global health assistance is channeled through bilateral programs. Over the last decade, Congress has frequently debated the appropriate balance between bilateral and multilateral assistance. The Obama Administration has indicated its intention to strengthen support for multilateral partners through sustained financial contributions, increased technical assistance to multilateral projects in the field, and improved coordination of health activities, as appropriate. The Administration has taken several actions that indicate heightened support for global health activities supported by multilateral organizations, including the following: Multi-year pledge to the Global Fund: The United States has historically set its annual pledge levels for the Global Fund through annual appropriations. At an October 2010 donor's conference, the United States made its first multi-year pledge to the Global Fund: a three-year, $4 billion commitment. FY2013 Budget Request : While the FY2013 budget request includes an overall decreased amount of funding for global health programs, it includes funding increases for the Global Fund (+27%) and GAVI Alliance (+11.5%) from FY2012 levels. Restored funding for the United Nations Population Fund (UNFPA): Over the past three decades, Congresses have debated whether the United States should support UNFPA. Deliberations centered on whether UNFPA funds were diverted to support China's coercive family planning programs and policies. Since taking office, President Obama has requested continued funding for UNFPA in FY2013, including an 11.4% increase over the FY2012 funding level. Identifying the appropriate degree of support for multilateral organizations has been a key issue in past Congresses, and some analysts expect it to remain an important point of debate during the 112 th Congress. Proponents of strong bilateral funding argue that direct U.S. global health spending carries a number of advantages, including the ability to strategically direct where and how aid is used; more easily monitor and evaluate use of aid and program impact; and more rapidly adjust how funds are spent. On the other hand, supporters of higher multilateral spending argue U.S. participation in multilateral responses to global health offers distinct advantages, including the ability to pool and leverage limited resources in the face of global challenges such as global health; capitalize on efficiencies in global health programming; coordinate assistance with a range of donors; and provide aid that better aligns with the priorities of the recipient countries. Some observers would like the debate about bilateral and multilateral funding to include a discussion of how the United States and other donors finance health aid, and how increased U.S. engagement with multilateral donors might facilitate more effective programs. In particular, a growing number of analysts are urging bilateral and multilateral donors to better align their programs. According to a report by WHO, 20% to 40% of health spending is wasted through inefficiency. The report identified several areas in which donors could eliminate waste—namely through aligning financial, reporting, and monitoring practices—and asserted that recipient governments could have more staff and time to extend health coverage if donors harmonized the auditing, monitoring, and evaluation of their programs. While U.S. agencies are increasingly cooperating and coordinating with multilateral partners, the 112 th Congress might consider calling on the Obama Administration to bolster its support for better aligning U.S. global health aid with support provided by multilateral donors, particularly in the areas of pooled procurement, supply chain networks, and reporting practices. In addition, Congress might consider U.S. ratification of the International Health Partnership Compact , an international agreement that calls for the international community to work together to improve the efficiency of health aid. The compact specifically calls on international organizations and bilateral donors to use national health plans as the basis for funding and planning health aid, ensure efforts to address particular diseases are funded and implemented as part of a broader effort to improve health systems, and be accountable for health aid by annually evaluating, monitoring, and reporting on results; governments to use national health plans to guide development of health systems, work with all stakeholders (including civil society and international organizations) and ensure that budgets reflect common vision for the health sector, tackle misappropriation of funds, strengthen health and financial management systems, and be accountable to the citizenry and funders through reports on results; and other donors to use their resources to advance coordinated multilateral approaches to strengthening health systems, continue to invest in learning and evaluation mechanisms to identify best practices, and be accountable and hold organizations receiving support accountable for measuring impact and directing funding to proven successes. As of early 2012, 52 countries, multilateral organizations and other donors have signed the International Health Partnership Compact. While the Bush and Obama Administrations have indicated support for the agreement, the United States has not yet ratified it. Global Health Spending by Other Stakeholders According to the Organization for Economic Cooperation and Development (OECD), the United States provides more official development assistance (ODA) for health than any other country in the Development Assistance Committee (DAC). In 2010, the United States expended roughly $7.4 billion in ODA for health sector activities, which accounted for more than half (59.9%) of all health sector assistance provided by DAC members ( Figure 5 ). At the same time, when measured as a portion of GDP, the United States gives less health aid than several European donors. Global financial constraints have put pressure on development assistance worldwide, and, as a result, global health funding from a number of donors has begun to level off. Despite decreases in funding from donor governments, the global health funding system is becoming increasingly complicated as a variety of new actors become involved. The private sector and private foundations are playing a growing role in addressing global health. In 2009, for example, spending on global health by the Bill & Melinda Gates Foundation was higher than all DAC countries except the United States. Specifically, OECD reported that in 2009, the Gates Foundation spent $1.8 billion on global health, some $800 million more than Britain. Likewise, in 2011, after the Global Fund's decision to cancel its 11 th funding round, the Gates Foundation announced it would contribute $750 million to the Fund. An ever-growing array of disease-specific partnerships, like the Stop Malaria Partnership, are also emerging, many of which rely on complex funding and implementation structures that include national, multilateral, private, nongovernmental, and academic partners. GHI Strategy documents released by the Obama Administration and legislation introduced by the 112 th Congress appear to welcome broader engagement in global health, particularly public-private partnerships. There is some debate, however, among global health analysts about how the burgeoning number of players might impact global health effectiveness in general and U.S. influence in this realm in particular. The growth of actors in the global health sector raises several questions: How will U.S. influence be affected by the increasing number of global health actors? What role should non-state actors play in shaping global health policies? Will there ultimately be more convergence or more divergence in the implementation of global health activities? Will private donors adhere to international standards and norms? Conclusion Global health has been a central issue in congressional debates over foreign assistance programs and funding levels. Some expect that global health reform will be an area of ongoing congressional concern, both as a way to potentially reduce spending and to improve the effectiveness of aid. The Global Health Initiative suggests a new direction for global health programming, but it remains to be seen whether Congress will support the Administration's requests for funds to achieve the goals laid out in GHI. In determining funding levels for global health programs, Congress may consider the extent to which the United States should invest in new global health areas, ways that the United States can encourage country ownership of global health programs, the appropriate balance of funding between bilateral and multilateral programs, and the role that the United States should play in global health, particularly in relation to other donors. Along with debating issues related to U.S. global health assistance, Congress may also wish to consider its own role in determining how U.S. global health programs are implemented. Congress has exercised growing involvement in shaping global health programs through funding distribution guidelines, spending directives and limitations, and priority-area recommendations. Global health analysts have debated whether Congress's elevated role has helped or hindered the efficacy of global health programs. For example, some argue that congressional spending directives have limited the ability of country teams to tailor programs to in-country needs. Others argue that congressional mandates and recommendations serve to protect critical areas in need of support and can facilitate the implementation of a cohesive global health strategy across agencies. Possible passage of legislation by the 112 th Congress related to GHI may require Congress to reflect on how it can best support an effective and efficient response to global health needs. Appendix. U.S. Global Health Spending by Agency

U.S. funding for global health has grown significantly over the last decade, from approximately $1.7 billion in FY2001 to $8.8 billion in FY2012. During the George W. Bush Administration, Congress provided unprecedented increases in global health resources, especially in support of multi-agency initiatives targeting infectious diseases, such as the President's Emergency Plan for AIDS Relief (PEPFAR) and the President's Malaria Initiative (PMI). As support for global health increased, the 110th and 111th Congresses began to emphasize better coordination of all global health programs and efforts to strengthen health systems in recipient countries. In 2009, the Obama Administration announced the Global Health Initiative (GHI), proposed as a six-year, $63 billion effort to integrate existing global health programs and provide a comprehensive U.S. global health strategy. Funding for FY2012 was signed into law on December 23, 2011 (P.L. 112-74). FY2012 appropriations for global health programs remained similar to FY2011, although these amounts were agreed to after prolonged debate over potential budget reductions. The 112th Congress is currently debating FY2013 funding for global health activities. The Administration's FY2013 budget request includes reduced funding for global health for the first time in over a decade. However, early debate and action on FY2013 appropriations by both the House and Senate suggests that Congress may not support these reductions. While some policymakers and health experts argue that reductions in global health may be possible due to newly identified efficiencies in programming that could yield important savings, others have raised concerns about the impact of potential cuts on current U.S. global health activities and stated targets. Some groups contend that lower levels of U.S. assistance could limit U.S. agencies' ability to integrate their activities and implement innovative approaches to global health, as emphasized by GHI; threaten advances in eradicating diseases like polio and guinea worm and reverse progress made in preventing and treating diseases like HIV/AIDS, tuberculosis, and malaria; compel recipient countries to decrease spending on health issues that disproportionately affect the poor, like neglected tropical diseases and limit access to basic health services such as midwifery care, nutritional support, and vaccinations; and weaken U.S. efforts to encourage greater country ownership through multi-year funding plans. This report provides a broad overview of U.S. global health assistance, including global health programs and global health initiatives, and analyzes some of the policy questions that the 112th Congress may consider as it oversees and debates funding for global health programs. For more detail on specific diseases and global health challenges, see related reports at http://www.crs.gov.

Introduction At the beginning of each Congress, the House adopts its rules of procedure for that Congress. Although it usually readopts most provisions of its rules from the previous Congress, the House also changes some aspects of its procedures for each new Congress. Rules X-XIII are the primary House rules that govern the authority and operations of House committees and subcommittees. Because the committees are the agents of the House, they are obligated to comply with all House directives that apply to them. However, in some respects the House allows each of its committees to decide for itself how to conduct its business. For this purpose, each committee is required to adopt written rules of procedure within the limitations of House rules. This report identifies and summarizes the provisions of the House's standing rules and certain other directives that affect committee powers, authority, activities, and operations. It does not address party conference rules, the rules adopted by individual committees that supplement House rules, or committee practices on matters not covered by House rules. The report is organized under seven headings: (1) general, (2) establishment and assignments, (3) hearings, markups, and other meetings, (4) reporting, (5) oversight and investigations, (6) funding, staff, and travel, and (7) other duties. This report primarily covers requirements and prohibitions contained in the Rules of the House of Representatives that are of direct and general applicability to most or all House committees. The report does not encompass most other provisions of law or the House's rules that apply only to one committee, such as the Intelligence or Standards of Official Conduct Committee, or House rules governing certain appropriations hearings and the content of appropriations measures. The summaries presented here are not intended to capture every nuance and detail of the rules themselves. Members and staff are advised to consult the text of the appropriate standing rule or provision of law. Committee Rules Application of House Rules to Committees Rule XI, clause 1(a)(1)(A) Rule XI provides that, in general, the rules of the House "are the rules of its committees and subcommittees so far as applicable." In addition to this general principle; see " Motions to Recess " and " Reading Measures During Markups . " Although this provision is clear in principle, it is not always obvious how it is to be applied in practice. There are various rules, for example, that govern how the House may consider measures on the floor, but this clause does not specify which of these rules is to be applicable to committees and subcommittees. In the commentary accompanying Rule XI, the House Parliamentarian observes that: [t]he procedures applicable in the House as in the Committee of the Whole generally apply to proceedings in committees of the House of Representatives, except that since a measure considered in committee must be read for amendment, a motion to limit debate under the five-minute rule in committee must be confined to the portion of the bill then pending. The previous question may only be moved on the measure in committee if the entire measure has been read, or considered as read, for amendment. The Parliamentarian continues: "Committees generally conduct their business under the five-minute rule, but may employ the ordinary motions which are in order in the House...and may also employ the motion to limit debate under the five-minute rule on a proposition which has been read." Application of Committee Rules to Subcommittees Rule XI, clause 1(a)(2) The rules of a committee apply to its subcommittees, "so far as applicable." Furthermore, subcommittees are subject to the authority and direction of the committee of which they are a part. Adoption of Committee Rules Rule XI, clause 2(a)(1) Each committee is required to adopt written rules that "may not be inconsistent" with House rules and applicable rule-making provisions of law. For convenience, the committee's rules are to incorporate applicable provisions of clause 2 of Rule XI. The meeting at which the committee adopts its rules is to be open to the public unless in open session the committee votes, by roll call and with a quorum present, to close part or all of the meeting. Publication of Committee Rules Rule XI, clause 2(a)(2) The rules that a committee adopts are to be published in the Congressional Record not later than thirty days after the committee members are elected at the beginning of a Congress. Committee Documents and Records Activities Report Rule XI, clause 1(d) At the end of the Congress, each committee is to submit to the House a report on its activities during the preceding two years. The activities report is to differentiate between the committee's legislative and oversight activities. A committee chair may file an activities report after the adjournment of Congress sine die and without formal approval by the committee, provided the report has been available to committee members for at least seven calendar days for inclusion of supplemental, minority, and additional views. Members' Access to Records Rule XI, clause 2(e)(2) The records of a committee must be kept separate from the personal office records of the chair of the committee. Committee records are the property of the House and all its Members shall have access to them; however, certain records of the Committee on Standards of Official Conduct are not available to non-committee Members without the prior approval of the committee. Preservation of Records Rule VII, clauses 1, 2, and 6 The noncurrent records of each committee are to be preserved at the National Archives and Records Administration. At the end of each Congress, the chair of each committee is to transfer the noncurrent records of the committee to the Clerk of the House. The Clerk then delivers these records to the Archivist of the United States for preservation at the Archives, but the records continue to be the property of the House. A committee "record" is defined as "an official, permanent record of the committee (including any record of a legislative, oversight, or other activity of such committee or subcommittee thereof)." Availability of Archived Records Rule VII, clauses 3 and 5(a)-(b) In general, the Archivist makes archived records publicly available under the following rules (and any orders of the House). First, any record that a committee makes publicly available before its delivery to the Archivist is to be available immediately. Second, the following records will be available after 50 years: (1) investigative records containing personal data on living individuals, (2) personnel records, and (3) records of closed hearings. Third, a committee order that specifies the time, schedule, or condition for availability of committee records shall govern, except as otherwise provided by order of the House. Finally, records other than those covered above are to be available after 30 years. The Committee on House Administration may establish guidelines and regulations governing the applicability and implementation of House Rule VII on noncurrent records, and this rule does not supersede other House rules or authorize disclosure if prohibited by law or executive order. Nonavailability of Archived Records Rule VII, clause 4 An archived record of a committee is not to be available to the public if the Clerk of the House determines that availability would be "detrimental to the public interest or inconsistent with the rights and privileges of the House." The Clerk is to notify in writing the chairman and ranking minority member of the Committee on House Administration of such determination. A committee may change any such determination by a later order. Withdrawal of Archived Records Rule VII, clause 5(c) For official use, a committee may temporarily withdraw a record from the Archives. Committee Rules on Availability of Archived Records Rule XI, clause 2(e)(3) As part of its written rules, each committee is to include standards for availability of archived records. The standards are to specify the committee's procedures for adopting orders (under House Rule VII) relating to the time, schedule, or condition for availability of its records, including those the Clerk of the House initially determines shall not be available to the public. The rules also should contain a requirement that nonavailability of a committee's record for a period longer than required by House rules requires committee approval. Documents Available Electronically Rule XI, clause 2(e)(4) "To the maximum extent feasible," committees are to make their publications available to the public in electronic form (i.e., on the Internet). Establishment, Referrals, and Assignments Establishment and Referrals Establishment and Jurisdiction of Standing Committees Rule X, clause 1 Nineteen standing committees are established, and the subjects within the jurisdiction of each committee are listed. Measures and matters are to be referred to committees based on these jurisdictions. Number of Subcommittees Rule X, clause 5(d); H.Res. 5 , 109 th Congress In general, a House committee may not create more than five subcommittees, or six subcommittees if one of the six is an oversight subcommittee, except that Appropriations may have not more than 13 subcommittees and the Committee on Government Reform may not have more than seven subcommittees. In addition, H. Res. 5, adopted by the House of Representatives on January 4, 2005, waived Rule X, clause 5(d) to allow up to six subcommittees each on the Transportation and Infrastructure and Armed Services Committees and up to seven subcommittees on the Committee on International Relations in the 109 th Congress. Referrals by the Speaker Rule XII, clause 2 The Speaker is to refer a measure or other matter to each standing committee that has jurisdiction over the subject matter of any provision(s), to the maximum extent feasible. The Speaker has authority to refer a matter to more than one committee. In such cases, he is to designate a primary committee and also may refer a measure sequentially to other committees, with time limitations for consideration of provisions within their jurisdiction, or refer portions of the measure to one or more additional committees. Rule XII, clause 2 (c)(1) permits the Speaker, under "extraordinary circumstances" to designate more than one committee as primary when making referrals if he believes review by more than one committee as though primary is justified. He also may create a special ad hoc committee to consider a matter, appointing Members with House approval and with Members from the committees of jurisdiction. The Speaker also may make other referral arrangements he deems appropriate. Assignments Assignment to Standing Committees Rule X, clause 5(a)(1) and 5(e) Members are elected to standing committees by the House based on nominations by the party caucuses as contained in resolutions. The resolutions are privileged for floor consideration, and Members must be elected to committees within seven calendar days after the beginning of a Congress. Vacancies in standing committees also are filled by election of the House on the basis of nominations by the party conferences. Limitation on Assignments Rule X, clause 5(b)(2) No Member may serve on more than six standing panels: two standing committees and four of their subcommittees. However, the chair or ranking member of a full committee may serve ex officio on all its subcommittees. Any other exceptions (waivers of the rule) must be recommended by the pertinent party conference and approved by the House. Chairmanship Election and Limitation Rule X, clause (5)(c)(1) The House elects the chair of each standing committee on the basis of a nomination submitted by the majority party conference. In case of the temporary absence of the chairman, the next ranking majority party member acts as chairman. In case of a permanent vacancy, the House elects a new committee chairman. In general, a Member may not chair the same standing committee or subcommittee for more than three consecutive Congresses. This limitation does not apply to the chair of the House Committee on Rules. Select and Conference Committees Rule I, clause 11, and Rule III, clause 3(b) The Speaker is authorized to appoint members of select and conference committees, and may remove members or appoint additional members at any time. He may appoint the Resident Commissioner from Puerto Rico and the Delegates to any select or conference committee. To the maximum extent feasible in naming conferees, the Speaker is to (1) appoint no less than a majority of Members who generally supported the House position, (2) name the Members who were primarily responsible for the legislation, and (3) include the principal proponents of the major provisions of the measure as passed by the House. Party Membership Rule X, clause 5(b)(1) Membership on standing committees during a Congress is contingent upon continued membership in the party conference to which the Member belonged when assigned to committees. If a Member ceases to be a member of a particular party, the Member automatically loses his or her committee assignments. Committee Service of the Resident Commissioner and Delegates Rule III, clause 3(a) The Delegates and the Resident Commissioner from Puerto Rico are elected to standing committees by the same procedures, and have the same "powers and privileges" in committees, as other members of the committee. Hearings, Markups, and Other Meetings General Authority to Meet Rule XI, clause 2(m)(1)(A) To carry out its authorized functions and duties, each committee and subcommittee is empowered "to sit and act at such times and places within the United States, whether the House is in session, has recessed, or has adjourned, and to hold such hearings as it considers necessary. . . ." Committee Sessions During Joint Sessions and Meetings Rule XI, clause 2(I) No committee of the House may meet during a joint session of the House and Senate or during a recess when a joint meeting of the House and Senate is in progress. Presiding at Committee Meetings Rule XI, clause 2(d) The committee chairman may designate a member of the majority party to be the vice chairman of the committee or one of its subcommittees. The vice chairman shall preside over the committee or subcommittee in the temporary absence of its chairman. In the absence of the chairman and the vice chairman, the most senior member of the majority party shall preside. Motions to Recess Rule XI, clause 1(a)(1)(B) In committee and subcommittee, a motion to recess from day to day or to recess subject to the call of the chair within 24 hours is privileged and nondebatable. Broadcasting Sessions Rule XI, clause 4 Any committee or subcommittee meeting or hearing that is open to the public also is open to still photography and to radio and television coverage. A committee may adopt, as part of its written rules, procedures regulating photography and broadcasts of its meetings and hearings, but these committee rules must conform with the requirements and stipulations laid out in this clause of House Rule XI. Among other issues, these requirements pertain to coverage of sessions without commercial sponsorship; positions and placement of television cameras and location of photographers; installation and removal of media equipment; lighting; allocation of the number of still photographers; accreditation by the press galleries; and conduct of media personnel. Records of Committee Sessions Rule XI, clause 2(e)(1)(A) Hearing and markup transcripts kept by a committee must be substantially verbatim. A person may make only technical, typographical, and grammatical corrections in his or her remarks. Hearings Public Announcement Rule XI, clause 2(g)(3) A committee is to give at least one week's public notice of the date, place, and subject of any hearing. If the committee, or the chair with the concurrence of the ranking minority member, decides that there is "good cause" to begin the hearing in less than a week, the public announcement should be made as soon as possible. The announcement is to appear in the "Daily Digest" section of the Congressional Record and is to be "made available in electronic form." These requirements do not apply to the House Committee on Rules. Subject of Hearing Rule XI, clause 2(k)(1) In an opening statement, the chair is to announce the subject of the hearing. Quorum at Hearing Rule XI, clause 2(h)(2) Each committee may set its own quorum for taking testimony and receiving evidence, so long as that quorum is at least two members. Subpoena Rule XI, clause 2(m) A committee or subcommittee may subpoena witnesses or any materials necessary to carry out its authorized responsibilities. A subpoena may be authorized and issued by a committee or subcommittee with a majority quorum present, but this authority may be delegated to the committee chair in accordance with any limitations or rules the committee may establish. The chair, or any Member designated by the committee, signs authorized subpoenas. Compliance with a subpoena may be enforced only by the House. Witnesses Selected by the Minority Rule XI, clause 2(j)(1) The minority party members of a committee are entitled to call witnesses of their choice "during at least one day of hearing" on a measure or matter, but only if a majority of the committee's minority party members make such a request of the chairman "before the completion of the hearing." Administering the Oath Rule XI, clause 2(m)(2) "The chairman of the committee, or a member designated by the chairman, may administer oaths to witnesses." Statements of Witnesses Rule XI, clause 2(g)(4) To the extent practicable, each witness is to submit a written statement before he or she testifies, and to present only a summary as his or her oral testimony. As part of the written statement, a non-governmental witness is required to include a curriculum vitae and information on federal grants and contracts received by the witness or the organization being represented during the current and previous 2 fiscal years. Questioning Witnesses Rule XI, clause 2(j)(2) In general, each committee member shall have five minutes to question each witness until all committee members have had that opportunity. However, a committee may extend the time for questioning witnesses by adopting a rule or motion to allow a specified number of its majority and minority party members to question a witness for no more than a total of one hour, with the time to be equally divided between the parties. Similarly, a committee may adopt a rule or motion allowing its majority and minority staff to question a witness for equal periods of time, not to exceed one hour in total. Rights of Witnesses Rule XI, clause 2(k) Upon request, witnesses are entitled to receive a copy of the committee's rules and clause 2 of House Rule XI. Witnesses also may be accompanied by counsel "for the purpose of advising them concerning their constitutional rights." The chair may punish "breaches of order and decorum, and of professional ethics" by counsel, and a committee may cite an offender to the House for contempt. At the discretion of the committee, a witness may submit a sworn, written statement for inclusion in the hearing record. A witness may obtain a transcript of testimony given in open session, but needs the authorization of the committee for a copy of testimony presented in closed session. Open Hearings Rule XI, clauses 2(g)(2) and 2(k)(5) Each committee and subcommittee hearing is to be open to the public unless the committee or subcommittee votes in open session, by roll call and with a majority present , to close part or all of the hearing on that day. A committee or subcommittee may vote to close part or all of a hearing if disclosure of the matters to be considered at the session "would endanger national security, would compromise sensitive law enforcement information, or would violate a law or rule of the House." A majority of whatever quorum a committee requires to conduct a hearing may vote to close a hearing (1) whenever a member of the committee has asserted that the anticipated testimony "may tend to defame, degrade, or incriminate any person," or (2) whenever a witness has asserted that his or her testimony "may tend to defame, degrade, or incriminate" that witness, or (3) solely to discuss whether there is a cause, pursuant to clause 2 of Rule XI, to resume the hearing in closed session. If a committee member asserts that testimony may tend to defame, degrade or incriminate a person who is not a witness, that person shall have the opportunity to appear as a witness and to request that the committee subpoena additional witnesses. In other cases, the chair receives and the committee disposes of requests to subpoena witnesses. Evidence or testimony taken in closed session may not be made public without the approval of the committee. By these procedures, most committees or subcommittees may vote to close a particular day of hearing and one subsequent day of hearing. The Appropriations and Armed Services Committees and the Permanent Select Committee on Intelligence, and their subcommittees, may vote to close up to 5 additional consecutive days of hearings. Members of the House may attend, but not participate in, hearings of committees or subcommittees (except the Committee on Standards of Official Conduct) on which they do not serve, unless the House votes to authorize a committee or subcommittee to use the procedures for closing hearings to the public (clause 2(g)(2)) to close one or more hearings on a particular measure or subject to non-committee members. See also " Broadcasting Sessions " and " Open Meetings . " Printing of Hearings Rule XI, clause 1(c) Each committee is authorized to have its hearings printed and bound. Availability of Printed Hearings Rule XIII, clause 4(b) "A committee that reports a measure or matter shall make every reasonable effort to have its hearings thereon (if any) printed and available for distribution to Members, Delegates and the Resident Commissioner before the consideration of the measure or matter in the House." Preservation of Committee Hearings Sec. 141 of the Legislative Reorganization Act of 1946, codified as amended at 2 U.S.C. 145a At the end of each session of Congress, each committee's printed hearings are to be bound by the Library of Congress. Enforcement of Hearing Requirements Rule XI, clause 2(g)(5) A point of order cannot be made on the House floor on the grounds that the committee reporting the measure in question had not complied with all the requirements concerning hearings in clause 2 of Rule XI unless (1) the point of order is made on the floor by a member of the reporting committee, and (2) the point of order had been properly made in committee but had been "improperly disposed of in the committee." Markups and Other Business Meetings Regular Meeting Day Rule XI, clause 2(b) As part of its written rules, each standing committee is to adopt a regular meeting day, which is to be at least once each month. The committee is to meet on each of its regular meeting days "unless otherwise provided by written rule adopted by the committee." The latter provision allows the committee to dispense with meetings when there is no business that is ready to be transacted. Committee rules can authorize the chairman to dispense with such a meeting or fix some other procedure for the same purpose. Additional Committee Meetings Rule XI, clause 2(c) The chairman of a committee is authorized to convene additional meetings to consider legislation or to transact other committee business. In addition, three members of a committee may make a written request that the chairman call a special meeting only for a specified purpose. If, within three days of receiving the request, the chairman does not schedule the requested meeting to take place within seven days after the request was made, a majority of the committee can call the special meeting by submitting to the committee office a written notice giving the date and time of the meeting and the measure or matter to be considered. Open Meetings Rule XI, clause 2(g)(1) The requirement that hearings be open to the public, unless closed under specified procedures, applies to meetings as well. A committee or subcommittee may vote in open session, by roll call and with a majority present, to close part or all of the day's meeting, but only for certain reasons. A committee or subcommittee may vote to close part or all of a meeting only if disclosure of the matters to be considered at the meeting "would endanger national security, would compromise sensitive law enforcement information, would tend to defame, degrade or incriminate any person, or otherwise would violate a law or rule of the House." If the committee or subcommittee votes to close part or all of a meeting, it may be attended only by committee members and by such non-members, committee staff, and "departmental representatives as the committee may authorize. See also " Open Hearings " and " Broadcasting Sessions . " Quorum at Meeting Rule XI, clause 2(h)(3) A committee may set its own quorum requirement for transacting most kinds of business, so long as that quorum is not less than one-third of the committee's members. (Other provisions of House rules require a majority quorum to order a measure or matter to be reported, to authorize a subpoena, or to close a session to the public.) This provision does not apply to the Appropriations, Budget, and Ways and Means Committees. See also " Quorum at Hearing . " Reading Measures During Markups Rule XI, clause 1(a)(1)(B) In committee and subcommittee, a motion to dispense with the first reading of a measure is privileged and nondebatable, but only if "printed copies" of the measure are available. When a committee or subcommittee begins to mark up a measure, it is to be read in full unless the reading is dispensed with by unanimous consent or by use of this motion. Proxy Voting Rule XI, clause 2(f) Proxy voting is prohibited in House committees and subcommittees. Records of Rollcall Votes Rule XI, clause 2(e)(1) As part of its records, the committee shall maintain a record of all rollcall votes. The committee shall make this information available for public inspection in its offices. The information on each rollcall vote shall include a description of the question as well as the names of members voting for and against it and those present but not voting. Postponing Votes in Committee Rule XI, clause 2(h)(4) Committees may adopt a rule which allows the chairman of a committee or subcommittee to postpone votes on approving a measure or on adopting an amendment and to resume proceedings on a postponed question at any time after reasonable notice. An underlying proposition shall remain subject to further debate or amendment to the same extent as when the question was postponed. Motion To Go To Conference Rule XI, clause 2(a) Committees may adopt a rule directing the chairman of the committee to offer a privileged motion to go to conference at any time the chairman deems it appropriate during a Congress. Reporting General Quorum for Reporting Rule XI, clause 2(h)(l) "A measure or recommendation may not be reported by a committee unless a majority of the committee is actually present." This provision also applies to subcommittees, and requires that the majority be present during the vote to order the measure or matter reported. Timely Filing of Reports Rule XIII, clause 2(b) After a committee has ordered a measure reported, the chair is required to ensure that it is reported "promptly" to the House, and "to take or cause to be taken steps necessary to bring the measure or matter to a vote." If a majority of a committee's members so request in writing, the report on a measure the committee has approved must be filed within 7 more calendar days (excluding days when the House is not in session). The latter procedure does not apply to reports of the Rules Committee on the House's rules or its order of business on the floor (i.e., "special rules") or to reports on resolutions of inquiry. Appropriations and Tax Provisions Rule XXI, clause 4 and clause 5(a) "A bill or joint resolution carrying an appropriation may not be reported by a committee not having jurisdiction to report appropriations...." "A bill or joint resolution carrying a tax or tariff measure may not be reported by a committee not having jurisdiction to report tax or tariff measures...." Budget Legislation Sec. 306 of the Congressional Budget Act, codified as amended at 2 U.S.C. 637 Measures (and in general amendments, motions, or conference reports) dealing with matter within the jurisdiction of the Budget Committee will be considered in the House only if reported by (or discharged from) the Budget Committee. Federal Intergovernmental Mandates Sec. 425 of the Congressional Budget Act, as amended by P.L. 104-4 , the Unfunded Mandates Reform Act of 1995, 109 Stat 50 The House is not to consider a bill or joint resolution that would increase "the direct costs of Federal intergovernmental mandates" by certain amounts unless the measure also satisfies certain qualifications specified in the same section of the law. Layover Requirements Rule XIII, clause 4(a) With several exceptions, it is not in order for the House to consider a measure or matter until at least the third calendar day (excluding weekends and legal holidays) on which the committee report on it has been available to Members. This "three-day rule" does not apply to (1) resolutions reported by the Rules Committee, which are subject to a one-day layover requirement (clause 6(a) of Rule XIII), (2) concurrent budget resolutions reported by the Budget Committee, for which there is a three-day layover requirement (Section 305(a)(1) of the Congressional Budget Act, as amended), (3) resolutions presenting questions of the privileges of the House, (4) measures declaring war or a national emergency, and (5) resolutions of disapproval (legislative veto resolution). It always is in order for the House to consider a resolution, reported by the Rules Committee, that specifically waives the three-day rule. Such a resolution is not subject to the one-day layover rule of Rule XIII, clause 6(a). Resolutions of Inquiry Rule XIII, clause 7 If a committee fails to report a resolution of inquiry addressed to the head of an executive department within 14 legislative days after it is introduced, a privileged motion is in order to discharge a committee from further consideration of the resolution. Content of Committee Reports Supplemental, Minority, or Additional Views Rule XI, clause 2(l); Rule XIII, clause 2(c) At the time a committee votes to approve any measure or matter, any committee member may give notice of his or her intention to file "supplemental, minority, or additional views." If such notice is given, the member then has at least 2 calendar days after the day of the notice (excluding weekends and legal holidays) to submit those views in writing to the committee. A committee may arrange to file its report up to one hour after the two days permitted for filing views, or sooner if the committee has received all views. If any views are submitted within the deadline, they are to be printed as part of the committee's report on the measure or matter. Rollcall Votes Taken Rule XIII, clause 3(b) The committee report on any public "measure or matter" shall include the names and numbers of committee members voting for and against, as well as the total number of votes cast, during any rollcall votes that took place in committee on reporting the measure or matter or on adopting amendments to it. This requirement does not apply to votes taken in executive session by the Committee on Standards of Official Conduct. Cost Estimates Rule XIII, clauses 3(c)(3) and 3(d)(2)-(3); Sec. 403 of the Congressional Budget Act, codified as amended at 2 U.S.C. 653 Under Sec. 403 of the Congressional Budget Act, as amended, the Congressional Budget Office (CBO) is to prepare, "to the extent practicable," a cost estimate for any public bill or resolution reported by any House or Senate committee except the Appropriations Committees. The estimate is to project the cost of implementing the measure during the fiscal year in which it would take effect and each of the next 4 fiscal years. CBO also is to estimate, for the same fiscal years, the costs that State and local governments would incur in implementing or complying with a "significant" public bill or resolution. ("Significant" is defined in Section 403©.) Finally, CBO is to compare its cost estimates with other estimates made by the reporting committee or by "any Federal agency." Sec. 403 and clause 3(c) of Rule XIII require a committee to include such a CBO cost estimate in the committee's report on a measure if CBO submits its estimate in time for the committee to include it. Under clause 3(d)(2) of Rule XIII, in the absence of a CBO cost estimate, the committee is to prepare and include in its report its own estimate of how much it will cost to implement a public bill or joint resolution during the fiscal year in which it is reported and in each of the 5 following fiscal years. If a committee is required to prepare its own estimate, it shall include a comparison of (1) the committee's cost estimate with any other estimate that the committee receives from "a Government agency" (defined in clause 3(d)(3)(A)), and (2) the funding levels proposed by the measure with any corresponding levels under current law. This clause does not apply to the Committees on Appropriations, House Administration, Rules, and Standards of Official Conduct. Budgetary and Fiscal Impact Rule XIII, clause 3(c)(2); Sec. 308(a)(1) of the Congressional Budget Act, codified as amended at 2 U.S.C. 639 In addition to estimating the cost of legislation (described above), CBO is to furnish information on providing for the cost of the legislation. Specifically, Section 308(a) directs CBO to prepare a statement on the budgetary and fiscal impact of any reported measure or committee amendment, if it provides new budget authority, new spending authority (under Section 401(c)(2) of the act), new credit authority, or an increase or decrease in revenues or tax expenditures. The statement shall: (1) show the impact of the measure on the applicable sub-allocations under Section 302(b) of the act; (2) identify any new spending authority under Section 401(c)(2), which defines entitlements, and explain why the committee chose that funding mechanism in preference to annual appropriations; (3) project the measure's impact on new budget authority, outlays, spending authority, revenues, tax expenditures, direct loan obligations, or primary loan guarantee commitments under existing law for the fiscal year in which the measure would become effective and each of the 4 following fiscal years; and (4) estimate the level of new budget authority the measure provides for assistance to State and local governments. The committee is to include this statement in its report on the measure (or make it available to the House in the case of a committee amendment that is not reported to the House). The latter two components of the statement are to be included in the committee's report only if either or both are "timely submitted before such report is filed." These requirements do not apply to continuing resolutions. Clause 3(c)(2) of Rule XIII reiterates the requirement for these CBO statements to be included in committee reports, and adds that, with respect to new budget authority, they "shall include, when practicable, a comparison of the total estimated funding level for the relevant programs to the appropriate levels under current law." "Ramseyer Rule" Print Rule XIII, clause 3(e) When a committee reports a bill or joint resolution that would repeal or change all or part of some existing law, the accompanying committee report shall reprint the portion of existing law that would be repealed and show, by using different typographical devices, how existing law would be amended to read if the measure were to be enacted. However, if the committee reports the measure with one or more amendments, this requirement applies to the committee amendment(s), not to the measure as introduced. This requirement is popularly known as the "Ramseyer Rule" in honor of former Representative Ramseyer of Iowa, who served in the House from 1915-1933. The comparative print sometimes is simply known as "the Ramseyer." Oversight Findings Rule XIII, clause 3(c)(1) The committee report on any measure is to include any pertinent oversight findings and recommendations by the committee, pursuant to clause 2(b)(1) of Rule X. This requirement does not apply to the Appropriations Committee. Performance Goals and Objectives Rule XIII, clause 3(c)(4) The committee report on any measure also is to include "[a] statement of general performance goals and objectives, including outcome-related goals and objectives, for which the measure authorizes funding." Constitutional Authority Statement Rule XIII, clause 3(d)(1) The committee report on a public bill or joint resolution shall include a statement citing the specific powers granted to Congress by the Constitution to enact the proposed law. Applicability to Congress Section 102(b)(3) of P.L. 104-1 , the Congressional Accountability Act of 1995; 109 Stat 6 The committee report accompanying a bill or joint resolution "relating to terms and conditions of employment or access to public services or accommodations" is to describe how the provisions of the measure apply to Congress or why they do not. A point of order can be made against House consideration of a bill if the accompanying report does not comply with this requirement, but the requirement may be waived by majority vote. Federal Mandates Sections 423-426 of the Congressional Budget Act, as amended by P.L. 104-4 , the Unfunded Mandates Reform Act of 1995, 109 Stat 50 The Unfunded Mandates Reform Act of 1995, P.L. 104-4 , added to the Budget Act new Sections 423-426 concerning committee reports on public bills and joint resolutions that may contain Federal mandates. The committee is to prepare and print in its report a statement on the matters required by Section 423, and also to include (or have printed in the Congressional Record ) any statement prepared and submitted by CBO pursuant to Section 424. Under Section 425, it is not in order for the House to consider a measure if the accompanying report fails to include any required CBO statement. Section 426 governs waivers of Section 425. Federal Advisory Committees Section 5(b) of the Federal Advisory Committee Act of 1972, codified as amended at 5 U.S.C Appendix In considering legislation to establish or authorize a Federal advisory committee, a House or Senate committee is to determine "and report such determination" as to whether the functions of the proposed committee are or could be performed by an existing agency or advisory committee or by "enlarging the mandate" of an existing advisory committee. Cover Page of Committee Report Rule XIII, clause 3(a) The cover of the committee report on a measure or matter shall so indicate whenever it includes any supplemental, minority, or additional views, or whenever it contains the CBO cost estimate or oversight findings and recommendations made by the Committee on Government Reform. Contents of Certain Committee Reports Rule XIII Clauses (f)(g) and (h) Clauses(f)(g) and (h) of Rule XIII place additional content requirements on the reports of certain House Committees. A report from the Committee on Appropriations on a general appropriations bill must include a concise statement describing the effect of any provision of the bill that directly or indirectly changes existing law. The report must also include a list of all appropriations contained in the bill for expenditures not authorized by law (except classified intelligence or national security programs) along with a statement of the last year such expenditures were authorized, the level of authorization, and actual expenditure for that year. A separate section of the report must also be included listing any rescissions or transfers included in the bill. Whenever the Committee on Rules reports a resolution proposing to repeal or amend a standing rule of the House, it must include in its report: (1) the text of the rule or part of the rule that is proposed to be repealed, and (2) a comparative print that shows, by using different typographical devices, how that rule would be amended to read if the measure were to be enacted. Finally, it is not in order to consider a bill or joint resolution reported by the Committee on Ways and Means that amends the Internal Revenue Code of 1986 unless the report includes a macroeconomic impact analysis, and a statement from the Joint Committee on Internal Revenue Taxation explaining why a macroeconomic impact analysis can not be calculated. These provisions do not apply if the chairman of the Committee on Ways and Means causes a macroeconomic analysis to be printed in the Congressional Record prior to consideration of the legislation. Oversight and Investigations Powers, Plans, and Organization General Oversight Responsibilities Rule X, clause 2(b) Standing committees are charged with continually overseeing the "application, administration, execution, and effectiveness" of laws and programs within their jurisdictions, as well as the agencies responsible for administering or executing these laws and programs. Committees also must review the need for new legislation, and conduct future research and forecasting within their jurisdictions. This clause does not apply to the Committee on Appropriations. Special Oversight Functions Rule X, clause 3 Several committees, including the Committees on Appropriations, Budget, Energy and Commerce, Education and the Workforce, Government Reform, Homeland Security, have special specified oversight duties, primarily to oversee issues that fall within the purview of multiple standing committees. Review of Tax Policies Rule X, clause 2(c) Standing committees are to review and study the impact or the probable impact of tax policies affecting subjects within their jurisdictions. Adoption of Oversight Plan Rule X, clause 2(d)(1) Each standing committee is required to adopt an oversight plan for each Congress. In developing the plan, to the maximum extent feasible each committee must consult and coordinate with other committees; give priority of review to permanent laws, programs, or agencies; and look to review significant laws, programs, or agencies at least every 10 years. In developing its plan, each committee is to "review specific problems with federal rules, regulations, statutes, and court decisions that are ambiguous, arbitrary, or nonsensical, or that impose severe financial burdens on individuals...." The oversight plan must be adopted in open session by February 15 of the first session of a Congress, and must be submitted to both the Committee on Government Reform and the Committee on House Administration. After consultation with the leadership, the Committee on Government Reform must report these plans to the House by March 31 together with any recommendations to promote effective and coordinated oversight. Establishment of Oversight Subcommittees Rule X, clauses 2(b) and 5(d) Most standing committees with more than 20 members must either create separate oversight subcommittees or require their subcommittees (if any) to conduct oversight within their respective jurisdictions. An oversight subcommittee does not count against the limit of five subcommittees that most committees may establish pursuant to Rule X, clause 5(d). Establishment of Ad Hoc Oversight Committees Rule X, clause 2(e) With the approval of the House, the Speaker may appoint ad hoc oversight committees to review matters that fall within the jurisdiction of two or more standing committees. Studies and Investigations Rule XI, clause 1(b)(1) Each committee is authorized to conduct studies and investigations at any time, and to incur related expenses. Reports Reports Considered as Read Rule XI, clause 1(b)(2) An oversight or investigative report will be considered as read in committee if it has been available to the members for at least 24 hours prior to its consideration. Weekends and legal holidays are excluded, unless the House is in session. Filing Joint Reports Rule XI, clause 1(b)(3) A report on an investigation or study conducted by two or more committees can be filed jointly. Each committee must independently comply with all requirements for approving and filing the report. Filing After Adjournment Rule XI, clause 1(b)(4) An oversight or investigative report may be filed after the adjournment of Congress sine die , provided that members who make timely requests have at least seven calendar days for inclusion of supplemental, minority, and additional views. Funding, Staff, and Travel Funding Biennial Funds Rule X, clause 6(a) and 5(c) Committees are to be authorized funds for each Congress through a "primary expense resolution" reported by the Committee on House Administration. The resolution may be considered in the House only if the report thereon has been available for one calendar day. The report must contain the total level of funds to be provided to the committee, and to the extent practicable should contain statements on expenses for the committee's anticipated activities and programs. The Committee on Appropriations is exempt from this process. Further, the provision does not apply to (1) any interim resolution providing funds from the beginning of a first session of Congress until the adoption of the primary expense resolution, and (2) any resolution providing additional equipment, stamps, supplies, or staff for all standing committees that contains an authorization for these items subject to enactment of the resolution as permanent law. Committee Reserve Fund Rule X, clause 6(a) A primary expense resolution may contain a reserve fund for unanticipated needs of committees. Funds from the reserve may be allocated to a committee only with the approval of the Committee on House Administration. Automatic Interim Funding Rule X, clause 7 Committees are provided automatic interim funding until the adoption of a primary funding resolution. From January 3 until March 31 of each new Congress, committees are authorized funds from the salary and expenses account of the House at a monthly rate of 9% of the last session's level or at a lower level set by the Committee on House Oversight. Interim funds shall be spent in accordance with regulations prescribed by the Committee on House Administration. Payment of expenses is to be made on vouchers authorized by the committee, signed by the chair, and approved by the Committee on House Administration. However, until the election of committee members at the beginning of a Congress, a committee's vouchers are to be signed by the chair in the last Congress or, if that individual is no longer a Member, the ranking majority party member returning to Congress. These provisions apply to select committees established by resolution in the preceding Congress if (1) no resolution terminating the funding of the select committee was agreed to during the previous Congress, and (2) a resolution to reestablish the select committee has been introduced. Further, they apply to all committees only insofar as they are "not inconsistent with" any resolution reported by the Committee on House Administration and agreed to after the adoption of House rules. Supplemental Funds Rule X, clauses 6(b) and 6(c) After its initial authorization of funds, a committee may receive supplemental funds through a resolution reported by the Committee on House Administration. This resolution may be considered in the House only if the report thereon has been available for one calendar day. The report must contain the amount of additional funds to be provided, the purpose(s) of those funds, and the reason(s) the funds were not provided in the primary expense resolution. As with the provision on biennial funds, this provision does not apply to any interim funding resolution at the outset of a Congress, and any resolution providing specified items and funds for the same to all committees, subject to enactment as permanent law. Staff Appointment of Professional Staff Rule X, clause 9(a)(1) and 9(d) By majority vote, each standing committee may appoint not more than 30 professional staff. These staff are assigned to the chair and the ranking minority member "as the committee deems advisable." This provision does not apply to the Committee on Appropriations, which sets its own staff level subject to appropriations of funds (under clause 9(d)). Appointment of Minority Party Staff Rule X, clause 9(a)(2), 9(f), and 9(h) By majority vote, the minority party members on a standing committee may select one-third (up to ten) of the professional staff, unless ten individuals satisfactory to them have already been assigned. When staff are chosen by the minority, they will be appointed if acceptable to a majority of the committee. If any is deemed unacceptable, the minority party members make another selection. If the minority party requests the appointment of a staff member and none of the 30 professional slots is vacant, the individual will serve as an additional professional staff member until an appropriate vacancy arises. Minority staff are assigned to committee work by the minority party members. These provisions do not apply to the Committee on Standards of Official Conduct and the Permanent Select Committee on Intelligence. Treatment of Minority Party Staff Rule X, clause 9(g) Minority staff are to be given "equitable treatment" with respect to pay, assignment of work facilities, and accessibility of committee records. Non-partisan Staff Rule X, clause 9(I) By vote of a majority of each party, a committee may employ non-partisan staff in lieu of or in addition to staff designated exclusively for the majority or the minority party. Duties of Professional Staff Rule X, clauses 9(b)(1) and 9(b)(2) Professional staff may work only on committee business. This requirement does not apply to "associate" staff or "shared" staff not paid exclusively by the committee, so long as the chair certifies that the salary paid by the committee is commensurate with work performed for the committee. Associate and Shared Staff Rule X, clause 9(b)(3) A committee's use of "associate" or "shared" staff is subject to the review of the Committee on House Administration, and to any terms, conditions, or limitations established by this Committee in connection with its report of a funding resolution. This provision does not apply to the Committee on Appropriations. 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Protection of Classified Information Rule XXIII, clause 13 Before a Member, Delegate, Resident Commissioner, officer, or employee of the House may have access to classified information, they must first execute an oath swearing (or affirming) not to disclose it in violation of House rules. Copies of the executed oaths are retained by the Clerk of the House and a list of those Members who signed the oath during a week shall be published in the Congressional Record on the last legislative day of that week. Travel Travel by Non-Returning Members Rule XXIV, clause 10 Committee funding resolutions may not pay for the travel expenses of committee members (1) after the date of the general election, if they are defeated, or (2) after the earlier of the date of the general election or the date of sine die adjournment, if they are not seeking re-election. Local currencies owned by the United States may not be used to pay foreign travel expenses of committee members under the same circumstances. Local Currency for Foreign Travel Rule X, clause 8(a) Committees may use local currencies owned by the United States when carrying out official duties outside the United States, its territories, or possessions. A committee may not use appropriated funds for expenses in any country if local currencies are available for this purpose. Reimbursement for Foreign Travel Rule X, clause 8(b) On any day of foreign travel, committee Members and staff may not receive or spend more local currency than the maximum per diem in law. Similarly, where local currencies are unavailable, committee Members and staff may not receive reimbursement for expenses (other than transportation) in excess of the maximum per diem contained in law. In addition, any reimbursement for foreign travel expenses will be at the lesser of the per diem rate or the level of actual expenses (other than transportation). Reimbursement for Transportation Rule X, clause 8(c)(3) Committee Members and staff may be reimbursed for the cost of transportation related to foreign travel only if they have "actually paid for the transportation." Foreign Travel Reports Rule X, clause 8(b)(3) Within 60 days of completing travel to a foreign country, each committee Member or staffer must file a report listing the dates of travel, the amount of per diem and transportation furnished and spent, and funds expended for any other official purpose. The reports are to be filed with the committee chair and to be open for public inspection. Other Duties Spending Annual Appropriations Rule X, clause 4(e) In general each standing committee is to ensure that continuing programs and activities are appropriated annually, and must review programs that are not appropriated annually to determine whether changes would allow them to be. Views and Estimates Rule X, clause 4(f)(1) Each standing committee must submit to the Committee on the Budget its views and estimates on spending within its jurisdiction. These statements are to be submitted no later than six weeks after the President submits his budget or at such time as the Budget Committee requests. Additional Functions Rule X, clause 4(a)-4(e) The clause assigns particular functions and duties to the Committees on Appropriations, Budget, Government Reform, and House Administration.

The rules of the House of Representatives, especially Rules X-XIII, govern the authority and operations of its committees and subcommittees. In many respects, the House allows each of its committees to decide for itself how to conduct its business. However, the House does impose various requirements and prohibitions on its committees; and because the committees are the agents of the House, they are obligated to comply with all House directives that apply to them. This report identifies and summarizes the provisions of the House's standing rules and certain other directives that affect committee powers, authority, activities, and operations. It is organized under seven headings: (1) general, (2) establishment and assignments, (3) hearings, markups, and other meetings, (4) reporting, (5) oversight and investigations, (6) funding, staff, and travel, and (7) other duties.

Trademarks and Free Speech: Matal v. Tam Matal v. Tam (formerly Lee v. Tam ) involved a dispute at the intersection of First Amendment and trademark law. According to the Supreme Court's opinion in Tam , a federal law prohibiting the registration of trademarks that "may disparage" any "persons, living or dead" violates the Free Speech Clause of the First Amendment. While Tam involved the U.S. Patent and Trademark Office's (PTO's) refusal to register the mark "THE SLANTS" on the grounds that it may be disparaging to Asian Americans, the decision has broader implications for trademark law as well as the Court's free speech jurisprudence. The Lanham Act specifies the various requirements for registering a trademark. Section 2(a) prohibits the registration of a mark that "[c]onsists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute." To make this determination, the PTO considered the content of the trademark, "the likely meaning of the matter in question," and, if the meaning of the mark "is found to refer to identifiable persons, whether that meaning may be disparaging to a substantial composite of the referenced group." The circumstances underlying the Tam litigation began in 2006, when Simon Tam started an Asian American dance-rock band called "The Slants," a name he selected in an attempt to reclaim or reappropriate Asian stereotypes. In 2011, Tam sought to register the mark "THE SLANTS," but the PTO denied the application on disparagement grounds. Tam appealed the PTO's rejection to the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). While a three-judge panel affirmed the PTO's disparagement determination and rejected Tam's constitutional challenge on First Amendment grounds as "foreclosed by our precedent," the court sitting en banc subsequently held, "[t]he government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional." In so holding, the court explicitly overruled long-standing circuit precedent. The Supreme Court granted certiorari and heard arguments on January 18, 2017. The sole question before the Court was whether the disparagement provision is facially invalid under the First Amendment. The PTO raised three arguments in defense of the disparagement clause: (1) trademarks are not private speech, but are instead the speech of the government (i.e., government speech) that the Court has recognized can favor a particular viewpoint; (2) trademarks are government-subsidized speech for which the government can make content-based distinctions; and (3) the disparagement clause "simply defines the criteria for participation in the government's voluntary trademark-registration program" for which it "has significant discretion" to determine the criteria for inclusion. In the alternative, the PTO argued that, if trademarks are not government speech, they are merely commercial speech. For his part, Tam argued that the disparagement clause violates the First Amendment "because it imposes a significant viewpoint-based burden on speech." To Tam, the clause "permits the registration of marks that express a positive or neutral view of a person, but bars the registration of marks that express a negative view." Furthermore, Tam asserted that "[t]he denial of registration is a serious burden" because those trademark applicants whose viewpoint is not approved by the PTO are denied the benefits of trademark registration. The Supreme Court's opinion in Tam , authored by Justice Alito, held that the disparagement provision violates the Free Speech Clause because "[i]t offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend." Elaborating on this point in a later part of his opinion, Justice Alito (on behalf of four Justices) remarked that the disparagement clause "evenhandedly prohibits disparagement of all groups. It applies equally to marks that damn Democrats and Republicans, capitalists and socialists, and those arrayed on both sides of every possible issue." However, Justice Alito concluded, "in the sense relevant here, that is viewpoint discrimination: Giving offense is a viewpoint." In concluding that the disparagement provision violated the First Amendment, the Court held that it was "far-fetched to suggest that the content of a registered mark is government speech," which is exempt from free speech scrutiny under the First Amendment. The Court observed that "[t]he Federal Government does not dream up these marks, and it does not edit marks submitted for registration." Comparing trademarks to monuments donated to a public park (the subject of Pleasant Grove City v. Summum ) and specialty license plates (the subject of Walker v. Texas Division, Sons of Confederate Veterans, Inc. ), both of which have been held to be government speech, the Court held that trademarks constitute private speech because (1) they do not have a history of use by the government to convey messages to the public; (2) the government does not maintain direct control over the messages conveyed; and (3) the public does not "associate[] the contents of trademarks with the Federal Government." Finally, pointing to a variety of registered trademarks communicating a range of viewpoints and opinions, the Court noted that, if trademarks are considered government speech, "the Federal Government is babbling prodigiously and incoherently. It is saying many unseemly things. It is expressing contradictory views. It is unashamedly endorsing a vast array of commercial products and services. And it is providing Delphic advice to the consuming public." Three Justices joined other portions of Justice Alito's opinion examining whether the trademark registration program is akin to a government subsidy for speech for which it can make content-based distinctions (e.g., government funding for the arts), or participation in a government program for which it has discretion to set the criteria for inclusion (e.g., programs that collect union dues for public employee unions ). Justice Alito found that neither analog was appropriate because trademark registration is more comparable to a limited public forum for private speech, wherein the First Amendment prohibits viewpoint-based discrimination. Justice Alito's opinion also considered whether trademarks might constitute commercial speech, subject to a lesser degree of scrutiny, but opined that the disparagement clause fails even under less stringent scrutiny because it was not "narrowly drawn" to serve "a substantial interest." In so doing, Justice Alito noted, "Speech that demeans on the basis of race, ethnicity, gender, religion, age, disability, or any other similar ground is hateful; but the proudest boast of our free speech jurisprudence is that we protect the freedom to express 'the thought that we hate.'" Three Justices joined Justice Kennedy's concurring opinion, which agreed with the opinion of the Court to the extent it suggested that the disparagement clause amounts to unconstitutional viewpoint discrimination. For Justice Kennedy, however, this ultimate outcome "render[ed] unnecessary any extended treatment of other questions raised by the parties" (i.e., the government subsidy, government program, and commercial speech arguments). Justice Thomas filed a separate concurring opinion arguing that the regulation of commercial speech to suppress truthful ideas should be subject to strict scrutiny. The Supreme Court's decision in Tam has consequences for other pending cases, such as Pro-Football, Inc. v. Blackhorse , a case challenging the PTO's cancellation of the "REDSKINS" trademarks as disparaging to Native Americans. In Pro-Football , the district court upheld the cancellations against a First Amendment challenge almost identical to Tam's, concluding that "the federal trademark program is government speech under the Supreme Court's analysis in Walker ." While on appeal to the Fourth Circuit, Pro-Football filed a petition for a writ of certiorari before judgment to the Supreme Court, which would have allowed the case to be heard alongside Tam , but the petition was denied. On June 21, 2017, Pro-Football submitted the Tam opinion to the Fourth Circuit and requested that judgment be entered in its favor, after which the court requested the parties' positions as to whether oral argument on this request was necessary. In response, all parties conceded that Tam controls the Pro-Football case and consented to the court's entering of judgment in favor of Pro-Football. The Tam decision will also likely have consequences for the trademark regime as a whole. The Lanham Act contains other content-based restrictions, such as those prohibiting "immoral" and "scandalous" marks. As the Federal Circuit recognized, "other portions of [the Act] may likewise constitute government regulation of expression based on message," and the Supreme Court's holding in Tam appears to solidify this conclusion. In this vein, the Court's opinion in Tam will affect other cases, such as In re Brunetti , a case pending before the Federal Circuit involving a challenge to the PTO's rejection of an application for the trademark "FUCT" as scandalous and immoral. On June 20, 2017, the Federal Circuit requested briefing addressing (1) "the impact of the Supreme Court's Tam decision on Mr. Brunetti's case," and (2) "whether there is any basis for treating immoral and scandalous marks differently than disparaging marks in light of the Supreme Court's unanimous holding that 'offensive' trademarks cannot be banned." Arguing that Tam is outcome determinative, Brunetti responded that "there is no difference between the Disparagement Clause and the Scandalous Clause." The PTO, however, relying heavily on Justice Kennedy's concurring opinion in Tam , countered that Tam struck down the disparagement provision on the basis of viewpoint discrimination and, unlike the disparagement provision, the prohibition on scandalous marks is viewpoint neutral. Oral argument occurred on August 29, 2017, and the case is currently under consideration by the Federal Circuit. The Court's opinion in Tam also has implications for free speech law more generally. While the Court in Tam made it clear that "[t]rademarks are private, not government, speech," it also cautioned against the "dangerous extension of the government-speech doctrine." The Court pointed to copyright registration as "[p]erhaps the most worrisome implication" of extending the government speech doctrine. The PTO attempted to distinguish the copyright system from the trademark regime, stating that while copyright is "the engine of free expression," "trademarks are source identifiers in commerce that are not inherently expressive." That is, "[w]hile some trademarks have incidental expressive meaning, the essential function of a trademark is to identify and distinguish the source of goods or services in commerce." The Court, unpersuaded by this argument, stated, "[i]f private speech could be passed off as government speech by simply affixing a government seal of approval, government could silence or muffle the expression of disfavored viewpoints." As noted, the Court also distinguished trademarks from the specialty license plates at issue in Walker v. Texas Division, Sons of Confederate Veterans . In that case, the Court ruled that license plates constituted government speech and upheld Texas's refusal to permit a Confederate-flag design on a license plate because the design "might be offensive to ... the public." In Tam , the Court stated that Walker "likely marks the outer bounds of the government-speech doctrine." Thus, Tam may signal that the factors from Walker that inform whether expression is government speech (i.e., whether there is a history of the government using a specific form of speech to convey messages to the public; whether the government maintains direct control over the messages conveyed; and whether the public closely identifies a form of speech with the government), originally articulated in a case involving monuments in a public park, will be analyzed narrowly in future cases. The Court's apparent reluctance to expand the government speech doctrine suggests limits to what the Court described as an "essential" doctrine that is "susceptible to dangerous misuse." Finally, Tam continues a recent trend of the Court to afford fairly broad First Amendment protection for speech in the commercial context. Three Justices joined the portion of Justice Alito's opinion that considered whether trademarks constitute commercial speech, but opined that the disparagement provision would fail even under less stringent scrutiny as has been applied to commercial speech in prior cases. Notably, in his concurring opinion (also joined by three Justices), Justice Kennedy noted that "[c]ommercial speech is no exception" to the rule that viewpoint discrimination requires heightened scrutiny. Justice Kennedy reasoned that, "[u]nlike content based discrimination, discrimination based on viewpoint, including a regulation that targets speech for its offensiveness, remains of serious concern in the commercial context. To the extent trademarks qualify as commercial speech, they are an example of why that term or category does not serve as a blanket exemption from the First Amendment's requirement of viewpoint neutrality." In his concurring opinion, Justice Thomas maintained his long-standing position that any restriction on truthful commercial speech should be subject to strict scrutiny. As a result, the Court in Tam seems to view the commercial speech doctrine as largely irrelevant to the result in this case, a view that aligns with other recent Court decisions involving commercial speech. Immigration and Gender Discrimination: Sessions v. Morales-Santana Among the cases decided last term, Session v. Morales-Santana potentially has the most consequential implications for future judicial review of immigration and citizenship matters. The Supreme Court has repeatedly characterized Congress's authority over immigration as plenary, and the judiciary has employed a highly deferential standard of review to federal immigration laws. In Morales-Santana , however, the Court ruled that a gender-based distinction in the derivative citizenship rules—under which persons born abroad to a U.S. parent may have U.S. citizenship automatically conferred at birth—violated equal protection requirements. In doing so, the Court held that gender-based distinctions in laws governing the acquisition of U.S. citizenship trigger a more "exacting standard of review" than do gender-based distinctions in laws governing the entry or exclusion of non-U.S. nationals (aliens). The Morales-Santana case concerned provisions in the Immigration and Nationality Act (INA) specifying when a child born abroad to a U.S. citizen and an alien shall be granted U.S. citizenship at birth. Although the specific eligibility requirements for derivative citizenship in such circumstances have been amended over the years, the requirements have consistently differed based on the gender of the U.S.-citizen parent. Morales-Santana focused on one key difference: the default rule is that a U.S.-citizen parent must have been physically present in the United States (or its outer possessions) for a multiyear period prior to the birth of his or her child abroad to transmit citizenship, but an unmarried U.S. citizen-mother need only have been continuously present for one year prior to the birth of her child. Morales-Santana involved a constitutional challenge to these differing physical presence requirements. Luis Ramón Morales-Santana was born abroad and out of wedlock to a U.S.-citizen father and an alien mother. He moved to the United States at thirteen, but decades later he was placed in alien removal proceedings based on his criminal conduct. As a defense, Morales-Santana argued that he was a U.S. citizen. Although his U.S.-citizen father did not satisfy the physical presence requirements necessary to transmit citizenship under the existing INA rules, citizenship would have been conferred to a similarly situated individual born to an unwed U.S.-citizen mother under the applicable standard. Morales-Santana claimed that the differing standards violated his (now-deceased) father's constitutional right to equal protection. The U.S. Court of Appeals for the Second Circuit (Second Circuit) agreed and further ruled that, as a remedy, the one-year physical presence requirement applicable to unwed U.S.-citizen mothers should also apply to unwed U.S.-citizen fathers. The Supreme Court, in an opinion authored by Justice Ginsburg, agreed with the Second Circuit's conclusion that the gender-based distinction between the physical presence requirements applicable to unwed U.S.-citizen parents violated the equal protection component of the Fifth Amendment's Due Process Clause. Applying the "exceedingly persuasive justification" test typically used to review gender-based distinctions by the government, the Court rejected the government's argument that the "gender-based differential ensures that a child born abroad has a connection to the United States ... to warrant conferral of citizenship at birth." The Court characterized this argument as an "anachronistic" assumption that "unwed fathers care little about, indeed are strangers, to their children," and thus need stronger ties to the United States to compete with the alien mother's ties to her own country. The Court likewise found that the government provided insufficient evidence to base its claim that the differentiation between children of unwed U.S.-citizen mothers and U.S.-citizen fathers was premised on a special concern that children with a U.S.-citizen mother and alien father risked being rendered "stateless" (i.e., without citizenship to any country). While six Justices on the Court agreed that an equal protection violation had occurred, all eight Justices who considered the case (Justice Gorsuch did not participate) agreed that the remedy crafted by the Second Circuit was inappropriate. The Court reasoned that extending the one-year physical presence rule to unwed U.S.-citizen fathers would run counter to Congress's intentions when it established this statutory scheme. Because of the interplay of different INA provisions, the Second Circuit's remedy would result in more rigorous physical presence requirements for a married U.S. citizen than a similarly situated unmarried U.S. citizen. As a result, the Court held that the longer physical presence requirement for unwed U.S.-citizen fathers should also be applied prospectively to unwed U.S.-citizen mothers, as this remedy was what "Congress likely would have chosen had it been apprised of the constitutional infirmity." Thus, while the Court found that a physical presence requirement for derivative citizenship violated equal protection, the Court did not alter the requirements applicable to Morales-Santana's father. Consequently, Morales-Santana's status as an alien subject to removal remained unchanged. While the Court's ruling did not affect Morales-Santana's citizenship status, the decision appears to constrain Congress's ability to make gender-based distinctions when crafting derivative citizenship statutes. The Court had previously upheld the INA's paternal-acknowledgment requirements as a permissible gender-based distinction in the conferral of derivative citizenship; the Morales-Santana majority viewed the statute's physical presence requirements as meaningfully different. Unlike paternal-acknowledgment requirements, the lengthier physical presence requirements for unwed U.S.-citizen fathers at issue in Morales-Santana did nothing to demonstrate the parent's ties to the child and also placed more than a "minimal" burden on the affected parent. Moreover, whereas earlier Court opinions had reached no clear view on the appropriate standard of review for gender-based distinctions made by citizenship rules, Morales-Santana indicates that the same level of heightened scrutiny applicable to the review of other gender-based classifications will be employed to the review of derivative citizenship claims. More broadly, some observers have speculated that the decision may signal that judicial deference toward Congress's authority over immigration is waning. Notwithstanding the Court's long-standing deference to Congress on immigration matters, the Morales-Santana Court reviewed the derivative citizen statute's gender-based distinctions in the same manner as employed in nonimmigration contexts. Indeed, the Morales-Santana Court did not believe that Congress's plenary authority over immigration was controlling in the case before it. Though such authority had led the Court earlier to uphold gender-based distinctions in the context of alien admission preferences, the Morales-Santana majority averred that heightened scrutiny is required when gender-based distinctions involve citizenship issues rather than the entry or exclusion of aliens. Religious Freedom: Trinity Lutheran Church of Columbia, Inc. v. Comer In its final decision of the term, the Supreme Court decided Trinity Lutheran Church of Columbia, Inc. v. Comer , a case examining the constitutionality of a state policy that prohibited the distribution of public funds to religious entities. The Court held that a church preschool and day care center cannot be disqualified from participating in a state program that offered funding for resurfacing of playgrounds because of the center's religious affiliation. While the case had been of particular interest to legal scholars anticipating that newly confirmed Justice Neil Gorsuch might provide the deciding vote, the Court ultimately voted 7-2 in the church's favor, with the majority of Justices viewing the state's action as government discrimination based on the religious status of the grant applicant in violation of the federal Free Exercise Clause. Trinity Lutheran centered on a challenge to a program administered by Missouri's Department of Natural Resources (DNR) that reimburses eligible nonprofit organizations that install playground surfaces made from recycled tires. The program awards grants to applicants on a competitive basis, but, at the time the lawsuit commenced, the program barred participation by applicants that were owned or controlled by a religious entity. The state justified its policy of precluding religious applicants by citing a Missouri constitutional provision that bars public funds from being used to aid religious institutions. As a result, despite ranking the church among the top applicants, DNR denied Trinity Lutheran Church's grant application for resurfacing of a playground at its preschool and day care center. The church challenged the decision, alleging discrimination based on its religious identity in violation of the federal Free Exercise Clause, which bars laws and policies "prohibiting the free exercise [of religion]." The church argued that categorical exclusion of religious organizations from participation in a public program was incompatible with the Free Exercise Clause's guarantees. In response, Missouri characterized the church's argument as requiring the state to go beyond the guarantees of the Free Exercise Clause, which "does not guarantee churches opportunities for public financing." According to the state, its policy "places no meaningful restraint on Trinity Lutheran's ability to freely exercise its religion" and ensures that the state would not be required "to subsidize" the activities of a church. While Missouri cited a state constitutional provision restricting the distribution of public funds to aid religious entities, a stronger antiestablishment standard than the federal Establishment Clause, both parties agreed that the case did not present questions under the federal Establishment Clause. The Supreme Court ultimately was persuaded by the arguments of the church, holding that religious entities could not be barred from availing themselves of opportunities for the resurfacing grants simply because of their religious identity. The Court based its opinion on the First Amendment's general prohibition on government interference with the "free exercise" of religion by its citizens. Under the Free Exercise Clause, while neutral laws of general applicability that incidentally burden a person's free exercise rights are reviewed under a less demanding rubric, laws that "single out the religious for disfavored treatment" generally do not survive constitutional challenge. In this vein, the Court has subjected "laws that target the religious for 'special disabilities' based on their 'religious status' [to the strictest scrutiny]." In particular, the Trinity Lutheran Court explained that laws conditioning the opportunity to seek generally available benefits on one's religious status are subject to heightened scrutiny under the Free Exercise Clause. Because Missouri's program "expressly discriminate[d] against otherwise eligible recipients by disqualifying them from a public benefit solely because of their religious character," the Court held that the state had violated the Free Exercise Clause. It rejected the state's characterization that its policy did not prohibit religious practice but rather "simply declined to allocate ... a subsidy the State had no obligation to provide in the first place." Although the Court acknowledged that the policy did not criminalize behavior or otherwise proscribe beliefs, it concluded that the policy effectively forced the church to choose between its religious identity and its eligibility to participate in a public benefits program. Considering whether Missouri had a sufficient interest to justify what the Court deemed to be a "discriminatory policy," the Court explained that the state's interest in promoting the separation of church and state beyond what the federal Constitution requires through limitations on funding to religious entities was not compelling enough to justify "the clear infringement on free exercise before us." The outstanding question from Trinity Lutheran is the reach of the Court's decision. A large majority of states have adopted similar constitutional provisions (sometimes referred to as "Blaine Amendments") that broadly prohibit public funds from being directed to religious entities—a stricter limitation than the federal Establishment Clause. The impact of Trinity Lutheran on these laws has been debated, largely because of "Footnote 3" in Chief Justice Roberts's opinion, which did not command a majority of the Court and two concurring Justices (Thomas and Gorsuch) expressly did not join. Footnote 3 states that the "case involves express discrimination based on religious identity with respect to playground resurfacing" and "[does] not address religious uses of funding or other forms of discrimination." Justice Gorsuch, joined by Justice Thomas, asserted in a concurring opinion that Footnote 3 should not be read to limit the logic of the Court's opinion only to a limited set of cases, such as those involving playground resurfacing. In dissent, Justice Sotomayor strongly criticized the Court's decision as "all but invalidat[ing]" state Blaine Amendments, asserting that the relationship between church and state is now "profoundly change[d]" because the Court has now viewed the Free Exercise Clause to, at least in some instances, require that public funding be provided to a religious institution. Though the decision's full effect remains unclear, there have been immediate implications in other cases. For example, the Court has remanded a number of other pending cases involving free exercise challenges of public aid that excluded religious schools because of state Blaine Amendments, ordering review in light of Trinity Lutheran . In addition to the federalism questions and effect of the decision on enforcement of state constitutional provisions, Trinity Lutheran may also have broader implications for government funding programs generally. The Court's decision indicates that a threshold question in analysis for public funding cases is whether eligibility for such funding is conditioned on the recipient's religious status or on how the funding will be used by the recipient. The Court specifically noted that, in Locke v. Davey , it had previously upheld restrictions on the use of public funds for expressly religious purposes, emphasizing that the program at issue in that case "took account of [the state's] antiestablishment interest only after determining that the ... program did not 'require [beneficiaries] to choose between their religious beliefs and receiving a government benefit.'" Thus, Trinity Lutheran appears to allow for the government to deny funding to religious beneficiaries if the funds will be used for religious purposes such as the example in Locke , but prohibits beneficiaries of a government grant from being disqualified as eligible simply because of their religious status. In this vein, the case may offer some clarity to questions that arise in the context of federal programs that allow for the participation of religious organizations in providing secular social services. Federal Courts and Civil Rights: Ziglar v. Abbasi In Ziglar v. Abbasi , a consolidated case in which only two-thirds of the bench participated, the Supreme Court, using language that may curb a wide range of damages lawsuits against government actors, ruled 4-2 against extending the judicially created Bivens remedy to certain claims brought by unlawfully present aliens challenging their detention following the September 11, 2001, terror attacks. The central issue in Abbasi was the application of the Supreme Court's 1971 opinion in Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics . While 42 U.S.C. § 1983 provides a private damages remedy against individual state officers resulting from violations of the Constitution, Congress has never enacted a comparable statute with respect to federal officers' violations of the Constitution. In Bivens , though, the Court functionally created such a remedy, recognizing a damages action against federal officers as an implied remedy for an illegal search conducted in violation of the Fourth Amendment. The Bivens remedy has had an inconsistent trajectory at the Supreme Court. In Bivens the Court suggested that a judicially created legal remedy might be inappropriate (1) in a case presenting "special factors counselling hesitation in the absence of affirmative action by Congress" or (2) if there exists "an explicit congressional declaration that [the plaintiffs should be] ... remitted to another remedy, equally effective in the view of Congress." Following the general principle that "a federal district court may provide relief in damages for the violation of constitutional rights if there are 'no special factors counselling hesitation in the absence of affirmative action by Congress,'" in the decade that followed Bivens the Court twice extended the remedy to other contexts. First, in Davis v. Passman , the Court held that a Bivens remedy was available for gender discrimination against a public employee in violation of the equal protection component of the Fifth Amendment. Second, in Carlson v. Green , the Court allowed a Bivens claim to proceed for constitutionally inadequate prisoner medical care in violation of the Eighth Amendment. Beginning in 1983, the Supreme Court began to curb the availability of the Bivens remedy in a series of cases. For example, in Chappell v. Wallace the Court held for the first time that "special factors" counseled against extending the Bivens remedy. Chappell involved a lawsuit filed by Navy enlistees against their superiors. In denying a Bivens remedy, the Court concluded that the "unique disciplinary structure of the Military Establishment and Congress'[s] activity in the field constitute 'special factors' which dictate that it would be inappropriate to provide enlisted military personnel a Bivens- type remedy against their superior officers." That same year, in Bush v. Lucas the Court held that the existence of "an elaborate, comprehensive scheme" to protect the federal workforce counseled against recognizing a Bivens claim in which a civil servant alleged that he had been retaliated against for exercising his First Amendment rights. In the years following Chappell and Bush , the Court, while not overturning Bivens , has declined to extend the remedy first created in 1971 to a host of contexts arising in subsequent cases. With its 2007 opinion, Wilkie v. Robbins , the Court recognized a two-part framework for determining whether a Bivens remedy should be available. First, the Court asks whether "any alternative, existing process for protecting the [plaintiff's] interest amounts to a convincing reason for the Judicial Branch to refrain from providing a new and freestanding remedy in damages." Second, "even in the absence of an alternative," the Court considers whether "any special factors" exist that "counsel[] hesitation before authorizing a new kind of federal litigation." Aside from applying this framework, the Court has increasingly focused its examination on whether to extend the Bivens remedy to "any new context or new category of defendants." This focus has influenced lower courts' consideration of when it is appropriate to recognize a new Bivens remedy. In particular, courts have questioned what constitutes a "new context" for Bivens and what "special factors" would counsel against recognizing a Bivens claim. The plaintiffs in Abbasi —six unlawfully present men of Arab or South Asian descent, most of whom are Muslim—were detained for months at a federal detention center in New York City shortly after the 9/11 terror attacks. At the time, the Federal Bureau of Investigation (FBI) had been investigating tips of suspected terrorist activity (some more well-grounded than others) and detained aliens "of interest" pursuant to a "hold-until-cleared policy." In other words, certain aliens were detained until the FBI affirmatively cleared them of terrorist ties. According to the plaintiffs' complaint, some detainees, including the plaintiffs, purportedly were subjected to harsh conditions of confinement to pressure them into cooperating. After plaintiffs' release from confinement and removal from the United States, they sued seeking money damages under Bivens for alleged constitutional harms suffered. Specifically, the plaintiffs sought damages for the (1) government's detention policies and (2) resulting conditions of confinement. They brought claims against several high-level government officials and the detention facility's warden and assistant warden, alleging violations of the Fourth and Fifth Amendments. The Second Circuit allowed the claims to proceed under Bivens , and an appeal to the Supreme Court followed. Before the Supreme Court, the Abbasi plaintiffs argued that their detention policy and conditions-of-confinement claims are cognizable under Bivens . They principally contended that their claims against government actors alleging violations of the substantive and equal protection components of the Due Process Clause of the Fifth Amendment do not extend Bivens to a new context. Because the Supreme Court has already recognized Bivens claims for unconstitutional prison abuse under the Eighth Amendment in Carlson , the plaintiffs argued that "[a] conditions of confinement suit arising under the Due Process Clause is not at some exotic frontier for Bivens litigation." The government countered that the plaintiffs' claims, indeed, sought to extend Bivens to new contexts, and further contended that challenges to high-level policy decisions involving national security and immigration are special factors counseling hesitation against affording a Bivens remedy in this case. In reversing the Second Circuit, Justice Kennedy, on behalf of the Supreme Court in Abbasi , began the opinion by providing general guidance for courts examining whether to allow a Bivens claim to proceed. Noting that Bivens , Davis , and Carlson "represent the only instances in which the Court has approved of an implied damages remedy under the Constitution itself," the majority explained the Court's hesitancy to expand the Bivens remedy further. In particular, Justice Kennedy maintained that it is a "significant step under separation-of-powers principles for a court to determine that it has the authority ... to create and enforce a cause of action for damages against federal officials in order to remedy a constitutional violation." The Court further noted that "there are a number of economic and governmental concerns" when determining whether to subject government employees to monetary and other liabilities, and Congress is in a "better position" than the Court to resolve those concerns. Positing that "separation-of-powers principles" must be central to a Bivens analysis, the Court concluded that the "answer most often" to the question of "'who should decide' whether to provide for a damages remedy will be Congress." With this general principle in mind, the majority turned to the questions of (1) what constitutes a "new context" for Bivens and (2) what "special factors" counsel against extending the Bivens remedy to a new context. As to the first question, the Court answered the inquiry narrowly, holding that if a case is "different in a meaningful way" from Bivens, Davis, or Carlson , "then the context is new." According to the Court, meaningful differences may include the constitutional right raised by the suit; the official action at issue; the amount of judicial guidance available for the problem; or the risk of judicial intrusion into the other branches of government, among others. And with respect to what "special factors" might counsel hesitation against judicial intrusion, the Abbasi majority stated that "the inquiry must concentrate on whether the Judiciary is well suited, absent congressional action or instruction, to consider and weigh the costs and benefits of allowing a damages action to proceed." Further, the availability of alternative remedies may also give the judiciary pause. Ultimately, in fairly broad language, the Court concluded that: if there are sound reasons to think Congress might doubt the efficacy or necessity of a damages remedy as part of the system for enforcing the law and correcting a wrong, the courts must refrain from creating the remedy in order to respect the role of Congress in determining the nature and extent of federal-court jurisdiction under Article III. Turning to the Abbasi plaintiffs' challenges to the government's detention policies following 9/11, the Supreme Court concluded that Bivens cannot provide a remedy. The Court first held that the claims lodged against a high-level executive policy in the wake of a major terrorist attack meaningfully differ from the issues in Bivens , Davis , and Carlson , which respectively involved FBI agents handcuffing someone in his home without a warrant, a Congressman firing his female employee, and a prison's failure to treat an inmate's medical condition. Moving on to the special factors analysis, the Court concluded that Bivens is an inappropriate means for challenging a government agency's policy; rather, Bivens is better suited to challenging individual official action. Furthermore, the Court added, other remedies, including injunctive relief, are more appropriate means to challenge "large-scale policy decisions." Additionally, the majority maintained that allowing a suit for damages in Abbasi , which involved an investigation after a major terror attack on U.S. soil, would compel courts to interfere with "sensitive functions of the Executive Branch," including the responsibility to formulate and implement national security policies. And, in the Court's view, a judicial inquiry into national security policy—a field that is the responsibility of Congress and the President—raises separation-of-powers concerns. This concern is particularly pronounced, the Court continued, when the judicial inquiry involves a claim for money damages rather than injunctive relief, as "high officers who face personal liability for damages might refrain from taking urgent and lawful action in a time of crisis." As for the Abbasi plaintiffs' conditions-of-confinement claim against the warden and his assistant, the Supreme Court concluded that the plaintiffs indeed were asking for Bivens relief in a new context, but, nevertheless, declined to decide whether "special factors" precluded relief. The Court first compared the conditions-of-confinement claim to the claim at issue in Carlson . Although both cases related to prisoner mistreatment, the Court found small but meaningful differences between the claims. For instance, the conditions-of-confinement claim in Abbasi alleged a violation of the Fifth Amendment, rather than the Eighth Amendment, and thus, in the majority's view, "the judicial guidance available to this warden, with respect to his supervisory duties, was less developed." Next, the Court identified a number of special factors that may discourage extending the Bivens remedy, including potential alternative remedies and Congress's decision not to provide a damages remedy against federal prison officials in the Prison Litigation Reform Act. But the Court stopped short of concluding that those factors were determinative, given that the Second Circuit did not conduct that analysis in the first instance, and the parties did not focus on that analysis in their arguments. In dissent, Justice Breyer, joined by Justice Ginsburg, contended that the majority improperly characterized the plaintiffs' claims as an extension of Bivens , and thus the Second Circuit's judgment should have been affirmed. Justice Breyer agreed that the constitutional right at issue is germane to a Bivens analysis, but he argued that it is only the substance of the right at issue that matters, not merely the label of the right. Under that view, the dissent reasoned that the Abbasi plaintiffs' claims did not meaningfully differ from other Bivens cases, most notably Carlson . Although brought under different constitutional provisions—one applicable to persons serving a criminal sentence ( Carlson ) and one governing other forms of detention ( Abbasi )—the harms, in Justice Breyer's view, were the same: unconstitutional treatment of the confined. Abbasi appears to signal an increasingly narrow role for Bivens actions to remedy constitutional violations by federal officers. The majority's reticence concerning the appropriateness of the Bivens remedy, in general, played a large role in the ultimate outcome in Abbasi . For instance, the majority described the era in which Bivens and its progeny were decided as an "ancien regime" in which the Court was more willing to create a judicial remedy when a federally protected right had been invaded, even when Congress had not statutorily provided one expressly. In this vein, the majority opinion echoed a concurrence from Justice Scalia nearly twenty years ago, in which he described Bivens as a "relic of the heady days in which this Court assumed common-law powers to create causes of action" and argued for "limit[ing] Bivens and its two follow-on cases ... to the precise circumstances that they involved." As a result, in Abbasi 's aftermath it may be harder for plaintiffs to argue that a particular case is not an extension of Bivens in closely related, but not identical, constitutional claims. Additionally, the Court appears to be sending a strong message that it will not recognize a money-damages remedy for constitutional harms committed by federal officials if Congress has not created one, placing the primary responsibility for creating such remedies in the political branches. Nonetheless, while Bivens has potentially become a "disfavored" remedy, the Court in Abbasi recognized that Bivens 's protection against unreasonable searches and seizures in violation of the Fourth Amendment is "settled law" that the majority did not intend to disturb. Accordingly, the Bivens actions already recognized by the Court appear to remain viable in their specific contexts.

The Supreme Court term that began on October 3, 2016, was notably different from recent terms at the High Court. It was the first term (1) in thirty years to begin without Justice Antonin Scalia on the Court; (2) since 1987 to commence with a Court made up of fewer than nine active Justices; and (3) since 2010 in which a new member (Justice Neil Gorsuch) joined the High Court. Court observers have suggested that the lack of a fully staffed Supreme Court for the bulk of the last term likely had an impact on the Court's work both with regard to the volume of cases that the Court heard and the nature of those cases. The Court issued seventy written opinions during the October 2016 term and heard oral arguments in sixty-four cases, numbers that constitute the lightest docket for the Court since at least the Civil War era. Moreover, unlike in recent terms where the Court issued opinions on matters related to abortion and affirmative action, the Court's docket for the October 2016 term had comparatively very few high-profile issues. Nonetheless, the October 2016 term featured a number of cases on matters of potential significance to Congress's work, especially with respect to discrete areas of law. In particular, the Court issued several notable opinions in the areas of intellectual property law, criminal law and procedure, and redistricting. While a full discussion of every ruling from the October 2016 term is beyond the scope of this report, Table 1 provides brief summaries of the written opinions issued by the Court during the last term. Instead, this report focuses its discussion on four particularly notable cases the Court ruled on during the October 2016 term: (1) Matal v. Tam; (2) Sessions v. Morales-Santana; (3) Trinity Lutheran Church of Columbia, Inc. v. Comer; and (4) Ziglar v. Abbasi. In Matal v. Tam, a dispute at the intersection of First Amendment and trademark law, the Court concluded that a federal law prohibiting the registration of trademarks that "may disparage" any "persons, living or dead" violates the Free Speech Clause of the First Amendment. In a case with potentially significant implications for immigration law, the Supreme Court, in Sessions v. Morales-Santana, ruled that a gender-based distinction in the derivative citizenship rules—under which persons born abroad to a U.S. parent may have U.S. citizenship automatically conferred at birth—violated equal protection requirements. In one of the most closely watched cases of the term, Trinity Lutheran Church of Columbia, Inc. v. Comer, the Court invalidated on free exercise grounds a state grant policy that strictly prohibited the distribution of public funds to religious entities on free exercise grounds. Finally, in Ziglar v. Abbasi, the Supreme Court ruled against extending the judicially created Bivens remedy to certain unlawfully present aliens challenging their detention during investigations following the September 11, 2001, terror attacks. The discussion of each of these cases (1) provides background information on the case being discussed; (2) summarizes the arguments that were presented to the Court; (3) explains the Court's ultimate ruling; and (4) examines the potential implications that the Court's ruling could have for Congress, including the ramifications for the jurisprudence in a given area of law.

Introduction The 1996 welfare law (the Personal Responsibility and Work Opportunity Reconciliation Act of 1996; P.L. 104-193 ) was enacted after decades of debate about the causes and effects of welfare receipt and concerns about "welfare depen dency." It ended the cash assistance program Aid to Families with Dependent Children (AFDC) and replaced it with the Temporary Assistance for Needy Families (TANF) block grant. TANF is a broad-purpose block grant that funds a wide range of benefits and services to ameliorate the effects, and address the root causes, of childhood poverty. Ongoing cash assistance—sometimes called "welfare"—for needy families with children is only one such activity. The enactment of the 1996 welfare law followed a period of rapid increases in the cash assistance caseload. One of the statutory goals of TANF is to "end dependence of needy parents on government benefits through work, job preparation, and marriage." The reduction of the number of families with children receiving cash assistance since the mid-1990s is perhaps the signature indicator used to propose that the 1996 welfare reform law was successful in reducing welfare dependency. In 1995, an estimated 17.6 million people received AFDC cash benefits at some time during the year. In 2012, 5.6 million people received TANF at some point in the year. Receipt of assistance and dependency on it are not necessarily synonymous. However, growth of the cash assistance caseload has historically been seen as an indicator of a growing dependency, while the decline of the caseload has been seen as indicating reduced welfare dependency. On the other hand, continued declines in the number of families receiving cash assistance in the face of increasing child poverty since 2000 has led to concerns that TANF cash assistance programs are not meeting the needs of low-income families. This report provides information on the size of the cash assistance caseload. It examines the number of people receiving cash assistance relative to the number of people who meet these programs' eligibility criteria. It also estimates the impact of AFDC and TANF cash assistance on the child poverty rate and deep poverty rate. It is beyond the scope of this report to explain empirically the economic and policy factors that contributed to the caseload decline. The analysis of eligibility, benefit receipt, and the percentage of those eligible who receive benefits is a Congressional Research Service (CRS) analysis using data from the U.S. Census Bureau's Annual Economic and Social Supplement (ASEC) to Current Population Survey (CPS), combined with information from the Transfer Income Model version 3 (TRIM3) microsimulation computer model funded by the Department of Health and Human Services (HHS) and maintained at the Urban Institute. TRIM3 is used because it has the ability to estimate the population eligible for assistance, and correct for the under-reporting of need-tested benefits on the ASEC. For a discussion of TRIM3, see Appendix A of CRS Report R44327, Need-Tested Benefits: Estimated Eligibility and Benefit Receipt by Families and Individuals . TANF, being a block grant to the states, has a great deal of state variation and potentially a different story to be told for each state. However, reliable state-level estimates cannot be made using the ASEC, which restricts the analysis in this report to that for the nation as a whole. State-by-state caseload trends are shown in CRS Report RL32760, The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions . Eligibility and Take-Up of TANF Assistance In order to be eligible for TANF cash assistance, a family must have a dependent child and meet financial eligibility rules set by the state in which it resides. Federal TANF law requires that a family be "needy" to receive assistance, but it does not define need. States define need, and there is a significant amount of variation among them in what dollar amount defines need and makes a family whose income falls below that threshold financially eligible. Most states require that family income be very low—often well below the poverty threshold—to come onto the benefit rolls. In July 2012, for a family headed by a single parent with two children, the maximum earnings that single parent could have ranged from $269 per month in Alabama to $1,740 per month in Hawaii. Figure 1 maps the maximum earnings a single parent can have to enter the assistance rolls by state for July 2012. It expresses those eligibility thresholds as a percentage of the 2012 Federal Poverty Guidelines. This is done to facilitate comparison of the eligibility rules to the poverty level. There is no requirement in federal law that TANF eligibility thresholds have any relationship to poverty-level income. Additionally, most states set these thresholds without regard to the federal poverty level. The thresholds for initial eligibility were at or above the poverty level in only three states (Alaska, Hawaii, and Wisconsin). On the other hand, 24 states and the District of Columbia had initial income eligibility thresholds below 50% of poverty level income. States generally do not adjust their TANF eligibility thresholds for price inflation. Because the federal poverty level is adjusted for inflation, over time the eligibility thresholds as a percentage of the poverty level have declined in most states. Note that this is not a result of the 1996 welfare reform law. There were some federal rules regarding financial eligibility under AFDC; however, states determined the income thresholds for defining whether a family was needy under AFDC as well. There was substantial variation in AFDC income thresholds, and they too were generally not adjusted for inflation and declined as a percentage of the federal poverty level. In addition to having a child and meeting federal financial eligibility rules, a family must also meet certain nonfinancial eligibility rules and comply with program requirements in order to be eligible for TANF assistance. For example, TANF federal funds may provide assistance to a family with an adult recipient for up to 60 months (five years). Thus, most states time-limit benefits for TANF families (though California and New York, the states with the two largest populations, provide benefits beyond five years). Under TANF, benefits may also be restricted for minor parents not living in adult-supervised settings and convicted drug felons. Additionally, those applying for or receiving benefits must comply with program requirements, such as applicant job search or work participation requirements. However, even if a family meets financial, nonfinancial, and program requirements, it does not mean that they receive benefits. Those who are eligible must apply for benefits before receiving them. Some of those who are eligible choose not to apply. There is some research on the factors that might cause an eligible individual to fail to apply for benefits. Economists tend to look at the costs of applying for benefits—transportation to the welfare office and time spent in the office applying for benefits and meeting with caseworkers—as factors that, if they outweigh the actual benefit, could cause an eligible person to fail to apply. There are also factors such as individuals' reluctance to divulge personal information and the social stigma attached to receiving assistance that might divert an eligible individual from applying. Further, work requirements could be seen as a deterrent to applying for benefits. Those eligible for assistance might determine that participating in an activity for 20 or 30 hours per week (the hour requirements for the federal TANF work participation standard) for a relatively small benefit is not worth it. The time commitment entailed by a work requirement may also deter eligible persons who are engaged in sporadic or off-the-books work from applying. The size of the TANF cash assistance caseload is determined by both the size of the population eligible for assistance and the rate at which families "take up" that assistance. The take-up rate is the percentage of those eligible for assistance who actually receive it. Post Welfare Reform: Caseload Trends Table 1 shows the cash assistance caseload and selected indicators of child poverty and work among single mothers for selected years, 1995 to 2012. The decline of the cash assistance caseload since the mid-1990s can be divided into two eras: 1995 to 2000 and 2000 to 2012. The period from 1995 to 2000 saw rapid declines in the cash assistance caseload. Overall, there were 9.7 million fewer people receiving cash assistance in 2000 than in 1995. Over this period, the child poverty rate and the number of children in poverty (before assistance income is counted) also fell. The rate of employment of single mothers (who headed most AFDC families) increased almost 10 percentage points, from 73.0% to 82.7%. After 2000, the caseload continued to decline. However, the child poverty rate and number of children in poverty (before assistance income is counted) increased. The increase in child poverty occurred even before the onset of the 2007 to 2009 recession. Moreover, the rate of employment for single mothers in 2007 was below the rate in 2000. Child poverty increased further during the 2007 to 2012 period, and the employment rate for single mothers fell. The Rate of Receipt of TANF Cash among Eligible Persons Was the caseload decline the result of stricter rules governing eligibility for TANF cash, or was it the result of a decline in the rate of take-up of benefits? Figure 2 shows both the estimated number of people eligible for TANF (AFDC in 1995) based on federal and state financial and nonfinancial eligibility criteria, and the estimated number of people who actually received cash assistance for the selected years. The full bar represents the total population eligible for TANF cash assistance, and is broken down into segments representing those who were eligible but did not receive cash assistance and those who did receive it. It shows that the number of people eligible for cash assistance fell from 1995 to 2000, was almost the same from 2000 to 2007, and then increased from 2007 to 2012. The number of people who received assistance fell during the first two periods (1995 to 2000 and 2000 to 2007), and then increased slightly from 2007 to 2012. However, the share of those eligible for assistance who actually received it fell throughout the 1995 to 2012 period. In 1995, 82% of those eligible for AFDC received benefits. By 2012, 28% of those eligible for TANF received benefits. Adults Eligible and Not Receiving Benefits AFDC and TANF benefits are paid on a monthly basis. Thus, it is possible that a person can be eligible for as little as one month in a year because of a temporary circumstance. Are those who are eligible but not receiving benefits not relatively disadvantaged economically? Has that changed over time? Table 2 shows selected characteristics of adults who were eligible for but did not receive cash assistance from AFDC in 1995 and TANF in 2000, 2007, and 2012. It shows that these adults tended to be poor, though over the period the poverty rate among adults eligible for but not receiving cash assistance changed little. However, over the time period examined on the table, an increasing share of adults who were eligible for and not receiving TANF assistance were in deep poverty—in families with pre-TANF income below 50% of the poverty threshold. Additionally, fewer of these adults either worked themselves or were in families where some member had earnings. In 1995, a relatively high proportion of adults eligible for but not receiving AFDC were married, about 60%. This percentage declined during the TANF years to 45.1%. Thus, adults who were eligible for cash assistance but not receiving it were relatively disadvantaged based on the measures shown on the table, and became more so (more like those who traditionally received cash assistance) over the 1995 to 2012 period Child Poverty In 1995, there were 15.2 million children (21.6% of all children) living in families with pre-assistance money income below the poverty line; in 2012, the number stood at 15.8 million, which was again 21.6% of all children. In contrast, the number of children estimated as having received AFDC during 1995 was 11.5 million; the number of children who received TANF in 2012 was 4.1 million. Figure 3 shows the percentage of poor children eligible for and receiving cash assistance for selected years from 1995 to 2012. As shown, in 1995 about two-thirds of all poor children were in families eligible for AFDC cash assistance. By 2012, the percentage of poor children eligible for TANF cash assistance had declined to 56%. The share of poor children in families actually receiving TANF fell faster than the share of poor children eligible for TANF cash. This is because the share of those eligible for benefits who actually received benefits fell over time. In 1995, 57% of poor children were in families receiving cash assistance from AFDC. In 2012, 20.1% of poor children were in families receiving cash assistance from TANF. Table 3 shows the number of children whose families' pre-TANF (or in 1995, AFDC) income was below the poverty threshold divided into three groups: (1) those receiving cash assistance, (2) those eligible for cash assistance but not receiving it, and (3) those ineligible for cash assistance. It shows that over time, both the number of poor children ineligible for cash assistance and the number of poor children who were eligible but not receiving assistance increased. The number of poor children receiving benefits decreased. Despite an increase of 4.3 million in the number of children in poverty from 2000 to 2012, the number of these children receiving TANF was lower in 2012 than 2000. Figure 4 examines children in deep poverty in 1995, 2000, 2007, and 2012. Deep poverty is defined as being in families with (pre-cash assistance) incomes below 50% of the poverty threshold. While most children in deep poverty are in families who are eligible for TANF assistance, not all children are eligible. In 1995, 83.4% of all children in deep poverty were eligible for AFDC; in 2012, 75% of children in deep poverty were eligible for TANF. However, the percentage of children in deep poverty who were in families that actually received cash assistance fell from 77.1% in 1995 to 45.7% in 2000. It fell further after 2000, reaching 30.5% in 2012. The number of children in families with pre-TANF incomes in deep poverty fell from 1995 to 2000, and then increased thereafter. However, the rise in the number of children living in families with pre-TANF income in deep poverty over the 2000 to 2012 period did not fully offset the 1995 to 2000 decline; there were an estimated 1 million fewer children in families with pre-TANF income in deep poverty in 2012 than there were in 1995. Still, as shown in Table 4 , the decline in the percentage of children in TANF-eligible families who actually received benefits meant that an increasing number of children in deep poverty were in families without cash assistance. In 1995, the number of children in deep poverty who were eligible but not receiving cash assistance was 0.5 million. This number increased to 1.7 million in 2000, 2.1 million in 2007, and 3.1 million in 2012. Anti-poverty Effectiveness of TANF Cash Assistance Programs How has the decline in the number of families with children receiving TANF cash assistance influenced the trend in the child poverty rate? This section looks at the impact that TANF cash assistance had on the overall child poverty rate and the rate of deep poverty among children in 1995, 2000, 2007, and 2012. It does so by comparing child poverty rates based on money income that excludes TANF cash with money income that includes TANF cash (i.e., comparing pre-TANF poverty rates and post-TANF poverty rates among children). The pre-TANF poverty rate should not be strictly interpreted as what the poverty rate would be in the absence of cash assistance. If TANF did not exist, people's behavior might be different (e.g., they might work more, leading to lower rates of pre-TANF poverty). Thus, when the "effect" or "impact" of TANF on poverty is discussed, it simply means how much the poverty rate changes if transfers are subtracted from total money income. It is not a statement of how much transfer programs "reduced" poverty, because the behavioral impacts are not considered. Figure 5 shows the pre- and post-cash assistance poverty rates for each of 1995, 2000, 2007, and 2012. It shows that even before welfare reform, AFDC cash assistance had a relatively small impact on the child poverty rate. In 1995, the pre-AFDC income poverty rate was 21.6%, and the poverty rate when AFDC income was counted was 1.1% lower, at 20.5%. This is because in 1995 the AFDC benefit was usually insufficient to raise family money incomes above the poverty threshold. Since 1995, states generally have not raised benefits to compensate for inflation, thus the impact of TANF on the poverty rates has remained small. In 2012, the pre-TANF poverty rate was also 21.6%, and the poverty rate after TANF income was counted was only 0.3% lower, at 21.3%. Deep Poverty Figure 6 shows pre- and post-TANF deep poverty rates for each of 1995, 2000, 2007, and 2012. AFDC had a much larger impact on the child deep poverty rate than it did on the overall poverty rate in 1995. The pre-AFDC deep poverty rate for children in 1995 was 11.3%; after AFDC income was counted it was 6.5%. This represented 3.4 million, or 43%, fewer children in deep poverty when AFDC cash was counted. However, with the decline in the number of children in deep poverty receiving cash assistance, the impact of TANF on deep poverty has diminished over time. In 2012, the pre-TANF deep poverty rate for children was 9.5%; after TANF cash income was counted, it was 8.4%. This represented 0.5 million, or 12%, fewer children in families when TANF cash was counted. Other Benefits Received by TANF-Eligible Families The poverty and deep poverty rates discussed in this report are based only on a family's money income. In addition to TANF, families with children and earnings may benefit from two refundable tax credits: the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC, the refundable portion of the child tax credit). They may also benefit from noncash assistance programs, such as the Supplemental Nutrition Assistance Program (SNAP) and subsidized or public housing. Table 5 shows estimates of the receipt of refundable tax credits and selected noncash benefits by TANF-eligible persons in 1995, 2000, 2007, and 2012. It divides TANF eligible persons into those who were eligible but did not receive TANF and those who did receive it. Among both groups, receipt of other government benefits through the refundable tax credits and noncash benefits was fairly common. In examining those eligible for but not receiving TANF, a majority received the refundable tax credits and SNAP: 61.7% received the EITC, 54.4% received the ACTC, and 77.3% received SNAP. However, a relatively small share of this population (12.0%) received assisted or public housing support. A couple of trends stand out when examining the receipt of other government benefits for the population eligible for but not receiving TANF. First, receipt of the EITC has diminished over time among this group. This is the result of fewer families eligible for but not receiving cash assistance having earnings, as indicated on Table 2 . The second trend is the increasing rate at which food assistance is received via SNAP. In contrast, the rate of receipt of housing assistance changed little over the period. In terms of assessing family economic well-being, the refundable tax credits and noncash benefits do benefit families. However, the refundable tax credits have their limitations. For example, they are paid only once a year, in the following year, as a lump sum in the form of a tax refund. The families shown on Table 5 that earned EITC and ACTC in 2012 would actually receive the benefits in early 2013, and not have them available for ongoing basic needs in 2012. The noncash benefits are available only for a specific good or service. Thus, these benefits differ from, and serve different roles in providing economic security than, ongoing cash income. Conclusion In 1995, the House Ways and Means Committee reported legislation with the following intent: Destroying the narcotic effect of welfare while preserving its function as a safety net for families experiencing temporary financial problems is the major intent of the committee bill. Based on the fact that it is precisely the permanent guarantee of benefits that induces dependency, the Committee fundamentally alters the nature of the AFDC program by making its benefits temporary and provisional. This is echoed by two of the statutory goals of TANF: providing assistance so that needy children can live in the homes of their parents or other relatives; and ending dependence on government benefits of parents through work, job preparation, and marriage. The decline in the caseload was seen as an indicator that progress was being made toward the goal of ending dependence. President Clinton, speaking in December 2000, said: Today, I am pleased to announce that over the past 8 years we've cut welfare caseloads by more than 8 million people. Last year alone, 1.2 million parents on welfare went to work, determined to build better lives. Nationwide over the last 8 years, welfare rolls have dropped nearly 60 percent and now are to the lowest in more than 30 years. We've been able to sustain this progress year after year because Government, the private sector, and welfare recipients themselves all have done their parts. Together, we are finally breaking the cycle of dependence that has long crippled the hopes of too many families. From the vantage point of 2000, the caseloads had declined and so had child poverty. Employment among single mothers increased. It was generally known in that year that the caseload was declining faster than child poverty. However, it appeared that some of the caseload decline was attributable to the improved economic conditions among families with children. The number of children living in families with pre-assistance incomes of less than half the poverty threshold fell from 8 million in 1995 to 5 million in 2000. The environment after 2000 differed from that of the late 1990s. Child poverty increased, but the number of families receiving TANF cash assistance continued to decline. While much of the increasing need after 2000 was attributable to the 2007 to 2009 recession, increasing poverty and cash assistance reaching a smaller share of the poor was not a phenomenon limited to the recession. The number of children in deep poverty (before counting cash assistance) rose from 2000 to 2007, with a smaller share of these children assisted by TANF cash even before the onset of the recession. The declines in the caseload following 2000 raise a question about whether a goal of TANF should be caseload reduction per se, regardless of whether or not the size of the population in need is growing. The drafters of the 1996 welfare reform law wanted TANF to be "temporary and provisional." However, TANF assistance was increasingly forgone or otherwise not received by those eligible for it, even amongst the poorest of families. TANF has a number of structural features that give states the incentive to have policies that seek to reduce caseloads, including the following: Funding through a fixed block grant that provides each state a set amount of federal dollars each year, and the ability to use those funds on a wide range of benefits and services. Thus, states may use the savings from caseload reductions on other benefits and services for populations among families with children other than those eligible for and receiving cash assistance. A sole performance measure, the "work participation standard," that may be met either partially or fully through caseload reduction. The TANF work participation standard sets a numerical goal of having 50% of families with a member either working or engaged in welfare-to-work activities, but it also provides credits that reduce the numerical goal for a state, including one for caseload reduction. For each decline in the TANF cash assistance caseload of 1%, the work participation standard's numerical goal is reduced by 1%. TANF also gives states the legal ability to reduce the caseloads. It ended an individual entitlement to benefits for people in needy families with children, potentially affecting the rights of individuals to receive legal redress if their benefits are reduced, denied, or ended by state actions. It allows states to end benefits for an entire family if its adult member refuses to comply with state work participation requirements. If policymakers conclude that there is unmet need for ongoing cash assistance for needy families with children, there are a number of policy options available. TANF could be altered to lessen some of the incentives that states have to reduce caseloads. For example, states could be required to meet work participation standards through engaging recipients in work or activities, rather than permitting states to meet their standard either partially or fully through caseload reduction. Policymakers might also look outside of TANF, to altering existing programs. For example, the child tax credit could be fully refundable and advance-payable. Alternatively, policymakers could look at different forms of aid, such as unconditional children's allowances or subsidized jobs, to provide ongoing support for needy families with children.

The reduction of the number of families with children receiving cash assistance since the mid-1990s is perhaps the signature indicator used to propose that the 1996 welfare reform law was successful in reducing welfare dependency. The law ended the cash assistance program for needy families with children, Aid to Families with Dependent Children (AFDC), and replaced it with the Temporary Assistance for Needy Families (TANF) block grant. TANF is a broad-based block grant that helps fund state cash assistance programs for needy families with children, but it also funds a wide range of benefits and services addressing both the effects and root causes of child poverty. The cash assistance caseload declined particularly rapidly in the years immediately following enactment of the 1996 welfare reform law. In 1995, an estimated 17.6 million people received AFDC cash at some time during the year; by 2000, the number of people receiving cash assistance had declined to 7.9 million. The period from 1995 to 2000 also saw declines in child poverty and increased work among single mothers (who had headed most AFDC families). Following 2000, child poverty increased and work among single mothers declined somewhat. However, the cash assistance caseload continued to decline, reaching 5.7 million people in 2007 and increasing only slightly in response to the recent recession to 5.8 million people in 2012. The decline in the cash assistance caseload generally resulted from fewer eligible people taking up TANF benefits. In 1995, 82% of those eligible for AFDC received assistance. The share of those eligible for TANF who received it fell to 47% in 2000, 34% in 2007, and 28% in 2012. While there were almost 12 million fewer individuals who received TANF in 2012 than received AFDC in 1995, the size of the population estimated as eligible to receive TANF in 2012 was 1.4 million persons lower than the population eligible for AFDC in 1995 (20.2 million versus 21.6 million). Most of those eligible but not receiving AFDC or TANF were poor, with some in deep poverty (family incomes less than half the poverty threshold). Over the 1995 to 2012 period, an increasing number of adults who failed to take up benefits were non-workers and had no other workers in their families. The decline in the share of people eligible for cash assistance also meant that TANF had a smaller impact in ameliorating poverty—particularly among children in deep poverty—than did AFDC. In 2012, there were 3.1 million children in deep poverty that met TANF eligibility criteria but did not receive TANF assistance. The comparable number of children in deep poverty eligible for but not receiving AFDC in 1995 was 0.5 million. In 2012, TANF reduced the rate of deep poverty among children from 9.5% to 8.4%. In 1995, AFDC reduced the rate of deep poverty among children from 11.3% to 6.5%. This analysis raises several policy questions, the key one being whether caseload reduction per se is an indicator of the success of welfare reform. The drafters of the 1996 welfare reform law wanted TANF to be "temporary and provisional." However, TANF assistance was increasingly forgone or otherwise not received by those eligible for it, even amongst the poorest of families. While low-income families receive other government benefits such as food assistance and (if they have earners) refundable tax credits, these benefits do not provide ongoing cash assistance to meet basic needs. TANF has a number of structural features that give states the incentive to have policies that seek to reduce caseloads. For example, its "work participation standards" can be met partially or wholly through caseload reduction rather than through engaging recipients in work or activities. TANF could be altered to lessen some of the incentives that states have to reduce caseloads. Policymakers might also look outside of TANF, to altering some existing programs or providing different forms of aid to provide ongoing support for needy families with children.

EPA's Brownfields Program5 Program History and Authority The Superfund and EPA Brownfields Programs are authorized by the same statute, but the programs were developed at different times and for different purposes. With the enactment of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, 42 U.S.C. §§9601-9675), Congress established the Superfund Program. This is the federal government's principal program for cleaning up the nation's contaminated waste sites and protecting public health and the environment from releases of hazardous substances. Pursuant to the general response authorities of CERCLA, EPA developed the Brownfields Program in 1993. Initially, the program provided "seed money" in the form of grants and loans to communities to stimulate redevelopment and reuse of brownfield properties. Funding originally came from the Superfund Program appropriations. Between FY1998 and FY2001, the program received approximately $90 million each year, accounting for about 5% of annual Superfund appropriations. In 2002, Congress provided specific statutory authority for EPA to address brownfields with the enactment of the Small Business Liability Relief and Brownfields Revitalization Act ( P.L. 107-118 ). Among other things, the statute (hereinafter the "Brownfields Act") authorized a grant program, similar to the one EPA had established administratively under general CERCLA authority in the mid 1990s. The stated purpose of the 2002 act was "to promote the cleanup and reuse of brownfields, to provide financial assistance for brownfields revitalization, to enhance State response programs, and for other purpose." Section 201 of the Brownfields Act authorized $200 million annually for a grant program to support site assessment and cleanup activities at brownfield properties. Section 231 of the act authorized an additional grant program in the amount of $50 million annually to assist state and tribal cleanup programs. The funding authority for both grant programs expired at the end of FY2006; program authority is permanent unless repealed by subsequent legislation. Regardless of expired authorization, Congress has continued to provide a consistent funding level for both grant programs (provided in Table 1 , below). EPA Brownfields Grant Program The grants awarded from EPA's Brownfields Program can be divided into two categories: (1) competitive grants awarded to communities, which are often referenced by the CERCLA section—Section 104(k)—that authorizes them; and (2) non-competitive grants—authorized by Section 128, and thus often described as Section 128 grants—awarded to states and Indian tribes to support their response programs. Competitive (Section 104(k)) Grants Section 104(k) grants comprise the core of EPA's Brownfields Program, receiving the bulk of the annual appropriation. In general, eligible grant recipients include state, local, and tribal governments, and certain quasi-governmental authorities. In some cases (identified below), other parties may receive grants. However, private persons and corporations are not eligible in any case. There are four types of competitive brownfields grants: Assessment grants provide funding for a grant recipient to inventory, assess, and conduct planning and community involvement related to brownfields sites. Site assessment is a primary component of the EPA Brownfields Program. The mere perception of contamination at brownfield sites often hinders redevelopment. Assessment grants help address these information gaps and determine whether cleanup may be needed to make a property suitable for its intended use. As required by statute, grants are limited to $200,000, but the statute allows EPA to waive that limitation and award a grant up to $350,000. In addition, eligible parties may apply for separate grants to address hazardous substances and petroleum at a brownfield site. Cleanup grants provide funding for remediation activities that may be needed to address contamination at a brownfields site. As directed by the statute, grants may be awarded for up to $200,000. Grant recipients must provide a 20% cost share, which may include money, labor, material, or services. In addition to the eligible entities listed above, nonprofit organizations are eligible for cleanup grants. Job training grants are available to certain educational and other nonprofit organizations, as well as the eligible entities above. EPA awards grants of up to $200,000 (a threshold not based on statutory limitations) to create local environmental job training programs. EPA maintains that the job training grants, which were first awarded under general CERCLA authority in 1997, complement the funding for brownfields sites by encouraging local citizens to take advantage of the growing market for environmental cleanup activities. Revolving Loan Fund (RLF) grants are awarded to state, local, or tribal governments to capitalize RLFs, which can provide no-interest or low-interest loans for brownfield cleanups. The statute limits these grants to $1 million. RLF grant recipients may also award cleanup subgrants, not requiring repayment, of up to $200,000 per site. Like the general cleanup grants, RLF cleanup subgrants may be awarded to nonprofit groups. Non-Competitive (Section 128) Grants The Brownfields Act added Section 128 to CERCLA. Subsection 128(a) created a non-competitive grant program to support state and tribal response programs. The funding authority for this program—authorized at $50 million annually from FY2002 through FY2006—is separate from the competitive grant program under Section 104(k). A 2004 Government Accountability Office (GAO) report found that all 50 states have some type of response (or cleanup program), although these programs vary considerably in scope and breadth. In general, these state programs address contaminated properties that are not covered by the federal Superfund Program. EPA states that Section 128 funding is not intended to supplant, but instead "supplement,"state or tribal funding for their response programs. However, the 2004 GAO report noted that in some states, their programs would not exist without EPA's funding. Section 128 identifies one general and two specific uses of funding. Regarding the former, the statute prescribes that funding can be used to "establish or enhance" a state or tribal response program. EPA interprets this phrase to include: developing legislation, regulations, procedures, or guidance; creating and maintaining relevant public records; and conducting limited site-specific activities, such as assessment or cleanup. The statute also identifies two specific uses of the Section 128 funding: financing a revolving loan fund for brownfield cleanups; and purchasing environmental insurance or developing an insurance mechanism to provide financing for cleanup actions under the program. Appropriations for EPA's Brownfields Program Congress funds EPA's Brownfields Program with appropriations from two large accounts: the State and Tribal Assistance Grants (STAG) Account and EPA's Environmental Programs and Management Account. From within these large accounts, the Brownfields Program is funded by three line-items ( Table 1 ). The STAG account funds two line-items: Section 104(k) and Section 128 grant programs. The management account includes a line-item for the administrative expenses of the Brownfields Program. Since the enactment of the 2002 Brownfields Act, appropriations for the aggregate of these three brownfields line-items have been relatively consistent, with total funding ranging from $163 million to nearly $170 million ( Table 1 ). Considerations for Policymakers There appears to be broad consensus that a federal role in the cleanup and redevelopment of brownfields is desirable. However, issues regarding the degree of financial assistance and overall program effectiveness have been raised. Since the enactment of the Brownfields Act in 2002, Congress has funded the program below its initial authorized level. Total appropriations (in Table 1 ) represent approximately 66% of the initial funding authorization—$250 million each year, between FY2002 - FY2006. Some states and communities would argue that the demand for funding far exceeds what has been made available by Congress. On the other hand, the program has arguably struggled to demonstrate its effectiveness. What are federal funding levels achieving: environmental risk reduction, economic redevelopment, or some combination thereof? The 2004 GAO report found that "the agency has not yet developed measures to determine the extent to which the Brownfields Program helps reduce environmental risks." This concern raises the question as to whether the program should be evaluated by its ability to reduce threats to human health or whether the program should be assessed with different metrics, such as economic redevelopment. If this is the case, some may question whether EPA is the most appropriate agency to administer this program.

The federal role in assisting states and communities to clean up brownfield sites—real property affected by the potential presence of environmental contamination—has been an ongoing issue for more than a decade. With the enactment of the Small Business Liability Relief and Brownfields Revitalization Act ( P.L. 107-118 ) in 2002, Congress provided specific authority for EPA to address brownfield sites. In contrast to Superfund sites, environmental contamination present at brownfield sites is typically less of a risk to human health. With the primary motivation to aid cleanup efforts, the 2002 statute, among other things, authorized two grant programs: (1) a competitive grant program to address specific sites; and (2) a non-competitive grant program to support state cleanup programs. While there appears to be broad consensus that a federal role in the cleanup and redevelopment of brownfields is desirable, issues regarding the degree of financial assistance and overall program effectiveness have been raised.

Overview of Midnight Rulemaking One possible explanation for the issuance of "midnight rules" is the desire of the outgoing administration to complete its work and achieve certain policy goals before the end of its term of office—what has been termed the "Cinderella effect." As one George W. Bush Administration official said, midnight rulemaking is like "Cinderella leaving the ball. … Presidential appointees hurried to issue last-minute 'midnight' regulations before they turned back into ordinary citizens at noon on January 20 th ." Because it may be difficult to change or eliminate rules after they have taken effect, issuing midnight rules can also help ensure a legacy for a President—especially when an incoming administration is of a different party. At times, certain rules issued during the last few months of an administration have been considered by some as controversial. For example, when President William J. Clinton was leaving office, his administration issued energy efficiency standards for washing machines and a rule setting ergonomics standards in the workplace. Shortly before the end of President George W. Bush's second term concluded, his administration finalized rules allowing states to determine whether concealed firearms may be carried in national parks and giving agencies greater responsibility to determine when and how their actions may affect species under the Endangered Species Act. On the other hand, a 2012 study for the Administrative Conference of the United States (ACUS) concluded that many midnight regulations were "relatively routine matters not implicating new policy initiatives by incumbent administrations," and that the "majority of the rules appear to be the result of finishing tasks that were initiated before the Presidential transition period or the result of deadlines outside the agency's control (such as year-end statutory or court-ordered deadlines)." The study cited some evidence of the strategic use of midnight rules to implement certain desired policies before leaving office, but, in general, the study said that "the perception of midnight rulemaking as an unseemly practice is worse than the reality." Concerns over Midnight Rulemaking One general concern raised about midnight rulemaking is that an outgoing administration has less political accountability compared to an administration faced with the possibility of re-election. Furthermore, rules that are hurried through at the end of an administration may not have the same opportunity for public input. Agencies may find that in order to issue regulations by the end of an administration, they may not have sufficient time to review and digest public comments taken during the comment period. Another concern is that the quality of the regulations themselves may suffer during the midnight period, since the departing administration may issue rules quickly, and as a result, the rules may not receive adequate review. For example, one study of midnight rulemaking suggested that "an increase in the number of regulations promulgated in a given time period could overwhelm the institutional review process that serves to ensure that new regulations have been carefully considered, are based on sound evidence, and justify their cost." In particular, this concern is that the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) may not have enough staff or resources to conduct full reviews of regulations if OIRA receives a larger number of regulations than usual for review. Finally, some have argued that the task of evaluating a previous administration's midnight rules can potentially overwhelm a new administration. Regulatory Moratoria and Postponements Taken by Recent Incoming Presidents One approach previous Presidents have used to control rulemaking at the start of their administrations has been the imposition of a moratorium on new regulations from executive departments and independent agencies. Such moratoria have sometimes been accompanied by a requirement that the departments and agencies postpone the effective dates of certain rules that were issued at the end of the previous President's term. Proposed rules that have not been published in the Federal Register as final rules by the time the outgoing President leaves office can be withdrawn by a new administration. However, once final rules have been published in the Federal Register , the only way for a new administration to eliminate or change them is to go through the rulemaking process again (see section below entitled " Eliminating or Changing Midnight Rules "). Ronald Reagan Administration On January 29, 1981, shortly after taking office, President Ronald Reagan issued a memorandum to the heads of the Cabinet departments and the EPA Administrator directing them to take certain actions that would give the new administration time to implement a "new regulatory oversight process," particularly for "last-minute decisions" made by the previous administration. Specifically, the memorandum said that agencies must, to the extent permitted by law, (1) publish a notice in the Federal Register postponing for 60 days the effective date of all final rules that were scheduled to take effect during the next 60 days, and (2) refrain from promulgating any new final rules. Executive Order 12291, issued a few weeks later, contained another moratorium on rulemaking that supplemented, but did not supplant, the January 29, 1981, memorandum. Section 7 of the executive order directed agencies to "suspend or postpone the effective dates of all 'major' rules that they have promulgated in final form as of the date of this Order, but that have not yet become effective." Excluded were major rules that could not be legally postponed or suspended, and those that "for good cause, ought to become effective as final rules." Agencies were also directed to prepare a regulatory impact analysis for each major rule suspended or postponed, and to refrain from promulgating any new final rules until a final regulatory impact analysis had been conducted. William Clinton Administration On January 22, 1993, Leon E. Panetta, the Director of OMB for the incoming William Clinton Administration, sent a memorandum to the heads and acting heads of Cabinet departments and independent agencies requesting them to (1) not send proposed or final rules to the Office of the Federal Register for publication until they had been approved by an agency head appointed by President Clinton and confirmed by the Senate, and (2) withdraw from the Office of the Federal Register all regulations that had not been published in the Federal Register and that could be withdrawn under existing procedures. The requirements did not apply, however, to any rules that required immediate issuance because of a statutory or judicial deadline. The OMB Director said these actions were needed because it was "important that President Clinton's appointees have an opportunity to review and approve new regulations." In contrast to the Reagan memorandum and Executive Order 12291, the Panetta memorandum did not instruct agencies to postpone the effective dates of any rules. George W. Bush Administration On January 20, 2001, Andrew H. Card, Jr., assistant to President George W. Bush and White House Chief of Staff, sent a memorandum to the heads and acting heads of all executive departments and agencies generally directing them to (1) not send proposed or final rules to the Office of the Federal Register, (2) withdraw from the Office rules that had not yet been published in the Federal Register , and (3) postpone for 60 days the effective dates of rules that had been published but had not yet taken effect. The Card memorandum instructed agencies to exclude any rules promulgated pursuant to statutory or judicial deadlines, and to notify the OMB Director of any rules that should be excluded because they "impact critical health and safety functions of the agency." The memorandum indicated that these actions were needed to "ensure that the President's appointees have the opportunity to review any new or pending regulations." The George W. Bush Administration later issued another memorandum encouraging agencies to complete their rulemakings far before the end of the administration, likely to avoid giving the new President an opportunity to prevent the Bush Administration's midnight rules from being issued or taking effect. On May 9, 2008, White House Chief of Staff Joshua B. Bolten issued a memorandum to the heads of executive departments and agencies stating that, except for "extraordinary circumstances, regulations to be finalized in this Administration should be proposed no later than June 1, 2008, and final regulations should be issued no later than November 1, 2008." He also said the Administrator of OIRA would "coordinate an effort to complete Administration priorities in this final year," and that the Administrator would "report on a regular basis regarding agency compliance with this memorandum." Despite this initiative and statements from the White House, the number of rules that federal agencies promulgated in the final months of the Bush Administration increased. One indication of this increase is the number of major final rules that were published and sent to the Government Accountability Office (GAO) pursuant to requirements in the Congressional Review Act (CRA, 5 U.S.C. §§801-808). The CRA requires GAO to provide Congress with a report on each final rule that OIRA designates as a "major" rule (e.g., rules with at least a $100 million impact on the economy) within 15 calendar days of the rule being sent to GAO and Congress. During the first six months of the most recent outgoing administration's final year in office (2008), the agencies published a total of 32 major final rules, but in the second six months, the agencies published 63 rules—a 97% increase. Table 1 presents data on the number of major rules published during the last half of President Bush's and President Clinton's final two years in office. The number of major rules in the second six months of 2008 was higher than the number in the second six months of 2007 (63 major rules in 2008 compared with 41 major rules in 2007—a 54% increase). This increase in the number of major rules published was also apparent in the final months of the Clinton Administration. According to the GAO database, in the final six months of 2000, agencies published 53 major rules. This represented a 77% increase over the same period in the previous year, during which the agencies published 30 major rules. There was also evidence of "midnight rulemaking" in the increased number of "economically significant" rules that OIRA reviewed pursuant to Executive Order 12866 at the end of the Bush and Clinton Administrations. Table 2 presents data on the number of "economically significant" rules that OIRA reviewed at the end of two administrations. According to the Regulatory Information Service Center, from July 1, 2008, through December 31, 2008, OIRA reviewed a total of 82 "economically significant" rules—a 64% increase when compared to the same period in 2007 (50 rules). During the Clinton Administration, the number of "economically significant" rules went up slightly: OIRA reviewed 53 "economically significant" rules during the final six months of 2000, compared to 48 "economically significant" rules during that period in 1999 (a 10% increase). Barack Obama Administration On January 20, 2009, Rahm Emanuel, Assistant to President Barack Obama and Chief of Staff, sent a memorandum to the heads of executive departments and agencies requesting that they generally (1) not send proposed or final rules to the Office of the Federal Register, (2) withdraw from the Office rules that had not yet been published in the Federal Register , and (3) "consider" postponing for 60 days the effective dates of rules that had been published in the Federal Register but had not yet taken effect. The Director or Acting Director of OMB was allowed to exempt certain rules from these requirements for emergency or "other urgent circumstances relating to health, safety, environmental, financial, or national security matters." One of the major differences between the Emanuel memorandum and the Card memorandum was in the degree of deference shown to the rulemaking agencies. For example, whereas the Emanuel memorandum requested agencies to "consider" extending the effective dates of rules that had not taken effect, the Card memorandum simply instructed the agencies to do so. Also, the Emanuel memorandum stated that when the effective dates of rules are extended, the agencies should allow interested parties to comment for 30 days "about issues of law and policy raised by those rules." The Card memorandum had no similar provision regarding public comment. In addition, on January 21, 2009, Peter R. Orszag, OMB Director, sent a memorandum to the heads of executive departments and agencies providing guidance on implementing the third provision of the Emanuel memorandum. The Orszag memorandum said that agencies' decisions on whether to extend the effective dates of rules should be based on such considerations as whether the rulemaking process was procedurally adequate, whether the rule reflected proper consideration of all relevant facts, and whether objections to the rule were adequately considered. The Orszag memorandum also said that agencies should seek public comments regarding the agencies' "contemplated extension of the effective date and the rule in question." Agencies were also instructed to consult with OIRA and the Department of Justice's Office of Legal Counsel before extending the effective dates of any rules, particularly when the rules were scheduled to take effect before public comments could be solicited. Although many of the rules that were issued near the end of the Bush Administration had taken effect by January 20, 2009, agencies delayed the effective date of some rules pursuant to the Emanuel memorandum. In addition, federal agencies withdrew a number of rules that had been sent to the Office of the Federal Register but had not been published. In recent months, the Obama Administration has taken actions similar to those discussed above. In December 2015, OIRA Administrator Shelanski sent a memorandum to agencies urging them "to the extent feasible and consistent with your priorities, statutory obligations, and judicial deadlines" to "strive to complete their highest priority rulemakings by the summer of 2016 to avoid an end-of-year scramble that has the potential to lower the quality of regulations that OIRA receives for review and to tax the resources available for interagency review." Some Members of Congress have also expressed interest in the status of Obama Administration midnight rules. For example, at two hearings in 2015, some Members in both chambers of Congress expressed interest in receiving an update on preparations in the Obama Administration for the issuance of midnight rules. In response to a question on whether OIRA would continue to do careful review on rules as the end of the Obama Administration approaches, OIRA Administrator Howard Shelanski stated that OIRA would "continue through the remainder of the Administration to have ongoing prioritization meetings with agencies to make sure that we are getting the rules through in a cadence that allows us to do that review." Eliminating or Changing Midnight Rules Once an outgoing administration's final rule has been published in the Federal Register , the only way for the incoming administration to change or undo the rule is to undergo another rulemaking process. Importantly, by law, the procedural requirements of rulemaking apply when an agency is issuing, amending, or repealing a rule. Furthermore, as explained by former OIRA Administrator Susan Dudley, "agencies cannot change [midnight] regulations arbitrarily; instead, they must first develop a factual record that supports the change in policy." Under the rulemaking procedures established by the Administrative Procedure Act (APA), agencies are generally required to publish a notice of proposed rulemaking (NPRM) in the Federal Register , allow "interested persons" an opportunity to comment on the proposed rule, and, after considering those comments, publish the final rule along with a general statement of its basis and purpose. The APA does not specify how long rules must be available for comment, but agencies commonly allow at least 30 days. The APA states that in most cases, the final rule cannot become effective until at least 30 days after its publication. In limited circumstances, agencies may be able to issue rules more expeditiously. The APA states that full notice and comment procedures are not required when going through notice and comment would be "impracticable, unnecessary, or contrary to the public interest." This is known as the "good cause" exception, and it allows agencies to skip notice and comment and proceed directly with issuing a final rule. Agencies can also make their rules take effect in less than 30 days by invoking a similar good cause exception. When agencies use the good cause exception, the APA requires that they explicitly state that they are doing so and provide a rationale for the exception's use when the rule is published in the Federal Register . The legislative history of the APA makes it clear, however, that Congress did not believe that the good cause exception to the notice and comment requirements should be an "escape clause." A federal agency's invocation of the good cause exception (or other exceptions to notice and comment procedures) is subject to judicial review. After having reviewed the totality of circumstances, the courts can and sometimes do determine that an agency's reliance on the good cause exception was not authorized under the APA. In sum, if an agency wanted to change or eliminate midnight rules issued by the outgoing administration, the agency would have to follow the APA's general notice and comment requirements for rulemaking, which can be a potentially time consuming process, unless good cause exists. Options for Congress: Oversight of Rules Congress may examine the issuance of proposed and final "midnight" regulations at the end of an administration and conclude that the regulations should be allowed to go forward. Should Congress conclude otherwise, though, various options are available—even for rules that have already taken effect. At any time, Congress can use its legislative power to overturn or change a regulation that has been issued by an agency. Congress can also use its legislative power to amend the statutory authority underlying a regulation. A change in the underlying statutory authority could force an agency to amend a regulation that has been already issued, provide additional instruction to an agency while a rule is under development and before it has been finalized, or outright repeal a rule that had already been issued. In addition, Congress may use the expedited procedures provided in the Congressional Review Act (CRA) to disapprove agency rules, including, in some cases, rules issued in a previous session of Congress. Alternatively, Congress can add provisions to agency appropriations bills to prohibit certain rules from being implemented or enforced. These two options are discussed in detail below. Congressional Review Act As stated above, Congress may use its general legislative powers to overturn agency rules by regular legislation. The Congressional Review Act, enacted in 1996, was intended to reassert control over agency rulemaking by establishing a special set of expedited or "fast track" legislative procedures for this purpose, primarily in the Senate. In short, the CRA requires that all final rules (including rules issued by independent boards and commissions) be submitted to both houses of Congress and to GAO before they can take effect. Members of Congress have 60 "days of continuous session" to introduce a joint resolution of disapproval beginning on the date a rule has been received by Congress (hereafter referred to as the "initiation period"). The Senate has 60 "session days" from the date the rule is received by Congress and published in the Federal Register to use expedited procedures to act on a resolution of disapproval (hereafter referred to as the "action period"). For example, once a joint resolution has reached the floor of the Senate, the CRA makes consideration of the measure privileged, prohibits various other dilatory actions, disallows amendments, and limits floor debate to a maximum of 10 hours. If passed by both houses of Congress, the joint resolution is then presented to the President for signature or veto. If the President signs the resolution, the CRA specifies not only that the rule "shall not take effect" (or shall not continue if it has already taken effect), but also that the rule may not be reissued in "substantially the same form" without subsequent statutory authorization. Also, the act states that any rule disapproved through these procedures "shall be treated as though such rule had never taken effect." If, on the other hand, the President vetoes the joint resolution, then (as is the case with any other bill) Congress can override the President's veto by a two-thirds vote in both houses of Congress. Under most circumstances, it is likely that the President would veto such a resolution in order to protect rules developed under his own administration, and it may also be difficult for Congress to muster the two-thirds vote in both houses needed to overturn the veto. Of the approximately 56,000 final rules that have been submitted to Congress since the legislation was enacted in 1996, the CRA has been used to disapprove one rule—the Occupational Safety and Health Administration's November 2000 final rule on ergonomics. The March 2001 rejection of the ergonomics rule was the result of a specific set of circumstances created by a transition in party control of the presidency. The majority party in both houses of Congress was the same as the party of the incoming President (George W. Bush). When the new Congress convened in 2001 and adopted a resolution disapproving the rule published under the outgoing President (William J. Clinton), the incoming President did not veto the resolution. Congress may be most able to use the CRA successfully to disapprove rules in similar, transition-related circumstances. CRA "Carryover" Provisions The ergonomics disapproval was also an example of the "carryover" provisions in the CRA. Midnight rules issued in the final months of an administration are often subject to reconsideration under the CRA in the next session of Congress. Section 801(d) of the CRA provides that, if Congress adjourns its annual session sine die less than 60 legislative days in the House of Representatives or 60 session days in the Senate after a rule is submitted to it, then the rule is subject, during the following session of Congress, to (1) a new initiation period in both chambers and (2) a new action period in the Senate. The purpose of this provision is to ensure that both houses of Congress have sufficient time to consider disapproving rules submitted during this end-of-session "carryover period." In any given year, the carryover period begins after the 60 th legislative day in the House or session day in the Senate before the sine die adjournment, whichever date is earlier . The renewal of the CRA process in the following session occurs even if no resolution to disapprove the rule had been introduced during the session when the rule was submitted. For purposes of this new initiation period and Senate action period, a rule originally submitted during the carryover period of the previous session is treated as if it had been published in the Federal Register on the 15 th legislative day (House) or session day (Senate) after Congress reconvenes for the next session. In each chamber, resolutions of disapproval may be introduced at any point in the 60 days of continuous session of Congress that follow this date, and the Senate may use expedited procedures to act on the resolution during the 60 days of session that follow the same date. Appropriations Provisions While the CRA has been used once to overturn an agency rule, Congress has frequently used provisions added to agency appropriations bills to affect rulemaking and regulations, and could choose to apply such provisions to midnight rules. Most frequently, such provisions prohibit the use of funds for certain rulemaking-related purposes, such as prohibiting the use of funds for finalizing particular proposed or final rules, developing regulations with regard to particular statutes or issues, implementing or enforcing rules that have already been issued and perhaps taken effect. Restrictions on the use of funds in appropriations bills can enable Congress to have a substantial effect on agency rulemaking and regulatory activity beyond the introduction of joint resolutions of disapproval pursuant to the CRA. However, unlike CRA joint resolutions of disapproval, these types of appropriations provisions do not nullify an existing regulation. Therefore, any final rule that has taken effect and been codified in the Code of Federal Regulations will continue to be binding—even if language in the relevant regulatory agency's appropriations act prohibits the use of funds to enforce the rule. There may be additional limits on the ability to influence agency rulemaking through restrictions on the use of funds based on the duration such provisions are effective. Restrictions on the use of funds in appropriations acts, unless otherwise specified, are binding only for the period of time covered by the measure (i.e., a fiscal year or a portion of a fiscal year). Appropriations prohibitions that seek to restrict regulatory actions may not be effective in preventing such action from occurring in certain circumstances. Some federal regulatory agencies derive a substantial amount of their operating funds from sources other than congressional appropriations (e.g., user fees), and the use of those funds to develop, implement, or enforce rules may not be legally constrained by language preventing the use of appropriated funds. Also, some federal regulations (e.g., many of those issued by the Environmental Protection Agency and the Occupational Safety and Health Administration) are primarily implemented or enforced by state or local governments, and those governments may have sources of funding that are independent of the federal funds that are restricted by the appropriations provisions. Some state or local governments may also have their own statutory and regulatory requirements that are the same as or similar to the federal rules at issue, or may even go beyond federal standards. If state or local funds or legal authorities are used to develop, implement, or enforce regulations, those actions would not appear to be constrained by statutory provisions limiting the use of federal funds to restrict action on particular federal laws and regulations. Agencies may also attempt to find alternative ways around provisions prohibiting the use of appropriated funds for rulemaking or other regulatory actions. For example, if an agency is not permitted to use its appropriation to issue a rule on a particular issue, it could attempt to achieve the result through other means, such as through the use of non-binding guidance documents. Another possibility is that if Congress restricts one agency or group of agencies from issuing a rule on a particular topic, another agency with similar or overlapping statutory authority could be assigned that responsibility, provided that the other agency has such authority to issue the rule. Recent Midnight Rulemaking Legislative Proposals Several midnight rulemaking bills have been introduced into recent Congresses that corresponded with a presidential transition (or potential transition, as was the case in the 112 th Congress, which coincided with the presidential election of 2012). 112th Congress Companion bills entitled the Midnight Rule Relief Act of 2012 ( H.R. 4607 and S. 2368 ) were introduced by Representative Reid Ribble and Senator Ron Johnson, respectively, in the 112 th Congress. The text of H.R. 4607 and a number of other bills related to rulemaking were incorporated into H.R. 4078 , the Red Tape Reduction and Small Business Job Creation Act, which was passed by the House on July 26, 2012. S. 2368 was referred to the Senate Committee on Homeland Security and Governmental Affairs upon introduction, and the Senate did not take further action. The Midnight Rule Relief Act would have established a moratorium on the proposal or finalization of certain types of rules during the period between a presidential Election Day and inauguration day of a President's final term in office. Specifically, if enacted, it would have prevented an outgoing President from proposing or finalizing certain "major" rules during the covered period. The exceptions would have included certain rules with statutory or judicial deadlines; rules exempted by the President to be necessary for various reasons including national security; and deregulatory measures aimed at repealing an existing rule. 114th Congress In the 114 th Congress, Representative Tim Walberg and Senator Joni Ernst introduced the Midnight Rule Relief Act of 2016 ( H.R. 4612 and S. 2582 , respectively) on February 25, 2016. On June 10, 2016, the House Committee on Oversight and Government Reform reported H.R. 4612 , and the text reported was considered, with some modifications, as an amendment to H.R. 4361 , the Government Reform and Improvement Act of 2016, and passed by the House on July 7, 2016. S. 2582 was referred to the Senate Committee on Homeland Security and Governmental Affairs upon introduction, and the Senate has not taken further action at the time of writing of this report. If enacted, the Midnight Rule Relief Act would prevent certain proposed and final rules from being issued during a "moratorium period" following the election of a new President. The rules that would be precluded from issuance would be "major" rules and rules that would trigger the analytical requirements of the Regulatory Flexibility Act (i.e., those rules that may have a significant economic impact on a substantial number of small entities). The bill contains a number of exceptions, such as rules that are required to be issued under statute, rules for which the President issues an executive order determining that the rule is necessary for certain reasons specified in the bill, or rules that are deregulatory in nature (i.e., a rule that would repeal an existing rule). In addition, Representative Darrell Issa introduced H.R. 5982 , the Midnight Rules Relief Act, on September 9, 2016, and the bill was reported without amendment by the House Committee on the Judiciary on September 21, 2016. If enacted, H.R. 5982 would make it easier for a new Congress to disapprove multiple rules issued in the final months of an outgoing administration. Currently, under the Congressional Review Act (CRA, described above), Congress can overturn a single final rule through enactment of a joint resolution of disapproval once the rule is finalized and submitted to Congress. Congress must consider such a disapproval resolution under certain limited time periods, which are stipulated in the CRA. If a rule is submitted late in a session of Congress, there may be additional time periods for consideration available in the next session (see section above entitled " CRA "Carryover" Provisions "). H.R. 5982 would amend the CRA to allow a disapproval resolution to contain more than one rule for those late-issued rules finalized by an outgoing administration—i.e., for rules issued by the outgoing administration that are submitted to Congress during the final 60 days of session in the Senate or 60 legislative days in the House of Representatives before sine die adjournment.

During the final months of recent presidential administrations, federal agencies have typically issued a larger number of rules relative to comparable time periods earlier in the administration. This phenomenon is often referred to as "midnight rulemaking." Various scholars and public officials have documented evidence of midnight rulemaking by several recent outgoing administrations, especially for those outgoing administrations that will be replaced by an administration of a different party. The most likely explanation for the issuance of "midnight rules" is the desire of the outgoing administration to complete its work and achieve certain policy goals before the end of its term of office. This tendency has been termed the "Cinderella effect" by some observers. Because it may be difficult to change or eliminate rules after they have taken effect, issuing midnight rules can help ensure a legacy for a President. Some entities and individuals have raised a number of concerns over the practice of midnight rulemaking. One such concern is that an outgoing administration has less political accountability compared to an administration faced with the possibility of re-election. Furthermore, rules that are hurried through at the end of an administration may not have the same opportunity for public input: agencies may find that to issue regulations by the end of an administration, they may not have sufficient time to read and digest public comments received during the comment period. Another concern over midnight rulemaking is that the quality of regulations may suffer during the midnight period, since the departing administration may issue rules quickly, and, as a result, the rules may not receive adequate review or analysis. One study suggested that "an increase in the number of regulations promulgated in a given time period could overwhelm the institutional review process that serves to ensure that new regulations have been carefully considered, are based on sound evidence, and can justify their cost." Finally, some have argued that the task of evaluating a previous administration's midnight rules could overwhelm a new administration. Although some observers have voiced concerns about midnight rulemaking, a 2012 study for the Administrative Conference of the United States (ACUS) concluded that many midnight regulations were "relatively routine matters not implicating new policy initiatives by incumbent administrations," and that the "majority of the rules appear to be the result of finishing tasks that were initiated before the Presidential transition period or the result of deadlines outside the agency's control (such as year-end statutory or court-ordered deadlines)." The study cited some evidence of the strategic use of midnight rules to implement certain desired policies before leaving office, but in general, the study said that "the perception of midnight rulemaking as an unseemly practice is worse than the reality." Congress has several options pertaining to midnight regulations—even after they have taken effect. First, Congress can use its legislative power to overturn or change a regulation that has already been issued: Congress could amend the statutory authority underlying a regulation, which could force an agency to amend a regulation that has been already issued, or could provide additional instruction to an agency before a rule is finalized. In addition, Congress may use the expedited procedures provided in the Congressional Review Act (CRA) to disapprove agency rules, including, in some cases, rules issued by the outgoing administration during the previous Congress. Alternatively, Congress can add provisions to agency appropriations bills to prohibit certain rules from being implemented or enforced. Furthermore, in Congresses coinciding with the end of recent administrations, as well as in the current (114th) Congress, some Members have introduced bills that would change or prevent the practice of issuing midnight rules.

Background Peru has had a turbulent political history, alternating between periods of democratic and authoritarian rule. Political turmoil dates back to Peru's traumatic experience during the Spanish conquest, which gave rise to the economic, ethnic, and geographic divisions that characterize Peruvian society today. Since its independence in 1821, Peru has had 13 constitutions, with only 9 of 19 elected governments completing their terms. Peru's most recent transition to democracy occurred in 1980 after 12 years of military rule. The decade that followed was characterized by a prolonged economic crisis and the government's unsuccessful struggle to quell a radical Maoist guerrilla insurgency known as the Shining Path (Sendero Luminoso). President Alan García's first term (1985-1990) was characterized by many observers as disastrous. Of the leftist American Popular Revolutionary Alliance (APRA), García's antagonistic relationship with the international financial community and excessive spending on social programs led to hyperinflation (an annual rate above 7,600%) and a debt crisis. By 1990, the Peruvian population was looking for a change and found it in the independent candidate Alberto Fujimori. Initially applauded for his aggressive economic reform program and stepped up counterinsurgency efforts, Fujimori became increasingly autocratic, dissolving the legislature in 1992, overseeing the writing of a new constitution in 1993—which allowed him to run again, and win, in 1995—and engaging in strong-handed military tactics to wipe out the Shining Path that resulted in serious human rights violations. Reelected in 2000, Fujimori's government collapsed with revelations of electoral fraud and high-level corruption, and he fled the country later that same year. In a landmark legal case, on April 7, 2009, former President Fujimori was convicted and sentenced to 25 years in prison for "crimes against humanity," on charges of corruption and human rights abuses. Analysts regard the court's decision as a considerable accomplishment for Peru's judicial system, which has been considered weak and subject to political influence. Peru then entered a period of relative political stability, economic growth, and poverty reduction, begun by a capable interim government headed by President Valentin Paniagua (November 2000 -July 2001), and continued by Peru's first president of indigenous descent, Alejandro Toledo (2001-2006). Toledo pushed through significant reforms that increased tax collection, reduced expenditures and the budget deficit, and negotiated a free trade agreement with the United States. Softening his populist rhetoric, Alan García launched a political comeback and won the presidential race in 2006. Many observers cast him as "the lesser of two evils" compared to his opponent, Ollanta Humala, who espoused nationalist, anti-globalization policies. García (2006-2011) maintained orthodox macro-economic policies. Economic growth continued under García, and so, too, did popular protests over the failure of that growth to improve social conditions for Peru's poorest people, and over the exploitation of natural resources. Humala went on to win the presidency in 2011. Current Political Conditions Following his unsuccessful bid for the presidency in 2006, Ollanta Humala moderated his stance five years later from an extreme leftist, populist, nationalist approach allied with Venezuela's President Hugo Chavez, to a more center-leftist approach modeled after Brazil's former President Luiz Inacio Lula da Silva. Humala won the elections and was sworn in as Peru's president in July 2011 for a five-year term. He defeated Keiko Fujimori, a conservative member of Congress and daughter of disgraced former President Alberto Fujimori. In his first address as president, Humala promised to maintain free-market policies while also working to narrow the wide economic distribution gap and eliminate the social exclusion of Peru's poor, mostly indigenous population. He reiterated that commitment in a speech to the Peruvian Congress as he completed his first year in office. Acknowledging that his government had not done all it pledged to do, Humala said his goal was to cut Peru's poverty by half, from 30% to 15% of the population by the end of his term in 2016. At the end of 2012, about a year and a half into Humala's term, the poverty rate had dropped to 26% of the population. Initially, Humala's cabinet encompassed a broad range of the political spectrum, from orthodox economists to former military officers and left wing radicals pursuing a consensus-based pragmatic approach. Humala shuffled his cabinet three times in his first year, dismissing all of his top leftist advisers in a major cabinet re-shuffle in late 2011, and consolidating a more centrist approach since then. After he was elected, Humala began negotiations with the mining sector, so that, once inaugurated, he was quickly able to propose an increase in mining royalties paid to the government. Mining companies accepted the increase as inevitable, since both presidential candidates had advocated it, and were willing to accept moderate increases in exchange for a stable set of royalty payment rules. The Peruvian Congress passed the bill, which became effective in January 2012. The increased royalties are expected to provide an additional US$1 billion annually to the national budget to fund Humala's proposed social inclusion programs and infrastructure projects. Addressing Social Conflicts President Humala also committed himself to reducing the social conflicts that have impeded government functions over the last couple of administrations. But he has found it difficult to balance his stated desire to help the poor and indigenous with his effort to encourage investment by the business sector. Peru's Ombudsman for Human Rights reported that there were over 200 civil conflicts across Peru as Humala came into office. The first law Humala signed was a prior consultation law, requiring mining, energy, and logging companies to consult with indigenous and rural communities about projects planned in their communities, which had been the source of much social conflict. Former President Alan García had vetoed a similar law, and violent conflicts over land use continued throughout his term. The law brings Peru into compliance with the International Labor Organization's Convention on Indigenous Peoples, which Peru ratified in 1993. The convention requires that companies consult indigenous groups before entering their ancestral territories to exploit natural resources. Implementing regulations went into effect on April 4, 2012. No prior consultations had been carried out as of May 2013. As a complement to the new law, the Humala administration also created an office of conflict prevention. As part of that effort, the ministers' council released its first report on social conflict in December 2012, saying that 15 mining conflicts were under the auspices of state conflict prevention measures such as early alert mechanisms and communication strategies. Because the prior consultation law does not grant local communities veto power over investments in their area, however, and does not require consultation for government coca eradication efforts, tensions have continued and are likely to remain an issue. Some businesses worry that the new consultation process could add bureaucratic impediments to their projects. And some conflicts have political or other roots besides land use issues. Although the government said it hoped to reduce the number of conflicts by increasing dialogue among communities, investors, and the state, major conflicts have continued, and some critics say not much has changed. The Humala government has declared states of emergency in the northern Cajamarca region of Peru, but protests against mining efforts there have continued, often turning violent. In the southeastern region of Madre de Dios, the government is contending with illegal mining, which has also led to violence, pollution, and destruction of the Amazonian rainforest. Estimating there to be up to 50,000 small-scale miners in the area, the government decreed stricter penalties for illegal mining in February 2012, has removed thousands of miners, and plans to remove all illegal miners working near national parks. The ombudsman reported 84 new conflicts registered in 2012, involving 24 deaths and 649 injuries. That brought the total number of social conflicts for 2012 to 227. The ombudsman's office reported three cases as resolved in 2012, including one in the Ancash region involving a $1.3 billion expansion of a mine. As of April 2013, there were 229 cases of social conflict, with 76% of them active. The vast majority of the cases are socio-environmental: 73% involve mining. About 9% involve local government issues, and just 6% revolve around territorial disputes. Tensions between indigenous and business concerns have created conflict within the Humala government as well. In an effort to speed approval of investment projects, the Energy and Mines Ministry proposed amending the Prior Consultation law to exclude groups that speak Quechua and Aymara, official national languages spoken by a substantial number of indigenous people. The proposal would make groups living in the highlands, where most mining occurs, and where most social conflict is occurring, ineligible for prior consultation. The deputy minister of intercultural affairs, whose office must implement the law, resigned in protest. Government delays in publishing an Official Database of Indigenous Peoples and the consultation process rules are hindering implementation of the consultation law. The database determines which indigenous populations in which areas will be eligible for prior consultation. Therefore its contents are extremely controversial. The Humala administration has decided that some 14 mining projects can proceed without prior consultation of indigenous communities, without having a clear process or definition of eligible communities in place on which to base those decisions. The government again argues that this is necessary to speed up approval of investment projects, especially where concessions predate the prior consultation law. The Human Rights Ombudsman argues, however, that all of these mining projects are situated in areas where indigenous peoples live, and that those communities should be consulted before the projects proceed further. Deep social divides over how to pursue development continue to undercut political stability. The more radical elements of Humala's original support base and his party, Gana Peru, urge the pursuit of more leftist policies, such as nationalization of strategic industries, which Humala called for during the election campaign. Forces that resist more radical policies include a strong business sector; a conservative, wealthy elite; a centrist middle class; and a divided Congress. If communities in conflict believe that the Humala administration is ignoring the prior consultation law, those divides may deepen. Humala and the Peruvian Congress As Humala alienates the leftist forces that helped him win the election, his position in the Congress becomes weaker. Humala's party does not have an outright majority; it has 43 seats to Fujimori's party's 36 seats in the 130-seat chamber. His weak alliance with former President Alejandro Toledo's centrist Peru Posible party, which gave him a 2-seat majority, has dissolved; Toledo's bench now has 15 members. Some members of Humala's own party have left as well, in response to his shift away from the left and the crackdown on anti-mining protests. Unable to agree on candidates, the Congress left key positions including seven Constitutional Tribunal judges, the head of the human rights office, and three members of the central bank's board, vacant for over a year. Nonetheless, Humala was able to push through reforms in his first year, and in July 2012 his party was able to hold onto the leadership position in the Congress. Petition for Fujimori's Release from Prison Another potentially destabilizing element was thrown Humala's way when former President Fujimori's family petitioned the Justice Ministry for his release from prison on humanitarian grounds because he has mouth cancer. Fujimori was convicted for crimes against humanity, including for his role in the extrajudicial execution of 15 people, the forced disappearance and murder of nine students and a professor from a university, and two other abductions. The international organization Human Rights Watch opposes granting Fujimori amnesty, saying it "would be incompatible with Peru's obligations under international law," and that humanitarian pardons "should only be granted on the basis of an independent, thorough, and conclusive medical determination of the gravity of the prisoner's condition and the seriousness of the risk continued detention might pose." Some opposed to his release warn it could lead to social unrest and greater influence by Fujimori; he is said to have played a key role in the last elections, in which his daughter lost her bid for the presidency but other supporters of his won seats in the Congress. A Mercy Commission is looking into the case, and will make non-binding recommendations to the President. Humala, who once led a failed coup attempt against Fujimori, says he will ultimately decide whether to grant the pardon, but "cannot rush" the Commission. Positioning for 2016 Elections Possible contenders are already jockeying for position for the 2016 presidential elections. Presidents are constitutionally barred from running for consecutive terms, so Humala cannot run for reelection. But among those expected to run are two former presidents, Alan Garcia and Alejandro Toledo. Both are under investigation, and both say the investigations are politically driven to hamper their candidacies. Garcia's 2006-2011 administration is being investigated for alleged corruption, and Toledo is being investigated for possible links to multi-million dollar real estate transactions involving his mother-in-law that occurred after he left office. The Humala administration denies accusations made by pundits and opposition politicians that it is using government intelligence operations to discredit its opponents. Humala's extremely popular wife, Nadine Heredia, has been active in social development issues, and is influential within her husband's administration. The first lady is also barred by law from running for office in the next elections. Nonetheless, speculation has been rife that she is seeking a way to do so. Some suggest that Humala's party, Gana Peru, could seek a deal with Keiko Fujimori's party, Fuerza Popular, to allow Heredia to run in exchange for a pardon of Fujimori's father, the jailed former president. Major Minister Juan Jimenez recently denied "for the nth time" that the government is trying to change the law to allow Heredia to run for president in 2016. Keiko Fujimori, an influential member of Congress who lost to Humala in the last elections, is also considered likely to run again for president. Congressional elections will also be held in 2016. Regional and municipal elections are scheduled for October 2014. Socioeconomic Conditions Peru's economy has been stronger than virtually all other Latin American economies since 2001. Its gross domestic product (GDP) growth rate averaged 8.8% from 2001 to 2008. During the 2008-2009 global financial crisis, Peru's economy slowed to 0.9%, but was one of the few in Latin America to maintain positive growth. Meeting with then-President García in Washington in early June 2010, President Barack Obama called Peru an "extraordinary economic success story." In 2011, Peru's economy grew by 6.9%. The Economist Intelligence Unit estimates 6.3% GDP growth for 2012 and predicts continued strong growth of around 6% in 2013 and for the next several years. Most of Peru's growth is due to the export of natural resources such as copper, gold, silver, zinc, lead, iron ore, fish, petroleum, natural gas, and lumber. President Humala has generally pursued free market, business-friendly economic policies. Nonetheless, his administration recently tried to assert a stronger state role in the economy. His government was considering taking over the assets of a Spanish oil company, Repsol. Humala reportedly backed away from the effort in the face of negative pressure from his cabinet and business groups. Regional Economic Integration Peru is affiliated with several regional economic integration organizations. It is an associate member of Mercosur (the Southern Common Market) and a member of the Andean trading bloc, CAN (the Andean Community of Nations), and of UNASUR (the Union of South American Nations), which was established in 2004 under the leadership of then-President of Venezuela Hugo Chavez as an alternative to what he saw as more pro-U.S. organizations. Pacific Alliance Peru recently joined with some of the other strongest economies in the region to form a new organization, the Pacific Alliance. One year after forming the Alliance, Chile, Colombia, Mexico, and Peru agreed to its rules of operation on May 23, 2013, making it the largest free trade zone in Latin America. These four countries all have free market economies, embrace globalization, average 5% economic growth rates, and constitute 35% of Latin America's gross domestic product (GDP). The three South American members have already merged their stock markets. When Mexico joins it in the next year, the Mercado Integrado Latinoamericano would become the region's largest stock exchange. One of the Pacific Alliance's goals is to promote regional economic integration by promoting more trade within the region, creating economies of scale and more efficient value chains; and to coordinate development, services, and tourism. The member countries have already eliminated visa requirements among their citizens to allow for a freer flow of people. Another Alliance goal is to strengthen and coordinate the group's economic ties with Asia. Global Economic Integration Peru has been integrating into the world economy, signing free trade agreements with the United States and other key trade partners such as Canada, Chile, China, Japan, Singapore, South Korea, and Thailand. Peru joined the Asia-Pacific Economic Cooperation (APEC) in 1998, which promotes economic relations between Peru and Asian countries. Peru is an active member, hosting the APEC summit in 2008. Peru hosted the third South American-Arab Countries Summit in October 2012, during which 21 Middle Eastern and 11 South American countries agreed to create an investment bank to fund joint projects between the Union of South American Countries (UNASUR) and the Arab League, and Peru signed a commercial and technical agreement with the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). After a nine-year process, Peru's free trade agreement with the European Union went into effect on March 1, 2013. Poverty Decreasing, Economic Disparity Still High García, during his second (non-consecutive) five-year term, largely continued the orthodox economic policies of his predecessor, Alejandro Toledo, concentrating on reducing the fiscal deficit. The U.S. State Department described Peru's economy as "well managed" under García, and maintained that better tax collection and growth were increasing revenues. President Humala has followed suit, appointing a conservative economic team that is continuing existing free-market economic and trade policies. He also insists, however, that he will enact policies to eradicate poverty by spreading Peru's wealth to the country's poorest population. President Humala has maintained that "Economic growth and social inclusion will march together," and that he will expand social programs to reduce the number living in poverty. Peru's rapid and sustained economic growth has substantially reduced poverty and increased employment. Peru's poverty rates have been dropping since 2000. Peruvians living in extreme poverty, unable to purchase the most basic basket of necessities, fell from 24.1% in 2001 to 9.8% of the overall population of 30 million in 2010. The percentage of Peruvians living in poverty fell from 54.3% in 2001 to 25.8% in 2012. Social unrest has continued to rise in recent years, however, as Peru's poor have felt that the country's economic prosperity has not reached them. Indeed, the percentage of the population living in poverty in some mountain, jungle, and rural areas is over 60%. The disparity between rural and urban populations remains marked: as of 2012 over half (53%) of the rural population lives in poverty, while 16.1% of the urban population does so. The income distribution gap remains significant: the top 20% of the population garners 52.6% of the nation's income, while the lowest 20% garners only 3.9% of the income. According to the World Bank, "poverty rates are still high for a country with income levels like Peru's." Similarly, the factors weighed in the World Bank Human Opportunity Index, which measures "how personal circumstances (birthplace, wealth, race or gender) impact a child's probability of accessing the services that are necessary to succeed in life" (timely education, running water, sanitation, electricity), have improved greatly in Peru since 1995, but remain significantly lower for Peru's poorer population as compared to the wealthier population. Overall, for example, chronic malnutrition among children under the age of five declined from 28.5% in 2007 to 23.2% in 2010. But among the poorest 20% of the country's population, 47% of children displayed stunting from malnutrition, as opposed to only 5% of children among the wealthiest quintile. The infant mortality rate was 64 deaths per 1,000 live births among the poorest quintile, and 14 per 1,000 among the wealthiest quintile. On the 2010 World Bank Human Opportunity Index, Peru scores about 70 on a scale of 100 for universal access to services. It compares poorly to the rest of Latin America, however, ranking 14 th out of 18 countries. As mentioned above, President Humala and the Peruvian Congress have already approved an increase in mining royalties expected to generate US$1.1 billion a year to fund social development programs aimed at closing that social and economic distribution gap. The President also announced an increase in the minimum wage and a minimum pension to poor people over age 65. His administration proposed, and in March 2012 the legislature passed, a law to expand natural gas use, especially for low-income sectors. Since Humala assumed office, an emphasis on social spending and poverty reduction combined with continued economic growth have led to poverty falling at a slightly faster rate in the more poverty-stricken rural areas. From 2011 to 2012 poverty fell in urban areas by 1.6% and in rural areas by 3.1%. Nonetheless, several factors will continue to drive social unrest: the economic disparity between urban and rural populations remains extremely wide; rural communities experiencing or fearing a detrimental impact on their environment from mining; and the perception among those communities that they are receiving few of the benefits from the country's mining economic boom. Challenges of Funding and Managing Social Development Programs According to the Economist Intelligence Unit, "several years' worth of large surpluses" provided ample finance for the García administration's social policies, but implementation of those policies was hampered by the limited capacity of Peru's institutions. The same holds true for the Humala administration, which faces the challenge of making the government more effective in order to continue and expand the positive trends of the past decade. A case in point where increased effectiveness is needed is that of the Camisea natural gas project. Peru began to decentralize government functions in earnest in 2002. Some analysts reported that provincial and local governments were therefore not prepared, only two years later, to absorb the $1.13 billion in revenue generated by the Camisea project that the national government transferred to them between 2004 and 2009. The nascent sub-national governments appear to have lacked the skills to manage the social and environmental risks, resulting in reported damage to many indigenous communities, their livelihoods, and their ecosystems. The governments also reportedly lacked the fiscal management skills to marshal the funds effectively, and poverty in those areas remained as high as 60%. U.S. assistance programs help provide training and technical assistance to sub-national (and national) institutions to plan and manage social services, improve citizen access to information, and prevent and mitigate conflict. Debate over Exploitation of Natural Resources and Environmental Protection During his presidential campaign, Humala promised to protect Peru's environment. His administration has taken several important steps toward that end, but has also been criticized for taking steps that favor business interests. The first law the president signed was the prior consultation law, requiring mining, energy, and logging companies to consult with indigenous and rural communities about natural resource exploitation projects planned in their communities. The government has yet to define either the procedures for that consultation process or the communities that may participate in it, however, and no prior consultation process has taken place so far. Furthermore, the government has approved 14 mining projects to proceed without prior consultation of the communities in which the projects are located. (See " Addressing Social Conflicts " above.) Part of the challenge the government faces is how new it is to protecting the environment. While mineral extraction has gone on for decades in Peru, the government ministry responsible for protecting the environment is only five years old. In an effort to reduce a conflict of interest, the Humala administration shifted responsibility for approval of environmental impact studies from the mining and energy ministry to the environment industry. But tensions between the government's desire to promote investment and to protect the environment persist. Humala has shuffled his cabinet twice due to conflicts over a major gold mine project (discussed below), and a top official in the environment ministry resigned in response to a government crackdown on residents protesting the mine. In a major move, President Humala declared an environmental state of emergency in part of Peru's Amazon jungle region in May 2013. He ordered an Argentinian oil company to clean up the pollution where it is operating within three months. The company, Pluspetrol, said it would clean up the area, although it blamed the pollution on the company that preceded it there. Residents in the region, along the Pastaza River, say the pollution from the oil has damaged the river and the surrounding rainforest, killing fish and animals and introducing new illnesses among the people. Social unrest and debate over exploitation of natural resources is likely to remain a challenge for the Humala government. The biggest dispute has involved a mine owned by U.S. parent company Newmont Mining and operated by its local subsidiary, Yanacocha. Work at the Conga gold and copper mine in Cajamarca, in northern Peru, has been suspended since late November 2011 due to violent protests there over its impact on the environment. Opponents worry that the $5 billion project—the country's largest foreign investment project ever—will contaminate water resources that provide the region's water for drinking and agriculture by draining lagoons and filling them with mining waste. Many residents of the dairy and agricultural region say they want sustainable development based on agriculture and eco-tourism instead. The government hired a team of international experts to reassess the project's environmental impact assessment, which the García administration had approved in 2010. After receiving the report on April 17, 2012, President Humala imposed additional conditions on the project. Newmont halted the mine construction while it builds four reservoirs called for in the assessment and says that it will carry out its work in an environmentally sensitive way, and correct errors made in the past. Violent protests have erupted sporadically over the mine. Five protesters were killed when police shot into the crowd in July 2012. Protesters again clashed with police on May 29, 2013, after Newmont Mining announced it was transferring water from a lake the protesters have been trying to protect to the second reservoir the company is building. According to the Yanacocha company, the new reservoirs would increase some communities' access to water year-round. Newmont Mining's local partner, the Buenaventura company, said the communities' response to removal of the lake water could be the "breaking point" determining whether or not the mine construction moves forward. Environment Minister Manuel Pulgar-Vidal says the first two reservoirs are strictly for community use, an effort on the part of the company to contribute to development of the region. The minister also said that the government will not allow construction of the mine to begin until both reservoirs are completed and the company has earned its "social license" by earning the community's trust. Cajamarca's regional president, Gregorio Santos Guerrero, continues to oppose the gold mine expansion. A Peruvian congressional committee has recommended that the attorney general investigate Santos for allegedly misusing public funds. Santos has denied the charges and said the government is targeting him because of his opposition to the mine. Investors see the outcome of the case as an important indicator of Peru's business environment. Four other regions are experiencing protests against mining and energy projects as well. Peru's Relations with its Neighbors Peru generally has friendly relations with its South American neighbors, although tensions with Chile arise occasionally. Peru's Congress triggered renewed tensions in 2005 when it declared new maritime borders; Chile claims that the maritime borders had been agreed to in fishing pacts signed in the early 1950s. In 2008 the García administration asked the International Court of Justice (ICJ) in the Hague to arbitrate the dispute; the court recently heard the case, and is expected to hand down a decision this summer. Actions on both sides of the border led to tensions again in 2009. Chile conducted multinational military exercises that rankled Peru, and Peru arrested a member of its Air Force for allegedly spying and providing classified defense information to Chile. During the presidential campaign, Humala made inflammatory remarks regarding Chile, demanding Chile apologize to Peru for assaults during the War of the Pacific in 1879 and warning Chile not to discriminate against Peruvians residing in Chile, or Peru would do the same against Chileans within its borders. Shortly after he was elected, however, Humala traveled to Chile, saying he wanted to get relations between the two countries off on a good foot. At a meeting in May 2013, the foreign ministers of both countries, Rafael Roncagliolo of Peru and Alfredo Moreno of Chile, said their countries will respect the ICJ's decision in the case. The ministers also signed an agreement to work on a joint "unit for peace maintenance operations." Peru and Ecuador resolved their sometimes violent border disputes by signing a peace accord in 1998, of which the United States was one of four guarantor states. Peru and Ecuador coordinate a border integration project with U.S. and other international support. As mentioned earlier, Peru is a member of the South American regional integration organizations, CAN, UNASUR, and the Pacific Alliance, and an associate member of Mercosur. (See " Socioeconomic Conditions ", above.) About 200 Peruvian troops participate in peacekeeping operations as part of the U.N. Stabilization Mission in Haiti. Relations with the United States Peru and the United States have a strong and cooperative relationship. The United States supports the strengthening of Peru's democratic institutions and its respect for human rights. The two countries also cooperate on environmental protection and counternarcotics efforts. In the economic realm, the United States supports bilateral trade relations and Peru's further integration into the world economy. President-elect Humala met with Secretary of State Hillary Clinton and President Barack Obama in Washington in early July 2011. Humala said he wished to further strengthen ties between the two countries, and Clinton said that "the United States stands ready to be his partner." Presidents Obama and Humala met briefly at the Summit of the Americas on April 14, 2012, in Cartagena, Colombia. The two presidents are scheduled to meet again on June 11, 2013, during President Humala's first official visit to the White House. According to the Obama Administration, they will discuss U.S. efforts to support the Humala Administration's agenda of social inclusion, broad based economic growth, and citizen security. They will also discuss joint efforts to further Trans-Pacific Partnership Agreement negotiations, and cooperate on education, energy and climate change, science and technology, and bilateral trade. Humala will also launch partnerships with several U.S. universities during his trip, including the Massachusetts Institute of Technology and universities in Maryland, Delaware, and Utah. U.S. Defense Secretary Leon Panetta met with President Humala and Defense Minister Pedro Cateriano in Peru on October 6, 2012. The officials said the two militaries cooperate in areas including humanitarian assistance, such as joint disaster response training; internal security; defense reform; U.N. peacekeeping; and regional security, and they discussed further collaboration. Panetta said the United States was prepared to work with Peru "on joint planning, information sharing [and] trilateral cooperation with Colombia to address our shared security concerns in this area," and on updating their Defense Cooperation Agreement, which dates from 1952, to improve cooperation. The officials also reportedly discussed Peru's desire to acquire 20 U.S. helicopters, and to use counternarcotics resources for counterinsurgency efforts as well. (See " Counternarcotics Efforts " below.) U.S. Assistance and Congressional Interests According to the Department of State, the goals of U.S. assistance to Peru are to help it consolidate democratic rule, invest in its people, combat narcotrafficking and terrorism, and reform state institutions to improve public infrastructure and service delivery. Congress has supported these goals through appropriated funding. Nonetheless, funding for Peru has been declining since at least FY2010, when the United States provided almost $120 million in assistance to Peru. Funding decreased to $97 million in FY2011, and to $79 million in FY2012, and requested funding for FY2013 and FY2014 continues the decline. (See Table 1 below.) Congress designated funding to Peru as part of several other regional programs. In the Consolidated Appropriations Act of 2012 ( P.L. 112-74 ), Congress stipulated that "not less than" $10 million of Development Assistance, and "not less than" $10 million of Economic Support Funds shall be made available for Peru, Central American countries, and the Dominican Republic for labor and environmental capacity building activities relating to free trade agreements with the United States. In its Joint Explanatory Statement, Congress said that $10 million should be made available for biodiversity conservation programs in the Andean Amazon region. The Obama Administration requested $73 million for Peru for FY2013. FY2013 foreign assistance is being funded through a continuing resolution ( P.L. 113-6 ), however, which funds most accounts at the FY2012 enacted level. Furthermore, sequestration required by the Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 / H.R. 8 , signed into law January 2, 2013), is currently in effect and requires an across-the-board reduction from the FY2013 enacted funding level. Given uncertainty over the country allocations that would be used as the base line to calculate the sequestration, CRS is unable to calculate post-sequestration funding levels for Peru. A possible rough estimate could be reached by reducing FY2012 figures by 5%; that would assume that all cuts would be even across the board, which they will not necessarily be. The Administration requested just under $73 million for Peru for FY2014. There has been no legislative action on FY2014 foreign operations funding yet. Peru and the United States signed a $35.6 million Millennium Challenge Threshold program for 2008 to 2010 that supported Peru's efforts to reduce corruption in public administration and improve child immunization coverage. The program, implemented by the U.S. Agency for International Development (USAID), was extended to July 2011. The nationwide immunization program is completed. To allow the completion of one remaining anti-corruption program, the Millennium Challenge Corporation (MCC) extended the end date until September 2012. These activities were to be incorporated into USAID programs for the remainder of FY2012 and probably into FY2013. Counternarcotics Efforts A dominant theme in the relations between the two countries is the effort to stem the flow of illegal drugs, mostly cocaine, from Peru to the United States. Peru is one of the three Andean countries that produce virtually all of the world's coca. According to the State Department, Peru "has the world's highest potential production of pure cocaine," and is the second-largest cultivator of coca. Estimates of Peru's total area of coca production vary widely. According to the United Nations Office on Drugs and Crime, coca cultivation increased by 2% over the previous year, from 61,200 hectares in 2010 to 62,500 hectares in 2011. The U.S. government, using a different methodology, estimated that 53,000 hectares were under cultivation in Peru in 2010, and 49,500 hectares in 2011, constituting a 6.6% decrease. Within the country, there have been significant changes in production. The upper Huallaga valley, formerly the country's largest producer of coca, experienced a strong drop in cultivation, due mostly to intensive eradication there. Producing as much as 40% of the country's coca, the valley of the Apurimac and Ene rivers, known as the VRAE region, is now Peru's largest coca cultivating region. Because of security concerns there, however, Peru's eradication agency does not conduct operations there. According to the State Department, 93% of the coca grown in Peru is illegal and intended for cocaine production. The rest is for traditional domestic consumption. The State Department also reports that Peru is a major importer of precursor chemicals that are used to produce cocaine. The cultivation of coca and production of cocaine have contributed to social problems in Peru. Coca eradication is highly controversial in Peru, with coca farmers violently resisting it. Some coca farmers have become allied with remnants of the Shining Path, or Sendero Luminoso, terrorist organization. Now closely linked with narcotics trafficking, the Shining Path conducted 87 terrorist acts in 2012, killing 1 civilian, 13 members of the military, and 5 police officers. A faction of the Shining Path operates in the VRAE, with several hundred armed members. Drug addiction has become a serious problem, with an insufficient number of treatment and rehabilitation centers. The State Department estimated there were 150, 000 addicts across the country in 2011, but reported "32,000 to 45,000 cocaine addicts and an even larger number of marijuana addicts" in its 2013 report. Illicit coca cultivation and production has damaged the environment, contributing to the deforestation of 2.5 million hectares over 30 years, and the pollution of forests and streams from 118 million liters of precursor chemicals dumped in them over a period of 5 years. U.S. counternarcotics programs in Peru focus on three areas: eradication, interdiction, and alternative development. The Obama Administration's request for FY2014 includes $26 million in International Narcotics Control and Law Enforcement (INCLE) funds, an increase of $3 million from the FY2013 request. According to the 2011 INCSR, from 2009 to 2010 alternative development programs led to a 24% increase in the legal incomes of participating families, and to a 25% decrease in their level of poverty. The 2013 INCSR reports that USAID programs supported over 19,000 families with the cultivation of alternative crops in 2012. When he took office, President Humala said he was reevaluating Peru's counternarcotics policy, and also that he saw the United States as a "strategic partner" in combating illegal drug production and trafficking. The United States has required total eradication of coca before a farmer can enter into alternative development programs in Peru; critics say farmers should be allowed to make a gradual transition to alternative crops so that they maintain a source of income. When the Humala administration stopped eradication shortly after assuming office, many observers thought it indicated a major shift in policy, especially considering that Humala had support from coca growers in his campaign. But the Humala administration quickly resumed eradication in August 2011, and soon removed the officials he had initially placed in charge of counter-narcotics policy, some said out of concern their policies might antagonize the United States. In March 2012 Peru adopted a new five-year (2012-2016) counternarcotics strategy, and according to the 2013 INCSR, "dedicated substantial resources to implement it." The new plan calls for a 200% increase in coca eradication by the end of the five years. President Humala declared a 60-day state of emergency in several coca-producing areas with a Shining Path presence in September 2011. These areas were also the site of protests by coca farmers opposed to the government's forced eradication of their crops. Days after the state of emergency was declared, the defense minister announced that the military was going to "take total control of the VRAE." According to the government, the military intervention to re-take control of the region was to be coupled with the development of infrastructure such as roads, communications, schools, and hospitals by army engineers. Nonetheless, the imposition of full military control of the area for the first time since the administration of former President Alberto Fujimori, now imprisoned for human rights violations and other crimes, raises concerns for many over human rights and development issues. Protests over eradication have continued, and the VRAE continues to be an emergency zone. Securing the VRAE is complicated by the presence there of remnants of the Shining Path (Sendero Luminoso) insurgency movement, who reportedly operate alongside local drug traffickers. A Shining Path faction killed two police agents and injured two others in October 2012. In response, the Humala administration said it planned to monitor the Shining Path via satellite, and was in discussions with U.S. officials to allow helicopters provided by the United States for counter-narcotics operations to be used for counterinsurgency operations as well. The State Department says a primary focus of U.S. support is to enhance the ability of Peruvian security forces to counter the Shining Path's narcotics and terrorist activities in the VRAEM and to increase the government's presence there. Trade and Environment The United States is one of Peru's top trading partners. U.S. goods exports to Peru in 2012 totaled $9.4 billion, a 12% increase over 2011. Peru exports to the United States decreased almost 3% over the same period, to $6.4 billion. Peru is the 32 nd - largest export market for U.S. goods. Peru's other top trading partners are China and Switzerland. Both the executive branch and Congress have promoted trade with Peru, and protection of its environment, often linking the two. The U.S.-Peru Trade Promotion Agreement (PTPA) went into effect February 1, 2009. Congress passed environmental amendments to the PTPA that commit Peru (and the United States) to enforce its domestic environmental laws, and adopt new laws to fulfill obligations under multilateral environmental agreements. Other amendments to the PTPA call for the two countries to take steps to enhance forest sector governance and promote legal trade in timber products. On April 17, 2012, a conservation non-profit organization invoked those amendments in petitioning the U.S. Trade Representative to investigate and verify the legal origin of wood shipments from Peru. An Environmental Investigation Agency (EIA) report indicated that millions of dollars' worth of illegal wood from the Peruvian Amazon were exported to the United States between 2008 and 2010. If the U.S. government finds evidence of illegality, it can take actions, including prohibiting the companies involved from exporting to the United States until Peru produces evidence that each company is complying with the law and regulations. EIA noted that Peruvian agencies are exercising greater oversight over the industry; to conduct its analysis, the group used data from a government agency it said was reformed and strengthened under provisions of the PTPA. As mentioned above, Congress stipulated in the FY2012 appropriations law that both Development Assistance and Economic Support Funds shall be made available for Peru for labor and environmental capacity building activities relating to free trade agreements with the United States. In its Joint Explanatory Statement, Congress said that $10 million should be made available for biodiversity conservation programs in the Andean Amazon region. In 2009 the United States announced it would be entering into an Asia-Pacific trade agreement known as the Trans-Pacific Partnership (TPP). Peru is one of the negotiating partners. According to the USTR, the TPP will be "a means to advance U.S. economic interests with the fastest-growing economies in the world, and a tool to expand U.S. exports." Critics assert that any economic benefits deriving from the agreement "will be relatively small and the regulatory costs could be significantly high—especially for the emerging market and developing countries engaged in the negotiations." The 17 th round of TPP negotiations were held in Lima, ending on May 24, 2013. Outstanding issues still being negotiated include services, government procurement, sanitary and phytosanitary standards, trade remedies, labor, and dispute settlements. The countries also discussed how to integrate Japan into the next round of the negotiations in July. Peru and the United States signed a debt-for-nature swap in 2008 that reduces Peru's debt to the United States by more than $25 million over seven years, until 2015. In exchange, Peru agreed to use those funds to support grants to protect its tropical forests. Peru and the United States held the fourth meetings of joint environmental commissions to review progress on implementation of the TPA environmental provisions, and of environmental cooperation activities under the U.S.-Peru Environmental Cooperation Agreement. The two countries reportedly made progress toward establishing an independent secretariat to consider enforcement matters as called for in the TPA, and said they would sign an agreement on the secretariat soon.

This report provides an overview of Peru's government and economy and a discussion of issues in relations between the United States and Peru. Peru and the United States have a strong and cooperative relationship. Several issues in U.S.-Peru relations are likely to be considered in decisions by Congress and the Administration on future aid to and cooperation with Peru. The United States supports the strengthening of Peru's democratic institutions, its respect for human rights, environmental protection, and counternarcotics efforts. A dominant theme in bilateral relations is the effort to stem the flow of illegal drugs, mostly cocaine, between the two countries. In the economic realm, the United States supports bilateral trade relations and Peru's further integration into the world economy. The United States is Peru's top trading partner. The U.S.-Peru Trade Promotion Agreement (PTPA) went into effect in February 2009. The Obama Administration requested $73 million in foreign assistance for Peru for FY2014 to advance these objectives. Ollanta Humala, of the left-wing Gana Peru, was sworn in as Peru's president in July 2011 for a five-year term. Gana Peru initially won 47 seats out of the 130 seats in the unicameral Congress, requiring Humala to rely on political alliances with lesser parties in order to pass legislation. As Humala has moderated his stance, he has lost left-leaning allies within his and other parties. Deep social divides over how to pursue development continue to undercut political stability. The more radical elements of Humala's original support base and his party urge the pursuit of more leftist policies, such as nationalization of strategic industries, which Humala called for during the election campaign. Forces that resist more radical policies include a strong business sector; a conservative, wealthy elite; a centrist middle class; and a divided Congress. Social unrest, especially over exploitation of natural resources, remains a challenge for the Humala government. It has established an office of conflict prevention and taken other actions to reduce social conflict. Since 2001 Peru's economy has been stronger than all others in the region, with its growth due mostly to the export of natural resources. High economic growth, along with social programs, has helped to lower Peru's overall poverty rates. Nonetheless, in some jungle, mountain, and rural areas of the country, over 60% of the population continue to live in poverty. The income distribution gap remains quite large as well. This economic disparity has contributed to rising social unrest. President Humala submitted, and the legislature approved, a bill increasing royalties mining companies must pay. The government estimates the royalties will generate about US$1 billion a year, which it will use to finance social development programs intended to narrow both the social divide and the economic distribution gap.

Introduction Biochar—a charcoal produced under high temperatures using crop residues, animal manure, or other organic material—has the potential to offer multiple environmental benefits. Some contend that biochar can meet pressing environmental demands by sequestering large amounts of carbon in soil. It is of interest to those seeking to sell or purchase carbon offsets, increase soil conservation efforts, improve crop yield, and produce renewable energy. However, little is known about how biochar production systems could successfully be implemented and what the effect would be on long-term operations in the U.S. agriculture and forestry sectors. Some contend that it will be a considerable amount of time before this technology reaches its full potential. Studies underway at federal government research institutions and in academia are focused on ensuring that biochar production systems are a practical and reliable technology for producers to adopt. Biochar Biochar is a soil supplement that sequesters carbon in the soil and thus may help to mitigate global climate change. It has the potential to curtail greenhouse gas emissions and other environmental hazards in the near term and to benefit agricultural producers as a soil amendment and source of renewable energy. Thus far, biochar use in the United States has been confined to small-scale applications reflective of the limited but growing number of researchers in this area over the last few years. Biochar is similar in appearance to potting soil or to a charred substance, depending on the feedstock ( Figure 1 ). Modern biochar production is based on an ancient Amazon technique for creating a nutrient-rich soil, terra preta . As a charcoal containing high levels of organic matter, biochar is formed from plant and crop residues or animal manure under pyrolysis conditions. Pyrolysis is the chemical breakdown of a substance under extremely high temperatures in the absence of oxygen. The quantity and quality of biochar production depends on the feedstock, pyrolysis temperature, and pyrolysis processing time. A "fast" pyrolysis (~500°C) produces biochar in a matter of seconds, while a "slow" pyrolysis produces considerably more biochar but in a matter of hours. Biochar production via pyrolysis is considered a carbon-negative process because the biochar sequesters carbon while simultaneously enhancing the fertility of the soil on which the feedstock used to produce the bioenergy grows ( Figure 2 ). The biochar production system is operated using energy produced by the system. The three main outputs of a biochar production system are syngas, bio-oil, and biochar ( Figure 3 ). Potential Advantages Whether used as a soil amendment or burned as an energy source (e.g., for cooking and heating), biochar provides numerous potential environmental benefits, some of which are not quantifiable. The three primary potential benefits are carbon sequestration, greenhouse gas emission reduction, and soil fertility. Carbon Sequestration Carbon sequestration is the capture and storage of carbon to prevent it from being released to the atmosphere. Studies suggest that biochar sequesters approximately 50% of the carbon available within the biomass feedstock being pyrolyzed, depending upon the feedstock type. The remaining carbon is released during pyrolysis and may be captured for energy production. Large amounts of carbon may be sequestered in the soil for long time periods (hundreds to thousands of years at an estimate), but precise estimates of carbon amounts sequestered as a result of biochar application are scarce. One scientist suggests that a 250-hectare farm could sequester 1,900 tons of CO 2 a year. Greenhouse Gas Emission Reduction Primary greenhouse gases associated with the agriculture sector are nitrous oxide (N 2 O) and methane (CH 4 ). Cropland soils and grazing lands are an agricultural source of nitrous oxide emissions. Livestock manure management and enteric fermentation are leading agricultural sources of methane emissions. When applied to the soil, biochar can lower greenhouse gas emissions by substantially reducing the release of nitrous oxide. One report showed a 40% reduction in emissions of this greenhouse gas, which is approximately 310 times stronger than carbon dioxide in terms of global warming potential. Laboratory studies suggest that nitrous oxide emission reductions from biochar-treated soil are dependent on soil moisture and soil aeration. Greenhouse gas emission reductions may be 12%-84% greater if biochar is land-applied instead of combusted for energy purposes. Soil Fertility Biochar retains nutrients for plant uptake and soil fertility. The infiltration of harmful quantities of nutrients and pesticides into groundwater and soil erosion runoff into surface waters can be limited with the use of biochar. If used for soil fertility, biochar may have a positive impact on those in developing countries. Impoverished tropical and subtropical locales with abundant plant material feedstock, inexpensive cooking fuel needs, and agricultural soil replenishment needs could see an increase in crop yields. Potential Disadvantages Recognizing that biochar technology is in its early stages of development, there are many concerns about the applicability of the technology in the United States. Three issues are feedstock availability, biochar handling, and biochar system deployment. Successful implementation of biochar technology depends on the ability of the agricultural community to afford and operate a system that is complementary to current farming and forestry practices. Feedstock Availability The availability of a plentiful feed supply for biochar production is an area for further study. To date, feedstock for biochar has consisted mostly of plant and crop residues, a primary domain of the agricultural community. There may be a role for the forestry community to be involved, as woody biomass is deemed a cost-effective, readily available, feasible feedstock. Little is known about the advantages of using manure as a biomass feedstock. According to a group of researchers in Australia, manure-based biochar "has advantages over typically used plant-derived material because it is a by-product of another industry and in some regions is considered a waste material with little or no value. It can therefore provide a lower cost base and alleviate sustainability concerns related to using purpose-grown biomass for the process." Biochar Handling The spreading of biochar as a soil amendment is ripe for further exploration. Specific questions concern the ideal time to apply biochar and how to ensure that it remains in place once applied and does not cause a risk to human health or degrade air quality. Particulate matter, in the form of dust that is hard for the human body to filter, may be distributed in abnormal quantities if the biochar is mishandled. There are potential public safety concerns for the handling of biochar, as it is a flammable substance. Additionally, the amount of land available for biochar application requires further investigation. Biochar System Deployment Biochar systems are designed based on the feedstock to be decomposed and the energy needs of an operation. It would be ambitious to expect a "one size fits all" standard biochar system. According to proponents, a series of mass-produced biochar systems designed for the needs of a segment of the agriculture or forestry communities might prove to be feasible (e.g., forestry community in the southeastern region, corn grower community in the midwestern region, poultry producer community in the mid-Atlantic region). Extensive deployment of biochar systems would depend on system costs, operation time, collaboration with utility providers for the sale of bio-oil, and availability of information about technology reliability. Policy Context Climate Change Debate Carbon offsets were a prominent factor in the climate change debate in the 111 th Congress. A carbon offset is defined as "a measurable avoidance, reduction, or sequestration of carbon dioxide (CO2) or other greenhouse gas (GHG) emissions." Carbon sequestration projects are one type of carbon offset. In addition to direct carbon capture and sequestration activities, Congress may consider the role of biological (indirect) sequestration—such as biochar production technology—that can be implemented by agricultural producers at the field level. The establishment of an offset program, identification of eligible project types, carbon offset ownership, and offset verification may be pertinent to the adoption of biochar production technology. Congress may examine the use of biochar as an indirect carbon sequestration technology that could be used to offset carbon emissions from major emitters. In 2008, 6% of total U.S. greenhouse gas emissions were attributed to the agricultural sector. While not as large as the amounts produced by some other sectors, agricultural emissions come from a large number of decentralized sources, leading many to conclude that controlling such emissions would be difficult. On the other hand, some argue that soil carbon sequestered as a result of biochar application is easily quantifiable and transparent, which may be ideal for carbon trading requirements. Others contend that ancillary benefits could include additional revenue earned by agricultural producers through the sale of carbon credits earned from biochar application or the sale of biochar as a soil amendment. Energy costs for a producer's operation may be reduced by using the energy generated from the biochar production system. Additionally, some assert that the use of biochar results in higher crop yields. This could be a criterion to consider within the larger land use debate. Legislation Introduced During the 111th Congress The Water Efficiency via Carbon Harvesting and Restoration (WECHAR) Act of 2009, introduced during the 111 th Congress, sought, among other things, to establish loan guarantee programs that would develop biochar technology to use excess plant biomass and establish biochar demonstration projects on public lands. The legislation was primarily focused on woody biomass as the feedstock. Some asserted that the legislation addressed research and development needs for biochar production. Others argued that the legislation lacked specific actions regarding technology transfer or commercial development of biochar production systems. The discussion draft of the American Power Act offered during the 111 th Congress contained three provisions relevant to biochar. The first provision identified projects for biochar production and use as an eligible project type under the domestic offsets program. The second provision instructed the U.S. Environmental Protection Agency (EPA) to submit to Congress a report on the sources and effects of black carbon emissions, and strategies to reduce black carbon emissions, including "research and development activities needed to better characterize the feasibility of biochar techniques to decrease emissions, increase carbon soil sequestration, and improve agricultural production, and if appropriate, encourage broader application of those techniques." The third provision directed the Secretary of Agriculture to provide grants for up to 60 facilities to "conduct research, develop, demonstrate and deploy biochar production technology for the purpose of sequestering carbon." Farm Bill The 110 th Congress promoted biochar development through the 2008 farm bill ( P.L. 110-246 ), which listed it under grants for High Priority Research and Extension Areas. Noted research areas include biochar production and use, co-production with bioenergy, soil enhancements, and soil carbon sequestration. Listing biochar development as a high-priority research area in the 2008 farm bill did not authorize a specific appropriations amount. Funding for biochar development research would be determined in future appropriation bills and by the U.S. Department of Agriculture. Farm managers facing needs with respect to soil fertility, residue and manure management, energy efficiency, and additional revenue generation may benefit from a policy that further supports biochar production and use (e.g., technology practice standard, cost-share). Long-Term Prospects Biochar's fate as a viable component of the long-term solution to mitigate climate change by way of carbon sequestration depends upon further development by the scientific and technology transfer communities. In particular, biochar's practical application at various locations and scales using multiple feedstocks throughout the United States is an area for additional study. Policy that encourages academia and other institutions to conduct in-depth research and development could quicken the pace of technology deployment. One study hypothesizes that a U.S. research program (technical demonstrations and a coordinated national field trial program), funded at $100 million-$150 million for eight years, could support the research, development, and deployment of commercial-scale biochar production and use. An assessment of external factors (e.g., feedstock transportation costs and disposal fees) associated with the economic growth of biochar production systems, similar to studies conducted for the biofuels industry, could provide guidance on the types of federal financial and technical incentives necessary to spur development (e.g., regulatory requirements, technical standards). The definition of biomass used in climate change and energy legislation will directly affect the eventual impact of biochar in limiting GHG emissions. Indeed, the biomass definition would determine what sources of material are deemed acceptable and which lands would be eligible lands for biomass removal. U.S. Department of Agriculture Activities According to a U.S. Department of Agriculture (USDA) Agricultural Research Service (ARS) official, an estimated $2.6 million was spent in 2010 on in-house biochar research by ARS. ARS has multiple projects underway to ascertain biochar's value as a soil amendment given varying soil, climate, and cropping system conditions. Additionally, ARS is examining feedstock types and pyrolysis conditions for biochar production. ARS estimates that the United States could use biochar to sequester 139 Tg of carbon on an annual basis if it were to harvest and pyrolyze 1.3 billion tons of biomass.

Biochar is a charcoal produced under high temperatures using crop residues, animal manure, or any type of organic waste material. Depending on the feedstock, biochar may look similar to potting soil or to a charred substance. The combined production and use of biochar is considered a carbon-negative process, meaning that it removes carbon from the atmosphere. Biochar has multiple potential environmental benefits, foremost the potential to sequester carbon in the soil for hundreds to thousands of years at an estimate. Studies suggest that crop yields can increase as a result of applying biochar as a soil amendment. Some contend that biochar has value as an immediate climate change mitigation strategy. Scientific experiments suggest that greenhouse gas emissions are reduced significantly with biochar application to crop fields. Obstacles that may stall rapid adoption of biochar production systems include technology costs, system operation and maintenance, feedstock availability, and biochar handling. Biochar research and development is in its infancy. Nevertheless, interest in biochar as a multifaceted solution to agricultural and natural resource issues is growing at a rapid pace both nationally and internationally. Past Congresses have proposed numerous climate change bills, many of which do not directly address mitigation and adaptation technologies at developmental stages, such as biochar. However, biochar may equip agricultural and forestry producers with numerous revenue-generating products: carbon offsets, soil amendments, and energy. This report briefly describes biochar, some of its potential advantages and disadvantages, legislative support, and research and development activities underway in the United States.

Federal Employees According to the Bureau of Labor Statistics, 26.8% of all federal employees are members of a union. A slightly higher percentage of state employees—31.1%—are union members. While all of these employees engage in some form of collective bargaining through their unions, the scope of such bargaining is generally different for federal and state and local workers. In addition, because the collective bargaining rights of state and local employees are defined by state law, other variations in bargaining may exist among these workers. Subjects that are negotiable in one state, for example, may not be negotiable in another state. Federal employees first obtained the right to engage in collective bargaining in 1962. Under Executive Order 10988, federal employees were permitted to "form, join and assist any employee organization or to refrain from such activity." Once recognized as the exclusive representative of employees in an appropriate bargaining unit, an employee organization could negotiate an agreement that would cover all employees in that unit. Executive Order 11491, issued by President Nixon in 1969, further developed the framework for federal labor-management relations by establishing the Federal Labor Relations Council, a predecessor to the Federal Labor Relations Authority (FLRA), and the Federal Service Impasses Panel. Executive Order 11491 also identified unfair labor practices that were prohibited for management and labor organizations. In 1978, the right to engage in collective bargaining became recognized in statute. Title VII of the Civil Service Reform Act of 1978, commonly referred to as the "Federal Service Labor-Management Relations Statute" (FSLMRS), codified many of the concepts included in Executive Order 11491. In addition to providing for the right to engage in collective bargaining, the FSLMRS also established the FLRA, which, among other duties, supervises union elections and resolves unfair labor practice complaints. The FSLMRS states that "[e]ach employee shall have the right to form, join, or assist any labor organization, or to refrain from any such activity, freely and without fear of penalty or reprisal, and each employee shall be protected in the exercise of such right." The right recognized by the FSLMRS includes the ability "to engage in collective bargaining with respect to conditions of employment through representatives chosen by employees." The FSLMRS further defines the phrase "conditions of employment" to include personnel policies, practices, and matters that affect working conditions. The term does not include, however, policies, practices, and matters "to the extent such matters are specifically provided for by Federal statute." Thus, to the extent federal law provides for pay, health coverage, retirement benefits, and other items, such subjects are not negotiable. In addition, the FSLMRS identifies management rights that are generally not negotiable, except with regard to the procedures that will be used to implement an agency's proposals. Section 7106(a) of Title 5, U.S. Code, states, in relevant part: [N]othing in this chapter shall affect the authority of any management official of any agency – (1) to determine the mission, budget, organization, number of employees, and internal security practices of the agency; and (2) in accordance with applicable laws – (A) to hire, assign, direct, layoff, and retain employees in the agency, or to suspend, remove, reduce in grade or pay, or take other disciplinary action against such employees; (B) to assign work, to make determinations with respect to contracting out, and to determine the personnel by which agency operations shall be conducted; (C) with respect to filling positions, to make selections for appointments from – (i) among properly ranked and certified candidates for promotion; or (ii) any other appropriate source; and (D) to take whatever actions may be necessary to carry out the agency mission during emergencies. Courts have noted that Section 7106 ensures that the collective bargaining system established by the FSLMRS does not "undermine the effectiveness of government through unwarranted intrusion on management prerogatives." At the same time, however, the FSLMRS and Section 7106 "establish a balance between the nonnegotiable substantive rights of management and the negotiable procedures to be followed when management exercises its substantive rights." State and Local Employees Legislation authorizing collective bargaining for state and local government employees was first adopted during the 1950s. In 1959, Wisconsin became the first state to enact legislation granting organizational, representation, and bargaining rights to municipal employees. By the end of 1967, legislation authorizing some form of collective bargaining for state and/or local employees had been adopted in 21 states. State laws governing collective bargaining for state and local workers are generally not identical. Rather, they exist on a continuum, with some prohibiting bargaining altogether and others providing comprehensive collective bargaining rights for various employees. In two states, North Carolina and Virginia, the execution of a collective bargaining agreement is prohibited. Under North Carolina law, any agreement between a public employer and a labor organization acting as a bargaining agent for public employees is "declared to be against public policy of the State, illegal, unlawful, void and of no effect." Under Virginia law, a public employer is prohibited from recognizing any labor organization as a bargaining agent of any public employees and may not "collectively bargain or enter into any collective bargaining contract" with such an organization. In at least 31 states, public employees appear to have the right to engage in some form of collective bargaining. In general, this right includes the ability to negotiate wages, hours, and other conditions of employment. In at least five states, however, the negotiation of retirement or health benefits appears to be limited by state law. In Hawaii, for example, "[e]xcluded from the subjects of negotiations are ... benefits of but not contributions to the Hawaii employer-union health benefits trust fund ... and retirement benefits except as provided in [the optional retirement system of the University of Hawaii]." Similarly, under Iowa law, all "retirement systems" are excluded from the scope of negotiations. Apart from the 31 aforementioned states, 11 additional states seem to provide a right to engage in collective bargaining, but limit that right to only certain specified employees. In Wyoming, for example, only firefighters appear to have the right to engage in collective bargaining: "The firefighters in any city, town or county shall have the right to bargain collectively with their respective cities, towns or counties and to be represented by a bargaining agent in such collective bargaining as to wages, rates of pay, working conditions and all other terms and conditions of employment." Recent Collective Bargaining Legislation On March 11, 2011, Wisconsin Governor Scott Walker signed Senate Bill/Assembly Bill 11, the so-called "Budget Repair Bill." The Budget Repair Bill amends the state's Municipal Employment Relations Act and State Employment Relations Act to permit only the negotiation of total base wages for general municipal and state employees. With the measure's enactment, only public safety employees will be permitted to negotiate over wages, hours, and working conditions. While the enactment of the Budget Repair Bill received widespread attention, similar measures have also been introduced and approved by other state legislatures. In Michigan, for example, the Local Government and School District Fiscal Accountability Act ("Fiscal Accountability Act") was adopted on March 16, 2011. Under the Fiscal Accountability Act, the governor may appoint an emergency manager if he determines that a local government financial emergency exists. The emergency manager would have broad powers to rectify the financial emergency, including the ability to reject, modify, or terminate one or more terms and conditions of an existing collective bargaining agreement. Section 19(1)(k) of the Fiscal Accountability Act states, in relevant part, An emergency manager may take 1 or more of the following additional actions with respect to a local government which is in receivership, notwithstanding any charter provision to the contrary: ... After meeting and conferring with the appropriate bargaining representative and, if in the emergency manager's sole discretion and judgment, a prompt and satisfactory resolution is unlikely to be obtained, reject, modify, or terminate 1 or more terms and conditions of an existing collective bargaining agreement. If the emergency manager were to reject, modify, or terminate one or more terms and conditions of an existing agreement, constitutional concerns would likely be raised under the Contract Clause of the U.S. Constitution. The Contract Clause states, "No State shall ... pass any ... Law impairing the Obligation of Contracts." The U.S. Supreme Court has maintained that the Contract Clause "limits the power of the States to modify their own contracts as well as to regulate those between private parties." At the same time, however, the Court has indicated that the Contract Clause "does not prohibit the States from repealing or amending statutes generally, or from enacting legislation with retroactive effects." The Supreme Court has identified three factors that must be considered to determine whether a state law violates the Contract Clause. The threshold inquiry is whether the state law has substantially impaired the contractual relationship. While what constitutes a "substantial" contract impairment is not entirely certain, it appears that an impairment is substantial if "the right abridged was one that induced the parties to contract in the first place ... or ... was one on which there had been reasonable and especial reliance." The Court has indicated that it is not necessary to have a "total destruction" of contractual expectations to find a substantial impairment. If it is determined that a state law constitutes a substantial impairment, a reviewing court will likely next consider whether the state has a significant and legitimate public purpose for the law. In Energy Reserves Group v. Kansas Power and Light Co ., a 1983 case involving the Contract Clause and the Kansas Natural Gas Price Protection Act, the Court observed that "remedying ... a broad and general social or economic problem" can be a significant and legitimate public purpose. The Court in Energy Reserves Group also indicated that the public purpose does not have to be associated with an emergency or temporary situation. In U.S. Trust Company of New York v. New Jersey , a 1977 case involving a New Jersey statute that repealed a statutory bond covenant that limited the ability of the Port Authority of New York and New Jersey to subsidize rail passenger transportation, the Court found mass transportation, energy conservation, and environmental protection to be goals "that are important and of legitimate public concern." The final factor that would be considered as part of a Contract Clause analysis, as established by the Court, is whether the state law is reasonable and necessary to serve the public purpose. To determine whether a state law is "reasonable," a reviewing court will likely consider the circumstances surrounding the law. If circumstances have changed significantly since a contract was first executed, a court is probably more likely to find the state law to be reasonable. In U.S. Trus t , the Court concluded that the New Jersey law was not reasonable in light of the surrounding circumstances. The Court maintained that the bond covenant was adopted with full knowledge of the concerns that would later lead to the enactment of the state law. The Court observed, [T]hese concerns were not unknown in 1962, and the subsequent changes were of degree and not of kind. We cannot say that these changes caused the covenant to have a substantially different impact in 1974 than when it was adopted in 1962. And we cannot conclude that the repeal was reasonable in the light of changed circumstances. With regard to whether a state law is "necessary," the Court in U.S. Trust explained that a determination should be based on two considerations. First, whether a less drastic modification of a contract could accomplish the state's purpose. And, second, whether a state could achieve its goal by adopting alternative means, without contract modification. It is not entirely clear whether the Fiscal Accountability Act or a similar measure would satisfy all of the factors identified by the Court. The Fiscal Accountability Act does appear, however, to have been drafted with the factors in mind. Section 19(1)(k) of the Michigan law states, in relevant part, The rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement under this subdivision is a legitimate exercise of the state's sovereign powers if the emergency manager and state treasurer determine that all of the following conditions are satisfied: (i) The financial emergency in the local government has created a circumstance in which it is reasonable and necessary for the state to intercede to serve a legitimate public purpose. (ii) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is reasonable and necessary to deal with a broad, generalized economic problem. (iii) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is directly related to and designed to address the financial emergency for the benefit of the public as a whole. (iv) Any plan involving the rejection, modification, or termination of 1 or more terms and conditions of an existing collective bargaining agreement is temporary and does not target specific classes of employees. At the outset, it seems possible that a rejection, modification, or termination of at least some of the provisions of an existing collective bargaining agreement would be viewed as a substantial impairment. In Baltimore Teachers Union v. Mayor and City Council of Baltimore , a 1993 case involving a salary reduction plan that was implemented in response to budget shortfalls in Baltimore City, the U.S. Court of Appeals for the Fourth Circuit observed, "In the employment context, there likely is no right both more central to the contract's inducement and on the existence of which the parties more especially rely, than the right to compensation at the contractually specified level." Ultimately, whether the Fiscal Accountability Act survives a possible challenge under the Contract Clause may not be known until an emergency manager identifies the terms and conditions to be rejected, modified, or terminated, and it becomes clear that no alternatives were available to accomplish the state's purpose. As states continue to explore legislative solutions to resolve their budget issues, the Contract Clause may act to forestall measures that repudiate a state's contractual obligations. Indeed, the facts involved with a particular law, such as the nature of a state's fiscal crisis and the existence of alternative solutions, will most likely inform whether there is a violation of the Contract Clause. The Supreme Court's willingness, however, to find remedying a broad and general economic problem as constituting a significant and legitimate public purpose may suggest to states facing economic hardship that a carefully considered state law could survive constitutional challenge.

Faced with distressed state budgets and lower revenue, many governors and state legislatures have focused on the collective bargaining rights of public employees as a way to control expenses. Legislation that would limit such rights has reportedly been introduced in at least 22 states. In general, the sponsors of such legislation contend that unionized state and local employees enjoy unsustainable salaries and benefits as a result of collective bargaining. According to the Bureau of Labor Statistics, 26.8% of all federal employees are members of a union. A slightly higher percentage of state employees—31.1%—are union members. At the local government level, 42.3% of employees are union members. Although all of these employees engage in some form of collective bargaining through their unions, the scope of such bargaining is generally different for federal and state and local workers. In addition, because the collective bargaining rights of state and local employees are defined by state law, other variations in bargaining may exist among these workers. Subjects that are negotiable in one state, for example, may not be negotiable in another state. This report examines the collective bargaining rights of federal, state, and local workers. The report also discusses the constitutional concerns that may be raised by state legislation that attempts to invalidate existing collective bargaining agreements. In Michigan, the Local Government and School District Fiscal Accountability Act ("Fiscal Accountability Act") was adopted on March 16, 2011. Under the Fiscal Accountability Act, the governor may appoint an emergency manager if he determines that a local government financial emergency exists. The emergency manager would have broad powers to rectify the financial emergency, including the ability to reject, modify, or terminate one or more terms and conditions of an existing collective bargaining agreement. If the emergency manager were to reject, modify, or terminate one or more terms and conditions of an existing agreement, constitutional concerns would likely be raised under the Contract Clause of the U.S. Constitution, which prohibits a state from passing any law "impairing the Obligation of Contracts."

Introduction As the debate on reducing greenhouse gases (GHGs) has progressed, increasing concern has been raised about how a U.S. reduction program would interact with programs in other countries. In a global context where currently some countries have legally binding policies to reduce greenhouse gas emission and other countries do not—i.e., differentiated global carbon policies—the potential exists that countries imposing carbon control policies will find themselves at a competitive disadvantage vis-à-vis countries without comparable policies. The risks accompanying establishment of carbon control policies, in the absence of similar policies among competing nations, have been central to debates on whether the United States should enact greenhouse gas legislation. Specifically, concerns have been raised that if the United States adopts a carbon control policy, industries that must control their emissions or that find their feedstock or energy bills rising because of costs passed-through by suppliers may be less competitive and may lose global market share (and jobs) to competitors in countries lacking comparable carbon policies. In addition, this potential shift in production could result in some of the U.S. carbon reductions being diluted by increased production in more carbon intensive countries (commonly known as "carbon leakage"). In response to these concerns, several proposals introduced in Congress would attempt to mitigate the effect of carbon policies on affected U.S. industry. Proposed mitigating actions include, for example, providing assistance to greenhouse gas-intensive, trade-exposed industries, or imposing tariffs on certain greenhouse gas-intensive goods imported into the country from countries not implementing comparable carbon policies. This report examines the dynamics of this issue in three parts: (1) exploration of the nature of the problem with respect to international climate change policy, potential environmental effects, and potential economic effects; (2) identification of a range of possible options to address concerns; (3) analysis of issues raised by the proposed mitigating approaches and options; and (4) implications of the various approaches. Nature of the Problem There are three components of the problem of differentiated global carbon policies with respect to trade: (1) the lack of an international agreement with binding targets to reduce greenhouse gases; (2) the issue of carbon leakage; and (3) economic and competitive effects. Each of these is discussed below. Lack of Global Agreement to Regulate Greenhouse Gases For those policymakers who argue that human activities have changed or threatened to change the global climate, the policy debate on a U.S. climate change strategy has revolved about three major considerations: the posited reduction scheme's cost of compliance, its impact on the country's competitiveness , and its comprehensiveness with respect to developing countries who currently have no binding reduction targets. These three considerations (the "three Cs") are interlinked, especially the international aspects of competitiveness and comprehensiveness. That no international agreement addresses the international competitiveness and comprehensiveness issues has led to a major debate in the Congress about whether to include unilateral trade provisions, targeted subsidies, or other provisions in any domestic greenhouse gas reduction scheme to address them. It should be emphasized that this debate results from the lack of a comprehensive, international agreement to mandate strategies to reduce greenhouse gas emissions. The most effective and efficient solution, both economically and environmentally, would be a comprehensive agreement. Climate change is a global problem ultimately requiring a global solution. Any unilateral solution considered necessary would probably be temporary and transitional in nature. As stated by the Australian Government in its green paper on reducing carbon emissions: The first best solution to address the competitive concerns of EITE [emissions-intensive trade-exposed] industries would be to develop a comprehensive global agreement under which all major emitters have binding carbon constraints. Effective sectoral agreements for EITE industries would also address these concerns for industries covered by such agreements. However, in the absence of these developments, assisting EITE industries in response to the introduction of the scheme may be warranted on environmental grounds and because it may smooth the transition of the economy. However, it is not clear when such an agreement will be concluded and whether it would be acceptable to the United States. International working groups set up under the Bali "Action Plan" to develop a "Post-Kyoto" agreement are scheduled to present their results at the Copenhagen meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) (COP-15) and the Meeting of the Parties to the Kyoto Protocol scheduled for November 30 -December 11, 2009. A successful conclusion to these ongoing efforts leading up to that conference could render this issue moot. Environmental Issue: Carbon Leakage Although carbon leakage is generally defined in terms of differentiated carbon policies and their resulting impacts on greenhouse gas emissions, the phenomenon is much more complicated, involving differences in countries' economies (such as labor costs and exchanges rates) and trade flows among them. Thus carbon leakage, like the job leakage issues discussed later, is an interaction that will continue regardless of whether carbon policies are enacted. The focus here is on minimizing carbon leakage resulting specifically from differentiated carbon policies. In the context of analyzing the effect of differentiated carbon policies, carbon leakage is a two-fold problem. The first is the possibility that introduction of a carbon control regime in a country ahead of the introduction of a comparable policy in competing countries could result in the production of greenhouse gas-intensive products diminishing in the country attempting to control emissions and increasing in competing countries with no carbon controls. Basically, countries with carbon controls risk losing global market share to competing countries without controls. This would counteract the net reductions achieved by the country attempting to address climate change and reward economically the countries that were not. The second problem is a longer-term possibility that future investments by greenhouse gas-intensive industries could be channeled to countries with no (or less stringent) carbon controls, circumventing carbon reduction needs and potentially locking in obsolete technology. This relocation and construction of new facilities without carbon control could make future reductions more difficult and expensive. Studies of potential carbon leakage resulting from strategies to reduce greenhouse gases have produced a range of estimates. The only attempt to estimate the leakage impact of proposed U.S. legislation is the Environmental Protection Agency's (EPA) analysis of the Lieberman-Warner Climate Security Act of 2008 ( S. 2191 ) in the 110 th Congress. Not surprisingly, a leakage estimate for the year 2050 is highly dependent on assumptions about the U.S. economy, international actions to reduce emissions, and U.S. reduction strategies. EPA found that if non-Annex I countries were to adopt a greenhouse gas reduction target beginning in 2025 that holds their emissions at 2015 levels through 2034 and then further reduce their emissions to 2000 levels thereafter, then no emission leakage would occur under the proposed legislation. This result emphasizes the above point that the most effective solution to the leakage problem would be a long-term agreement to incorporate developing countries into an international accord on greenhouse gas emissions. EPA also conducted a sensitivity analysis assuming no greenhouse gas reductions by non-Annex 1 countries through 2050. Under this scenario, leakage of U.S. reductions were estimated at about 11% in 2030, and 8%-9% in 2050. EPA notes that part of the reason for the somewhat modest leakage rates estimated by the model is the significant demand by Annex I countries for international credits from non-Annex I countries, reducing their emissions. Leakage has also been studied by the European Union (EU) with the implementation of its Emissions Trading Scheme (ETS). In general, there has been little indication of any leakage resulting from phase 1 of the ETS. A variety of explanations are possible, including strong demand for aluminum and other commodities that has allowed manufacturers to pass on costs and remain profitable, the short time-frame (2005-2007) that makes it difficult to discern potential long-term investment trends, and the efforts of individual EU members to protect their industries through free allowance allocations. Studies suggest that leakage may be a longer-term issue as more stringent reduction targets are imposed. Analysis of the EU's climate change package that would lead to a 20% reduction in greenhouse gases from 1990 levels by 2020 (referred to as the post-2012 program) has produced a range of carbon leakage estimates. As indicated by Table 1 , assumptions about technology development and spillover effects, elasticity of energy supply, and the mobility (substitution) of energy-intensive production between countries produces estimates that make conclusions about the carbon leakage effects of a very aggressive reduction target difficult to assess. The Intergovernmental Panel on Climate Change (IPCC) has also weighed in on the carbon leakage debate with respect to the short-term Kyoto Protocol commitment period (2008-2012). In its 2007 assessment, the IPCC makes three observations with respect to carbon leakage: Model-based estimates of "carbon leakage" from implementing Kyoto Protocol commitments are in the range of 5%-20% (i.e., 5%-20% of domestic reductions may be offset by displacement abroad) (IPCC confidence in conclusion: medium agreement, medium evidence) Empirical studies on energy-intensive industries under the EU-ETS conclude that carbon leakage is "unlikely to be substantial" due to transport costs, local market conditions, product specialization of local suppliers, etc. (IPCC confidence in conclusion: medium agreement, medium evidence) Quantifying possible benefits of international transfer of low carbon technologies induced by industrialized country action is not possible. Economic Issue: International Competitiveness Competitiveness can be a rather abstract term for which any precise meaning can be elusive. As with carbon leakage, competitiveness is a continuing phenomenon, with companies becoming more or less competitive according to a host of factors, including productivity, market demand, resource costs, labor costs, exchange rates, and the like. As stated by the Australian Government in its Green Paper on carbon reduction schemes: Changes in the cost structures of entities and industries are not unusual and occur continuously in a market-based economy; nor is it unusual for Government policy to change cost structures. For example, the adoption of high quality occupational health and safety standards have affected the profitability of Australia's labour-intensive traded industries, making it more difficult for them to compete with foreign producers that are subject to lower standards. Assistance is not usually provided to offset the impact of domestic policies on traded industries, as those policies reflect the priorities and values of the Government and community more generally. Most industries face a competitive market (sometimes international in scope) both in terms of producers of the same products and producers of substitute products. Also, in some cases, an industry may face a fairly elastic demand for its product. Thus, most industries are price sensitive, and therefore any increase in manufacturing costs – as by a carbon emission reduction requirement – hurts the competitiveness of a firm. This complex situation is further complicated for energy-intensive industries as competitors within the same industry may experience different energy price increases (particularly for electric power), depending on their individual energy needs and power arrangements. For example, an aluminum plant receiving power from a hydro-electric facility may not be affected the same way as a similar plant whose power contract is with a coal-fired power supplier. Such differences among individual companies could have several potential impacts. First, as noted above, it may affect the competitive balance of specific domestic facilities. Second, investment decisions by industries could be affected, particularly with respect to technology. New, more efficient technology is emerging for some processes. The combination of high, but volatile, price signals being sent from the energy markets and potential ones from a carbon policy could speed their development. If commercialized, new technology could reduce the impact of any carbon policy and, indeed, could improve competitiveness. Analysis in sufficient sector-specific detail to examine this possibility, or to develop proxies to explore the possibilities for industry technology over the next 40 years, are beyond the scope of this report. A company's ability to compete under a carbon policy depends on three primary factors: (1) the greenhouse gas intensity of a company's products which influences the company's profitability and the products' cost; (2) the company's ability to pass on any increased costs to consumers without losing market share or profitability; and (3) the company's ability to mitigate carbon emissions, reducing the impact of the carbon policy on its operations and profitability. Each of these factors involves a web of site-specific interactions. Greenhouse-Gas Intensity An industry's greenhouse-gas intensity factor is a foundation both of any direct greenhouse gas emissions produced by the manufacturing process of the product (e.g., PFCs from aluminum production, CO 2 from cement manufacture), and of any indirect greenhouse gas emissions produced by the inputs to the manufacturing process (e.g., electricity, natural gas). Much of the discussion of greenhouse gas-intensive industries is in fact a discussion of energy-intensive industries. However, as noted above, this is an imperfect indicator as different plants will have different energy sources and, thus, different indirect greenhouse gas emissions. In addition, such a focus ignores the 320 million metric tons of annual greenhouse gas emissions that U.S. industrial processes emit directly. That the impact of a carbon policy on product prices, employment, and profitability is dependent on its greenhouse gas intensity is seemingly straightforward. However, the measurement of such intensity may not be. Metrics that could be used to determine carbon intensity include employment per unit of emissions, value added by the production activities per unit of emissions, or revenue generated by the activity per unit of emissions. Each indicator differs in level of transparency, variability over time and within sectors, and emphasis on scheduling of capital structure and labor needs. Choosing an indicator or combination of indicators that all parties believe fairly represent the industries of concern would be challenging. As suggested above, industries can be greenhouse gas-intensive from either the process they employ (direct emissions) or the energy fed into the process from outside (indirect emissions), or both. The greenhouse gas intensity can be measured in terms of its impact on product price, company profitability, or labor. Most studies of greenhouse gas-intensive industries actually focus on energy-intensive industries. Table 2 provides data on the energy-intensiveness of an illustrative set of manufacturing industries. Two metrics are displayed. The first measures the importance of energy costs to the total value of the industry's products. The second measures the importance of energy costs per person employed by the industry. As suggested by Table 2 , the complexity of determining carbon intensiveness is significantly influenced by the level of sector aggregation one chooses to focus on. For example, while several 3-digit North American Industrial Classification System (NAICS) industry categories, like paper, chemicals, and nonmetallic mineral products, have aggregated energy costs of less than 8% of value, 6-digit NAICS industry subcategories, such as pulp mills, newsprint mills, alkalies and chlorine, nitrogenous fertilizers, lime, and primary aluminum shelters, have energy costs approaching or exceeding 20% of value. In addition, a single product may exhibit highly variable emissions, depending on the technology used. For example, Figure 1 provides International Energy Agency (IEA) data on average carbon dioxide emission per ton of crude (or raw) steel manufactured by several different processes or energy sources. As indicated by the blue bars, the process used to manufacture steel has a substantial effect on the direct and indirect CO 2 emissions emitted. In addition, emissions are influenced by the processes' source and consumption of electricity. As indicated by the red arrows, indirect emissions from electricity sources have a significant effect on the total emissions from a given process. Raw steel production is also the most CO 2 -intensive step in steel production. Figure 2 provides illustrative data from the United Kingdom (UK) on the value chain of an integrated steel production process through its various steps using a Basic Oxygen Furnace (BOF) to make its raw steel. In a BOF, iron ore is reduced to semi-finished steel, which is subsequently hot rolled and then further refined into specific finished products. Semi-finished steel production is the most carbon-intensive and electricity-intensive step in integrated raw steel production. In contrast, the value produced at this step is relatively low compared with the emissions. This ratio (called the product value at stake (VAS)) means that the step would incur high CO 2 cost increases relative to product value. The extent to which these costs are spread across the subsequent production steps would lower the overall cost impact on final production. This suggests that the primary competitiveness issue with a BOF is with the semi-finish step of raw steel production. This is illustrated in the figure by comparing the difference between the total cost increase (solid line) and the semi-finished steel increase (dashed line). The relatively small increment of increase created by the downstream processes compared with semi-finished steel production suggests the dominant effect of CO 2 -induced cost increases from semi-finished steel production on downstream production cost increases. What Table 2 , Figure 1 , and Figure 2 do not indicate is the substantial difference in emissions due to site-specific considerations, such as age of plant, maintenance, etc., that would make the ranges greater than presented here. The figures also do not indicate the varying degrees of product integration that steel mills may include. For example, most BOFs combine crude steel making with hot rolling to avoid additional energy consumption in repeated heating cycles. The more a plant combines production steps, the less the overall cost effect of a carbon policy. Also, the link between the BOF and hot rolling plant may make relocation more difficult although, if it occurs, the affected community would lose both the BOF and the hot rolling plant. Also, as suggested by Figure 1 the processes are not completely substitutable, even if the crude steel is. For example, the use of electric arc furnaces is constrained by the availability of scrap steel, particularly in developing countries such as China. Cost Pass-through Ability A sector's ability to pass through the cost of carbon policies is similarly differentiated. The ability of companies to pass through costs from carbon policies primarily depends on three factors: (1) the price-responsiveness of demand for the product; (2) market structure and dynamics that include the number of competitors and amount of regulation and state-ownership; and (3) the international scope of the competition, particularly with respect to differentiated carbon policies. For example, the electricity sector can generally pass on its costs to consumers because electricity demand is relatively price-inelastic, the market structure is significantly regulated, and there is very limited international competition from countries with no carbon policies. Chlorine, produced with a very electricity-intensive process, is a hazardous substance that could raise serious transport issues, potentially reducing the ability to substitute foreign production for domestic production. In contrast, other sectors, such as raw steel, are in very competitive markets with significant international trade exposure (although during periods of high demand for steel and other primary metals, prices have risen substantially). Elasticity of Demand Elasticity of demand refers to how people respond to an increase in a product's price. Inelastic price behavior by consumers indicates that companies can raise prices in response to increased costs without a substantial response by consumers to reduce use of the product or seek a substitute. Elastic price behavior by consumers means they are sensitive to price increases and will seek to either reduce demand for a product or seek a substitute. Companies facing an elastic demand for their products because of available substitutes would have a more difficult time passing on any cost increases resulting from carbon policies. In contrast, companies facing an inelastic demand for their products would have more flexibility in addressing the same cost increases. Based on a review of the literature and their own estimating methodology, Sato and Neuhoff estimated the short and long run effects of price changes on demand for various commodities in the European context. These estimates are presented in Figure 3 . The authors found that demand for electricity and several other commodities appear to be relatively inelastic (less than -1) while demand for cement and for steel products from some processes may be fairly elastic. However, as indicated, there is considerable uncertainty in these estimates and they should be considered indicative of the importance of pricing to consumption of these commodities and not predictive. Indeed, the range presented suggests that quantifying this variable as part of any eligibility criteria for an assistance program may be difficult. Market Structure The number and concentration of firms in a given market and the extent of government involvement and regulation of that market influence the ability of firms to pass on costs. For example, public utilities that are regulated by a public service commission are generally allowed to pass-through any legitimate cost increases to consumers. Likewise, industries where a few companies have concentrated market power to influence prices may have an enhanced ability to pass through costs through their ability to influence prices. To illustrate the degree of concentration in various parts of the manufacturing sector, Table 3 provides two indicators of market concentration across an illustrative sample of the U.S. manufacturing sector. The first is the market share of the Top 4 companies in a category. The second is the Herfindahl-Hirschman Index (HHI) for the Top 50 companies in the same category. The HHI is a commonly accepted measure of market concentration and is used by the Department of Justice (DOJ) in reviewing mergers and acquisitions for potential anti-trust concerns. An HHI between 1000 and 1800 is considered moderately concentrated by the DOJ, and an HHI in excess of 1800 is considered concentrated. Transactions that increase the HHI by more than 100 points in concentrated markets presumptively raise DOJ anti-trust concerns. As indicated by Table 3 , the broader industrial categories (3-digit NAICS) would suggest that market concentration is not a major issue with respect to pass-through ability. However, as suggested by the previous discussion of greenhouse gas intensity, disaggregating a sector can reveal a more complex situation. For example, the NAICS 3-digit Chemical category suggests little concentration in that sector. However, a sampling of subcategories indicate several that are at least moderately concentrated. There is a similar situation for primary metals. If the categories were disaggregated further to include categories such as glass container manufacturing (327213) or electrometallurgical ferroalloy product manufacturing (331112), more pockets of concentration would be found. Thus, companies can be more able to pass through costs in some of their products than in others. Therefore, unless eligibility requirements for any government assistance are sufficiently detailed to direct aid only to those categories that can not raise prices, the government risks providing support for companies that don't need it. Of course, the potential ability of companies to pass-through cost increases can be muted by international competition, as discussed next. Trade Exposure That an industry has some trade exposure does not necessarily mean that it would be hurt under a carbon reduction policy. The key aspect of trade exposure in terms of carbon policy is whether a sector is considered a price-taker on world markets. If the price of its product is dictated by world supply and demand, then its ability to raise prices may be constrained. This situation could result in the sector deciding to reduce domestic production in the short term and moving factories overseas in the long run. One measure of trade exposure is the penetration of imports as a share of total U.S. demand for a product because it indicates the availability of foreign substitutes for that product. Table 4 provides the 2006 import share of demand for a variety of activities. Because of the aggregation issue identified above, this is only a rough indicator of sectors that could have difficulty passing on cost increases because of international competition. As indicated, several greenhouse gas-intensive sectors have significant import penetration, including primary metals (nonferrous and ferrous), basic chemicals, and finished products that use these commodities, including electronics, machinery, and transportation. Other greenhouse-intensive sectors, such as cement, lime, and paper have less penetration in the aggregate. A second measure of trade exposure competition is the tariffs countries have placed on imports to protect their sector from international competition, fair or unfair. In some sense this measure indicates the perceived threat that international competition presents to the viability (and thus, potential relocation) of domestic production. The metric presented in Table 4 is the average tariff rate applied on that sector's products by the 15 largest members of the World Trade Organization (WTO). As indicated, this metric suggests that labor-intensive industries, such as apparel, textiles, and furniture have received the most attention in tariff determinations. Among greenhouse gas-intensive sectors, nonmetallic mineral products (glass, cement, and lime) have received the most attention, followed by nonferrous metals, such as aluminum, while paper received the least attention. Ability to Respond to Carbon Policy A company's ability to respond to carbon policies depends on the alternatives available and on the timing and costs of mandated action. Although, as noted earlier, a comprehensive review of carbon policy options for industry is beyond the scope of this report, a recent report by McKinsey & Company illustrates some of the cost and potential for reducing greenhouse gas emissions by industry. The report found that significant cost-effective reductions can be achieved by 2030. A summary of that potential is provided in Figure 4 below. Although the report identifies opportunities for reductions by 2030, it also notes the problem of fragmentation. Specifically, it notes that much of the abatement potential is spread over 75+ options and dependent on either favorable economics or regulatory support. As stated in the report: Although the reference case assumes that improvements in the energy intensity or processes in some sub-sectors (e.g., aluminum, food, cement) will avoid some 470 megatons of future emissions, these improvements are not assured and still must be captured. Without supportive regulatory structures, some of these improvements may not be made or the emission will be "off-shored" to other economies, with U.S. domestic GHG emissions decreasing and global emissions staying flat or rising. Timing also affects the availability of options and the ability of industry to respond to carbon policy. Indeed, all of the factors identified here are affected by the timing of any carbon policy. As stated in a joint Peterson Institute for International Economics and World Resources Institute report: In the short term, most firms have limited ability to improve the efficiency of capital stock or switch to alternative sources of energy. How much of the energy cost increase the firm must absorb then depends on the immediate availability of substitutes for the firm's products. Over the medium and long terms, firms have greater ability to seek out lower-carbon fuel sources and develop more energy-efficient technology. Options to Provide Assistance There are three basic approaches to assisting greenhouse-gas-intensive, trade-exposed industries: (1) assist domestic industry; (2) penalize foreign competitors; and (3) develop alternative sectoral approaches. It should be noted that these categories are not mutually exclusive; all three could be used, either in combination for a given industry, or separately as appropriate to a given industry's characteristics and needs. Assist Domestic Industry In some ways, the simplest approach is to assist domestic industry to compensate for the negative economic effects of carbon policies. Depending on the carbon scheme approach (cap-and-trade, carbon tax, regulations, etc.) the assistance could be in the form of (1) free allocation of allowances (cap-and-trade program), (2) tax credits (carbon tax), or (3) cash payments (any approach). To the extent that many carbon regimes include substantial support for research and development (R&D), this approach is already incorporated in the overall debate. Federal support for R&D also could be considered as one approach to the objective of encouraging a smooth transition to a less-carbon-intensive industry. This discussion explores options that go beyond R&D in efforts to assist greenhouse gas-intensive, trade-exposed industries. Free Allocation of Allowances Under a Cap-and-Trade Regime A cap-and-trade program is based on two premises. First, a set amount of greenhouse gases emitted by human activities can be assimilated by the ecological system without undue harm. Thus the goal of the program is to put a ceiling, or cap, on the total emissions of greenhouse gases. Second, a market in pollution licenses between polluters is the most cost-effective means of achieving a given reduction. This market in pollution licenses (or allowances, each of which is equal to 1 ton of carbon dioxide equivalent) is designed so that owners of allowances can trade those allowances with other emitters who need them or retain (bank) them for future use or sale. Allowances may be allocated free by the federal government to affected entities or other parties, or auctioned by the government for a variety of purposes. Creating an allowance system is similar to creating a new currency. The allowance has value that can be converted to cash via a market clearing mechanism, such as an exchange. Thus, allocating allowances for free is essentially the same as distributing money or assistance to affected parties. Tax Credits Under a Carbon Tax Regime A program similar to a free allocation approach under a cap-and-trade scheme can be achieved under a carbon tax regime. Instead of providing industries with free allowances, a tax credit program would provide tax credits to them. For industries with substantial direct greenhouse gas emissions, the tax credit approach would be very straightforward as both the eligible emissions and the carbon tax would be well known (unlike free allowances where the precise value of the allotment can only be estimated beforehand). For industries with substantial indirect emissions, the process would be more involved as the eligible emissions for credit would have to be estimated; an estimate that would depend on industry, source of energy, and process involved. Like a free allocation system, the system could be phased out over time in order to encourage a smooth transition to a less carbon-intensive industry. Cash Payments A third approach to assisting greenhouse gas-intensive, trade-exposed industry is a straightforward transfer of funds from the government to the companies. Such an approach offers the most flexibility in terms of how much to offer and guidance on its use. The payments could be restrictive and focused on specific issues, such as research, development, and demonstration of technologies, to more expansive concerns such as keeping the company "whole" in terms of shareholder value or other metrics. Funds for the transfer could come from either general revenues, carbon taxes, allowance auctions, or a combination of sources. Border Adjustments: Penalize Foreign Competitors The most direct, although potentially complex, means of addressing the trade issue would be to penalize foreign competitors who produce and export carbon intensive goods without having to meet comparable carbon policies affecting producers in the importing country. Generally with respect to climate change trade issues, the relief being sought is in the form of a border adjustment that raises the cost basis for the competing goods, potentially to a level that reflects the carbon control costs borne by the importing nation's goods. Because this is in effect expanding the reach of regulation to foreign countries, implementation issues are far more complicated than the domestic-based options discussed above. The overall objective of a border adjustment would be to encourage negotiation by the United States of binding multilateral and bilateral agreements and to level the playing field with countries that have not taken action "comparable" to proposed U.S. action to reduce greenhouse gas emissions. The two forms of border adjustments being discussed most are (1) countervailing duties, and (2) International Reserve Allowances. The primary difference between them is that the first levies conventional tariffs on imports to level the playing field, while the second imposes a shadow allowance requirement on imports to create a de facto tariff. Either could be difficult to implement. As stated by the Australian Government in its Green Paper: For imported goods, effective border adjustments would be very difficult to implement transparently. This is because adjustment would require accurate tracking of all inputs used in the production of a 'landed' good to determine both the amount of embedded emissions in that good and the effective carbon price that has been applied to the inputs. For example, it would be highly complex to determine the emissions and carbon cost embedded in an imported finished aluminum product. Access to reliable and robust data from other jurisdictions is not straightforward, and the complexity of the task is significantly increased when multiple jurisdictions contribute to the production of the good. Countervailing Duties Countervailing duties are a means of providing relief to domestic industries who are subject to competition from subsidized imported products. Imposed as an additional import duty on the subsidized imported good, a countervailing duty can prevent imported goods from being sold in the domestic market at prices less than "similar" products produced domestically. Under this approach, the lack of "comparable" carbon policies by foreign countries would be considered a subsidy by the United States and a countervailing duty based on the embedded carbon in their imported good would be levied. Under a carbon tax scheme, the tax would be based on the carbon tax and embedded carbon. Under a cap-and-trade program, the tax would be based on an average allowance price and embedded carbon. However, imposition of countervailing duties based on the embedded carbon in imports would raise complex issues of law under the WTO. International Reserve Allowances In place of a countervailing duty, this second approach to providing relief is an international reserve allowance (IRA) requirement—essentially a cap-and-trade scheme focused on imports of greenhouse gas-intensive products with each IRA equal to one metric ton of carbon dioxide equivalent. Basically the IRA requirement would require that, in order for greenhouse gas-intensive products from countries with insufficient carbon policies to enter the United States, they must be accompanied by a prescribed amount of "international reserve allowances" based on greenhouse gas emissions generated in the production of the products. The import requirement would enter into effect after a reasonable time had passed for negotiations on an acceptable greenhouse gas reduction program. Generally, proposed legislation would require the Environmental Protection Agency (EPA) to calculate an annual IRA requirement for each category of covered goods from a covered country. It would make this determination based on best available information and publish the requirements before the beginning of each compliance year. Also, EPA would be required to establish a method for calculating the required number of IRAs for each category of covered goods from a covered foreign country; the method is to apply to covered goods manufactured and processed in a single country and to require submission of IRAs on a per-unit basis for each category of covered goods from a covered country. In addition, EPA would have to establish separate procedures for determining applicable IRA requirements for goods that are "primary products" and are manufactured or processed in more than one covered country. EPA would have to revise these various IRA requirements annually. As generally outlined in proposed legislation, a covered good under the program: (1) is a "primary product" or "manufactured item for consumption," (2) generates a "substantial quantity" of direct or indirect greenhouse gas emissions in its manufacture, and (3) is "closely related" to a good whose cost of production in the United States is affected by a requirement in the proposed legislation. A "primary product" would be iron, steel, steel mill products, aluminum, cement, glass, pulp, paper, chemicals or industrial ceramics, and any other manufactured product that is sold in bulk and generates in its manufacture direct and indirect greenhouse gas emissions comparable to emissions generated in the manufacture of products by U.S. industrial entities that would be subject to emissions caps in the proposed legislation. Indirect greenhouse gas emissions are greenhouse gas emissions resulting from the generation of electricity consumed in manufacturing of a covered good. Comparable action is generally defined as any greenhouse gas regulatory programs, requirements and other measures that, in combination are comparable in effect to actions carried out by the United States though federal, state, and local measures to limit greenhouse gas emissions, based on best available information. Alternative Sectoral Approaches Sectoral approaches have become a blanket term to cover a multitude of different options to address emissions from individual industrial sectors. They can be confined to domestic industries, or be international in scope. They can be voluntary or mandatory. They can be incorporated into cap-and-trade schemes, or function outside of such schemes as either an alternative reduction program (mandatory), or an exemption (voluntary). For purposes of this paper, the discussion of sectoral approaches will be limited to mandatory and voluntary schemes that address the trade impacts of carbon policies. For example, at the Conference of Parties (COP) held at Bali in December 2007, the International Iron and Steel Institute (IISI) issued a paper calling for a carbon intensity cap on steel; the carbon intensity of steel would be determined on a per-ton basis as the embedded carbon in steel divided by its weight. The foundation of this sectoral approach would be the collection of carbon dioxide data by steel plants in major steel producing countries. The data collected would be used to develop intensity-based benchmarks for the industry. IISI argues that using this comprehensive intensity-based approach to emissions from steel production "will allow production normalised CO2 emission comparisons between regions that are not possible today." As stated by IISI: "By including all the major steel producing countries, world wide competition will no longer be harmed in an industry where over 40% of products are already traded internationally." This approach has been endorsed by the American Iron and Steel Institute, whose press release states the approach is also supported by IISI members in both the developed and developing countries, including China. It has also been reported by the Financial Times that the approach is supported by the China Iron and Steel Association. Such a carbon intensity mechanism could be used for several industries for which foreign competition and emissions leakage are serious concerns. Obviously, many parameters and specifics would have to be negotiated to determine whether such an approach would be effective in addressing the concerns identified here. The basic structure of a sectoral approach depends on the overall purpose it is designed to achieve. For example, a voluntary scheme could have the characteristics of an exemption with no penalty for failing to make progress toward achieving the overall purpose of the program. However, the program would probably only affect direct emissions; industry would still have to respond to any cost impacts from indirect emissions. Other voluntary schemes could make participation voluntary, but once a company agrees, the scheme would be mandatory for that company. This is how many approaches to encouraging participation by developing countries are designed. The current Clean Development Mechanism (CDM) reflects this line of thinking. For a mandatory scheme, the linkages between it and the broader program would be key to accomplishing the overall purposes of the program. Because this paper limits its discussion to international approaches, the strength of a sectoral approach is that it would at least start the process of incorporating developing countries into a global approach to climate change. Despite the wide variety of sectoral approaches proposed, there are some commonalities among them. The first is transparency of important parameters (also called "benchmarks"), including definition and boundary of affected sectors, agreed upon performance metrics and indicators, and identification of best practices. As stated by the Centre for European Policy Studies (CEPS) Task Force: Without such data, collected bottom-up by industry and verified by an independent third party, there is no justification for sectoral approaches. Only verified data can ensure that industry commitments, whether voluntary, unilateral or negotiated with government, lead to 'real' and 'measurable' reductions beyond a business-as-usual scenario. The second is the sharing and dissemination of best practices within a sector to increase efficiency and transfer of technology. The third is mechanisms to encourage incorporation of installations in developing countries into the overall scheme. Mechanisms include technical assistance, technology transfer, greenhouse gas credits for reductions, and threats of regulation. Analysis This section is divided into two components: (1) general issues and questions raised by the various approaches (design, effects, etc.), and (2) discussions of specific options. It is not comprehensive, but illustrative of the range of questions and consequences these initiatives present. General Design Issues Surrounding Assistance The design of an assistance program—the goals, eligible participants, implementation, and enforcement—would be difficult to define in a manner that satisfies all parties. There is every incentive for any industry facing a cost increase from carbon policies to claim that its competitive position could be diminished, thereby justifying special consideration by the government. The government would be in the difficult position of picking winners and losers, sometimes without access to important, but proprietary, data. The following discussion outlines some of the challenges entailed in crafting an acceptable program. Defining Overall Goals for Assistance At first glance, this would seem a simple question with a simple answer. However, there have been a variety of purposes and objectives suggested for proposals to assist trade-exposed, greenhouse gas-intensive industries. They include (1) promote negotiation of an international agreement; (2) prevent the leakage of carbon emissions from countries with carbon policies to those without them; (3) remove a barrier to enacting domestic legislation; (4) assist industry in making a smooth transition to a less-carbon-intensive future; (5) level the competitive playing field that carbon policies may upset; and (6) prevent or mitigate potential job losses from carbon policies. These are discussed below. Promoting an International Agreement As suggested earlier, the problems arising from differentiation would not exist if there were an international agreement on reducing global greenhouse gas emissions that placed all significant greenhouse gas emitting countries under a coherent regulatory regime. This criterion raises numerous questions about what would constitute a fair agreement, or comparable obligations by developing countries; however, it represents the long-term solution to the trade (and climate change) issue. In the case of sectoral approaches, this is their primary purpose, less so for domestic assistance options. On a more practical level, the need to promote an international agreement also reflects the strictures of the WTO, if a border adjustment is being considered. Since a border adjustment may well violate the General Agreement on Tariffs and Trade (GATT), a measure that is successfully challenged on this ground would need to be justified under a GATT exception. While GATT Article XX contains an exception for "measures relating to the conservation of exhaustible resources," provided that domestic production or consumption restrictions are also imposed, such a measure may not be "applied in a manner which would constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade." In determining whether "unjustifiable" discrimination exists, the WTO Appellate Body would probably examine whether the United States had made "serious efforts" to negotiate agreements before imposing an import barrier. Attempts to impose a trade barrier without such efforts would make the barrier more difficult to justify and thus more likely to be considered a WTO violation. Preventing Carbon Leakage The environmental rationale for seeking a sectoral agreement, or imposing trade restrictions or assisting domestic production, is to prevent carbon leakage. Such a goal is environmental, not economic. Indeed addressing carbon leakage would likely drive up the cost of compliance with any carbon reduction program. As stated by the Australian Government's Green Paper : If Australia was solely concerned about minimizing the domestic cost of meeting a reduction in emissions, it would be unconcerned about carbon leakage. However, given the global nature of the climate change problem, the potential for carbon leakage provides a rationale to use policy to influence the locational decisions of emissions-intensive industries on environmental grounds. For border adjustments, avoiding carbon leakage would also be the primary rationale for qualifying for an exception under GATT. As suggested above, the ability to separate and quantify the effects of differentiated carbon policies and the mitigating effects of any policy response would be difficult. There are no guarantees that any proposed solution would prevent carbon leakage, or that any assistance would prevent the migration of production and jobs abroad. Trade is a multi-faceted and complex series of interactions. Preventing Job Loss Much of the political basis for supporting sectoral approaches, domestic assistance, or trade restrictions for greenhouse gas-intensive industries is to protect domestic jobs in those industries. On a nationwide basis, greenhouse gas-intensive industries are not a substantial source of employment on a percentage basis. Data compiled by the Peterson Institute for International Economics and the World Resources Institute indicate that five such industries (ferrous and nonferrous metals, nonmetal mineral products, basic chemicals and pulp and paper) account for 1.7% of U.S. employment (2.25 million jobs) and 3.0% of Gross Domestic Product (GDP). Overall, manufacturing is responsible for about 10.6% of U.S. employment and 12.4% of GDP. In addition, a carbon policy is likely to create jobs in other parts of the economy, such as renewable and energy conservation technologies, reducing or potentially eliminating job loss on a nationwide basis. Nevertheless, this would be cold comfort to communities directly affected by potential job loss from the potential trade imbalance created by differentiated carbon policy. Although a small percentage of total employment and GDP, factories and companies can be a significant employer and generator of wealth in some states and local communities. For example, the manufacturing sector in Indiana produces 18.9% of the state's payroll jobs and 30.2% of its GDP. Although job loss is a major concern, it is not a concern recognized by the WTO as a rationale to justify a GATT-inconsistent measure. In addition, any assistance provided to industry does not guarantee that jobs will not be lost or moved. As suggested previously, locational decisions by companies are multi-faceted: Assistance to mitigate the effects of carbon policies will not necessarily affect competitiveness issues with respect to labor rates, exchange rates, or other relevant factors. Leveling the Competitive Playing Field This is the most publicized economic argument in favor of sector approaches, domestic assistance, or tariffs for greenhouse-gas intensive, trade-exposed industries. However, this is a somewhat vague notion as it is not clear what, or how much, assistance would level the playing field, and at what costs to other parts of the economy. As stated by the Australian Government: It is difficult to determine how much EITE [emissions-intensive trade-exposed] assistance would be needed to prevent carbon leakage. Some have argued that there is a direct relationship between a loss in profitability and carbon leakage, and that Government intervention could be warranted to restore the profitability of EITE entities to levels that would have occurred without a carbon constraint. In the extreme case, and all other things constant, this would imply assistance at a direct dollar-for-dollar rate for the impact of the carbon price. Under such an approach, the Government would continue to provide assistance even if other factors substantially increased the profitability of EITE entities. ... The level of assistance to EITE industries over time must also be balanced against the impact on non-assisted sectors. In particular, the design of the EITE-assistance policy needs to take into account the fact that a declining national emission cap combined with a growing national economy implies that the burden (or cost) of achieving a given national reduction in emissions would increase over time. This suggests that the degree of EITE assistance may need to be adjusted over time to ensure the sustainability of the EITE policy, otherwise EITE assistance would constitute a growing share of a shrinking quantity of national emissions, leading to higher costs for the rest of the economy. This need for balance in any assistance is echoed by other studies. The Peterson Institute for International Economics and the World Resources Institute suggest that focusing on the competitive concern of carbon intensive industries is a "fairly narrow interpretation of U.S. competitiveness." Following the rationale of the Australian Government's Green Paper , the two institutions make three arguments for caution in designing assistance for greenhouse gas-intensive industries: (1) a move to a more carbon-constrained economy requires a "fundamental" shift that requires a strong regulatory environment to promote; (2) assistance to greenhouse gas intensive, trade-exposed industries comes at a cost to the economy as a whole; (3) to the extent assistance to greenhouse gas intensive, trade-exposed industries delays reductions by those industries, that delay has costs in terms of increased emissions. Encouraging a Smooth Transition to a Less-Carbon-Intensive Future If one accepts the need for a transition to a less-carbon-intensive future, assistance to greenhouse gas-intensive, trade-exposed industries could be justified to the extent it promotes such a transition with less economic pain. As stated by the Australian Government: The second reason [after avoiding carbon leakage] for assisting trade-exposed industries is that it may smooth the transition of the economy towards one that embodies a price on carbon. Given the significant differences between the emissions profiles of industries, a carbon price could have a markedly greater impact on some industries than on others. Government could place a priority on providing transitional assistance to those entities and industries that would be most severely affected by the introduction of the scheme. This would involve giving priority towards assisting existing industries, particularly those with significant "sunk" capital investments, few opportunities to reduce their emissions profiles and a limited capacity to pass through the carbon cost. This purpose reinforces the need for a balance between the desire to "level the playing field" as suggested above, with the need to achieve the overall environmental goal that the carbon policy is designed to achieve. Remove a Barrier to Domestic Legislation This purpose reflects the historic difficulties in the United States of committing to national, mandatory emission targets. The reluctance of the United States to adopt mandatory actions reflects concerns about costs, as witnessed by the U.S. negotiation and ratification of the 1992 United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC reflects this negotiating position of the United States and some other countries in that it calls for voluntary control measures. Senate floor debate on ratification of the treaty brought out concerns by some Senators about the cost of compliance, its impact on the country's competitiveness , and the comprehensiveness with respect to the developing countries—concerns that were overcome because of the non-binding nature of the reduction goals. Assistance to greenhouse gas intensive, trade-exposed industries is a direct attempt to respond to the competitiveness and comprehensiveness concerns that have been expressed in Congress and other venues for almost two decades. Defining Eligible Industries Among the fundamental questions any assistance program must answer is "Who is eligible for assistance?" The previous discussion suggests that greenhouse gas-intensive, trade-exposed industries could be the most competitively disadvantaged by carbon policies that increase costs. Those increased costs could be imposed directly if the reduction program included industrial emissions under its regime, and/or indirectly through increases in immediate products those industries consume in the making of their products (such as energy). Three criteria stand out for determining the potential eligibility of an industry, sub-industry, or company for assistance. Is the sector or product greenhouse gas-intensive? Under some metric (profit, value added, employment), is the sector's viability strongly tied to a greenhouse gas-intensive process? Would the sector's competitive situation be substantially upset by carbon policies through its inability to pass on costs related to them? Under a fragmented international regime, would the sector be exposed to competition from companies in countries not anticipated to respond for some time with significant carbon policies of their own? Does the sector have only a limited ability to cost-effectively reduce its emissions or obtain compliance through another means, at least in the short-term? Does this situation present a significant downside risk economically in terms of lost production and jobs and environmentally in terms of carbon leakage? What the steel example discussed earlier suggests is that products that are greenhouse gas-intensive with relatively low value added (such as crude steel) are potentially most at risk of significant cost increases. If, in addition, high greenhouse gas-intensive, low added-value products are fairly homogeneous and can be readily bought in international markets, domestic manufacturers of them (such as raw steel producers) may be price-takers on world markets with limited ability to pass through carbon-related costs. Parts of several industry sectors may fall into this category, including cement, lime, some basic chemicals, and primary metals (such as primary aluminum), along with some glass and paper products. However, the steel example illustrates that defining "greenhouse gas-intensive, trade-exposed" industries will not be a straightforward process, as trade exposure, carbon costs, and pricing dynamics may differ within a sector. Under some assistance options, developing eligibility criteria could put the government in the position of picking winners and losers, and creating the potential for a drawn-out and litigious process. Overall, the discussion suggests that determining industry eligibility would not be straightforward and would require drawing lines and making fine distinctions. Issues requiring resolution would include (1) the level of disaggregation to use in determining eligibility; (2) the metric that would be used to determine eligibility; and (3) the entity and data that would do the determining. All of these determinations would be controversial. Implementation Issues It is the details of the proposed assistance that would determine its effectiveness in achieving any of the purposes discussed above. Some of the more critical implementation questions are identified below. Allocation – How Much? The above discussion suggests an important tradeoff to the economy between providing assistance to greenhouse gas-intensive, trade-exposed industries and increasing the burden of carbon policy compliance on other parts of the economy. Assistance would increase the overall cost of compliance in hope of achieving a smoother economic transition to a low-carbon future. However, determining the appropriate amount would be controversial and contentious. Issues include: How much should be allocated and in what form (tariffs, domestic assistance, sectoral approach, etc.)? How much should the assistance be tailored to individual sectors, subsectors, or facilities? What metrics and baselines should be used to make these decisions? Duration of Assistance – How Long? If a long-term, substantial greenhouse gas reduction is desired, all sectors would have to participate in the reductions at some point. The longer participation by one sector is delayed, the higher the costs on the participating sectors. However, the ability of greenhouse gas-intensive, trade-exposed industries to join a reduction program may vary substantially, depending on research and development results, compliance strategies by industries providing important feedstocks to their processes, and general economic conditions and demand for their products. Issues include: How differentiated should the timing of the assistance be by sector, subsector, or facility? How should any adjustments to assistance over time be determined? Under what conditions should the assistance be terminated? Implementation and Enforcement – How Will it Work? Each option faces significant implementation and enforcement issues. Fragmentation is a key characteristic of greenhouse gas intensive, trade-exposed industries, in terms of their greenhouse gas intensiveness, their trade exposure, and their sector economics. This situation would put substantial demands on the implementing body with respect to data needs and methodologies. Data and methodologies would need to be robust enough to justify determinations (including any WTO challenges in the case of border adjustments), and to enforce any requirements on domestic or foreign producers. Finally, enforcement would require some definition of success or failure. Issues raised include: How will the necessary data be collected and quality assured? How will international cooperation be encouraged, both to negotiate an agreement and to implement any tariff? What metrics and methodologies will be used and how will they be tested for rigor? What criteria will be used to determine success or failure? Data Needs The data needs for all these options are substantial—particularly for trade and sectoral approaches. At the current time, there would be a clear tradeoff between the precision of a trade or sectoral approach and the ability of the government to implement it. The international scope of these two approaches multiplies the data challenges presented by at least an order of magnitude over a domestic-only program. The challenge for data collection in developing countries may be such that the government is forced to employ methodology, rather than empiricism, to construct "data" sets—a process that would make a WTO challenge (in the case of trade approaches) almost a certainty. A sectoral approach may be able to solicit assistance from those countries, if they feel the approach is fair to them and that improved efficiency and technology will improve their economic situation. In contrast, the sanctions approach of the trade schemes may not encourage such countries to cooperate in the scheme. Potential for Unintended Consequences Attempting to resolve an international problem – the lack of a comprehensive international climate change treaty – unilaterally can be an uncertain enterprise. The approaches outlined here face daunting needs in terms of crafting a coherent program to achieve multiple goals. There is a high probability of unintended consequences from any of these approaches. Trade and economics involve dynamic processes that can respond to public policy in unanticipated ways. For example, trade sanctions based on primary goods, such as steel and aluminum, could have undesirable impacts on domestic downstream industries. An increase in the cost of raw steel or aluminum could drive up the costs of domestically manufactured finished products, such as automobiles, and encourage foreign countries to export more finished products to the United States. Indeed, a country could redirect its exports from primary goods to finished goods to avoid the trade sanctions. For example, South Korea, which exports both raw steel and automobiles, could focus its industrial policy toward automobile exports and away from raw steel exports. Thus, downstream companies that use greenhouse gas-intensive goods could have their competitiveness undermined by attempts to protect greenhouse gas-intensive, trade-exposed industries. This consequence is less likely with domestic assistance or an international sectoral approach. Another potential unintended consequence of a trade approach is that foreign countries with more stringent carbon polices than those proposed in the United States could turn the tables. The European Union (EU) has already agreed to a more stringent reduction program to 2020 than the United States seems likely to adopt. Even if a U.S. trade program did not target the EU (because of the "comparable" provisions), it is conceivable that the EU might target the United States. There is also a risk that domestic subsidies could lead to unintended outcomes. For example, a company receiving assistance might choose to use that money for something other than modernizing or operating targeted carbon-intensive facilities. Instead, it might decide that the overall competitiveness of a plant does not merit any modernization, and choose to close the facility or reduce its production regardless of any assistance. Issues for Specific Approaches Free Allowance Allocation Free allocations of allowances to greenhouse gas-intensive, trade-exposed industry is the most popular means of assistance for countries under the Kyoto Protocol. For phases 1 and 2 of the European Union's (EU) Emissions Trading Scheme (ETS), member countries have almost exclusively allocated allowances at no cost, and over-allocated in favor of industries in competitive markets, compared with the electric power sector. Likewise, the Australian Government's Green Paper recommends free allocation of allowances under its proposed cap-and-trade program to assist greenhouse gas-intensive, trade-exposed industries. Finally, New Zealand has announced that it intends to use free allocation as its means of assisting its industries. A primary advantage of a free allocation system is that it doesn't necessarily exempt greenhouse gas-intensive, trade-exposed industries from the cap-and trade program. Thus, cost-effective reductions may still be made, lowering overall cost of the program compared with an approach that exempts them completely. Also, incorporating their emissions in the cap from the beginning helps industries become familiar with the workings of the carbon market and how to develop least-cost strategies to comply with increasingly stringent reductions and likely reductions in free allocations. This could assist in determining how long any assistance should be in effect and with the smooth transition objective identified above. Also, as the EU-ETS experience suggests, attempting to add exempted industries in a piecemeal process can be a difficult task. Putting them under the cap from the beginning makes the direction of greenhouse gas emission policy for industry clear. This is not to say that designing a free allocation system would be simple. As suggested previously, there are at least two major points of contention in the design of such an approach: (1) What percentage of the total available allowances should be allocated free to greenhouse gas-intensive, trade-exposed industries? and (2) What methodology and metrics should be used to apportion the free allowances among the various industries and sub-industries? The first point of contention highlights the zero-sum game that is allowance allocations under a cap-and-trade program: allowances given free to greenhouse gas-intensive, trade-exposed industries cannot be given to other heavily impacted industries (such as electric utilities) or sold by the government at auction to fund other government objectives or tax reform. Resolution of this tradeoff would determine how much relief greenhouse gas-intensive, trade-exposed industries would receive. For example, the Australian's Government's green paper recommends up to 30% of available allowances be allocated free to greenhouse gas-intensive, traded-exposed industries. This would be allocated under a two-tier system where heavily greenhouse gas-intensive industries (on a revenue basis) would receive free allowances to cover 90% of their emissions, while somewhat lesser greenhouse gas-intensive industries would receive 60%. A variety of metrics and options are available for resolving the second point of contention. Free allowance allocations could be weighted in a manner to encourage increased domestic production of greenhouse gas-intensive, trade-exposed goods and to discourage "off-shoring" of that production (e.g., an output based allocation). Such a methodology would help meet objectives such as reduced carbon leakage and reduced job losses. Another example would be to protect shareholder value: keeping the companies "whole." In its green paper, the Australian Government recommends a metric based on greenhouse gas emissions per unit of revenue, stating: "A measure of emissions per unit of revenue would be the most transparent and comparable indicator of the materiality of the carbon cost impact across different traded industries." From an economic standpoint, an important disadvantage of free allocation is that allowances allocated free are allowances the government cannot auction and from which there are no proceeds to address other concerns. Economic studies have found that, if revenues received from an auction-based allocation system are used in the most economically efficient manner, the overall costs imposed on the economy by a cap-and-trade program could be reduced substantially. Economists maintain that the most economically efficient application of auction revenues would be as an offset for reductions made in taxes on desirable activities, such as employment or personal income. Likewise, the auction revenues could be used to support other public polices, such as research and development or relief to low-income families. To the extent allowances are allocated free to greenhouse gas-intensive, trade-exposed industries, these other options are excluded. A second disadvantage is that the difficulty in determining an appropriate apportionment of allowances opens the possibility of "windfall profits" by some industries or sub-industries. The amount necessary to compensate industries varies by industry. In addition, the allowance price will also vary over time, and may not strictly track costs. Thus, the chances that some industries could be over-compensated is significant. This issue has been raised with the EU-ETS and is of continuing concern there. A final disadvantage of free allocation is that it might not achieve some of the purposes outlined above. Particularly if allowances are apportioned according to historic production, companies may simply pocket the allowances and still lower production or move off-shore. This can be avoided if the apportionment is based on output. Likewise, the option may have no effect on the crafting of an acceptable international agreement. Carbon Tax Credits Under a carbon tax scheme, carbon tax credits to greenhouse gas-intensive, trade-exposed industries would be similar, in effect, to a free allocation under a cap-and-trade system. The primary advantage of a carbon tax credit option is that most carbon tax proposals assume real-time emissions monitoring (or derivative calculations based on real-time fuel consumption). Real-time allocation (as opposed to allotments based on historical emissions) would naturally respond to changes in production (and derivative job gains/losses). There would be little chance for "windfall" profits, assuming accurate emissions monitoring. The primary disadvantage of a carbon tax credit is that, depending on how it is designed, greenhouse gas-intensive, trade-exposed industries receiving the credits could have little incentive to make greenhouse gas reductions on their own. The precision available in allocating tax credits removes carbon price as a factor in production and planning. This problem could be addressed by a phase-out schedule tailored to encourage commercialization of more carbon-efficient technology and processes, although trying to tailor such a phase-out to each industry or sub-industry's specific situation could be complicated and contentious. Cash Payments The primary advantage of cash payments is transparency. Particularly with free allowance allocations under a cap-and-trade program, there is some veil over exactly how much is being given to individual sectors, subsectors, or companies. With cash payments, it can be made clear who is getting what and how much. The allocations could be a matter of public record, making public and congressional oversight more straightforward. Likewise, any phasing out of the assistance over time would be clear. The disadvantage of cash payments is possible imprecision in allocations: Under a cap-and trade program, cash payments would be based on estimates of allowance prices and would have to be reconciled with the actual price at some point (such as the end of the year). That estimates would be off is likely, providing affected facilities with either a short term, no-cost loan (if too high), or a short-term added expense (if too low). More precision is likely under a carbon tax regime. However, arguably, a cash payment program would be redundant under a carbon tax scheme as a tax credit could also be transparent and little would be gained by having the government collect the money only to return it (particularly in the case of direct emissions). Border Adjustments54 The two versions of border adjustments identified in this report have been discussed extensively. Countervailing duties have been widely discussed in Europe, with an eye on imposing such a requirement on the United States, and an international reserve allowance scheme has been embodied in several legislative proposals in the United States. Border adjustments are seen as being relatively economically efficient (compared with domestic assistance). The duty on imports would allow the domestic carbon program to be implemented in the most cost-effective manner without the distorting effects of targeted, domestic assistance, while protecting greenhouse gas-intensive, trade-exposed industries from being unfairly targeted by foreign competitors not undergoing a transition to a less-carbon intensive economy. Whether it would level the playing field with respect to international trade, or encourage foreign countries to pass carbon policies of their own is more debatable. For example, avoiding carbon leakage with a trade approach may neither encourage major developing countries like China and India to commit to carbon targets, nor greatly influence their overall exports. As suggested by American Enterprise Institute (AEI) Center for Regulatory and Market Studies in a recent report: As a means of coercing China, this strategy would face long odds. First, why would China and India, by adopting domestic GHG controls, handicap all of their global trade merely to avoid sanctions on a quite small part of their economies? Less than 1 percent of Chinese steel production is sold to America in a form that would make it liable to sanctions. For aluminum, the number is only 3 percent. It is 2 percent for paper and less than 1 percent for both basic chemicals and cement. Second, one country adopting trade sanctions, or a few countries doing so, will merely change the geographic pattern of trade flows without having much impact on the total demand for Chinese energy-intensive goods. U.S. sanctions on China would cause countries with low-carbon steel, aluminum, or other industries to increase their exports to the U.S. and increase their own imports from China. It is implausible to suggest that this threat would compel China to adopt GHG controls that would remotely resemble the severity of those being proposed in America.[footnote omitted] The international scope of the border adjustment approach and the complex nature of trade makes design of a program difficult. Terms including "comparable action," "similar products," and "embedded carbon" would have to be defined in a manner that avoids arbitrary and unjustifiable discrimination between exporting countries in order to comply with WTO requirements, and methodologies developed to give meaning to them. Then a price per ton of embedded carbon would have to be determined. Assuming a carbon tax scheme domestically, this price would be obvious; in an International Reserve Allowance system under a cap-and-trade scheme, the price would have to be linked in some manner to prevailing allowance prices. The definitions and methodologies needed to implement a border adjustment have different webs of complexity. For example: How close should "comparable" action be to "identical"? If a country achieves the same percentage reduction without any comprehensive program, is that "comparable"? What if that program achieves the same results as the United States, but exempts greenhouse gas-intensive, trade-exposed industries? If a country achieves more stringent reduction levels than the United States, does the United States concede the right for them to impose a border adjustment against it? When does a comparable action have to occur? How should country of origin be determined? How is "similar product" determined? To what category, sub-category, or product-specific level will determinations be made? How broad should the scope of the program be? How will necessary international trade and carbon data be collected to determine appropriate baskets of covered products? How do WTO requirements affect the basket of covered products? How is "embedded carbon" determined? At what level of aggregation will the determination be made? Can a country have excessive embedded carbon for one product, but not another? Can different companies within a country have different embedded carbon estimates? What about products whose manufacture involves several countries, some with comparable policies and some without? Will products produced by different processes be considered together or separately? What about the same products made with different energy sources? What baselines should be used? How is potential gaming of the system prevented? In addition, an International Reserve Allowance (IRA) requirement raises various implementation issues surrounding the need to administer a separate cap-and-trade program for IRAs. Beyond the operating mechanics of a cap-and-trade program, the government would have to develop a pricing mechanism for IRAs, and a compensating mechanism to account for any allowances allocated free to domestic producers. Depending on the scope of the IRA scheme, its cap-and-trade system could be substantial. Sectoral Approaches Sectoral approaches have been suggested by various parties, such as the steel industry's proposal noted earlier, and were added to the negotiating agenda at the Bali conference of parties as "cooperative sectoral approaches and sector-specific actions." Because they cover a wide range of options, the following discusses them in terms of basic issues, such as measuring success, financing mechanisms, and crediting mechanisms. Measuring Success Several metrics could be used to determine an appropriate scheme for industry. These metrics are not mutually exclusive; different industries could employ different metrics depending on the specifics of that sector's processes. The most common metric being discussed for a sectoral-based approach is an output-based performance standard. An output-based performance standard measures success by the amount of greenhouse gases emitted per unit of output. Also called a carbon intensity target, this approach does not limit total emissions (like an emissions cap), and, therefore, is seen by its proponents as being more acceptable to developing countries who may see an emissions cap as restricting their right to development. Obviously, a performance standard requires an agreed-upon standard, or benchmark, for participating companies to achieve. A benchmark allows participants to compare their performance against an industry standard, optimal technology, or best practice. Benchmarks can be developed at different levels of aggregation and by different methods (e.g., technical assessment, historical averages, negotiation). The most precise and effective benchmarks are based on technical assessment of best available technologies or practices, designed at a micro level, and take into account the specific products and input mixes at a plant level. Thus plants with similar processes, products, and inputs can compare their performance with each other and identify needed improvements. To the extent benchmarking is used on a more aggregated level (including different processes, all similar products, etc.) the ability to improve individual plants or processes may be lost. In a strictly voluntary scheme, benchmarking could be a means to determine best practice and target technical assistance. However, it would not necessarily result in reductions if other factors, such as low energy prices, make achieving best practice not cost effective, and the company refused to join the effort. In addition, while technical-based benchmarks are a useful tool to determine the current status of best practices within an industry, it provides little guidance on the speed and magnitude of future technological advancements. Under a strictly voluntary system, achieving the benchmark could become the end of the effort—an end short of the ultimate goals of the program. In a mandatory system (or a voluntary system that becomes mandatory upon acceptance), carrots and sticks could be used to encourage industry to move toward the benchmark. Work by Vanderborght, Baron, et al., provides one illustration of how this might work. As indicated by Figure 5 , companies operating at carbon intensity levels above the present industry average (pink line that could be determined globally or differentiated by country) would be quickly and increasingly penalized (red area), while companies operating below the average would receive a modest and declining reward (blue area). Based on assessments of future advancements, the baseline could be extended in the long-term. Additional carrots could be made available to companies that adopt innovative processes that achieve this long-term goal (green area). The appropriate sticks and carrots would depend on how the program is integrated into the overall program and are discussed under "crediting mechanisms." However, technical benchmarks, whether for a voluntary or a mandatory program, have drawbacks, most notably around their need for data. Five identified by Baron et al. are as follows: Benchmarking is a time-consuming, data-intensive activity, all the more so as various conditions may need to be accounted for in an international approach. There is a risk of inflation in the number of benchmarks, as operators will argue special circumstances that all require special treatment. In some cases, benchmarking may require disclosing data that companies judge proprietary or of strategic importance. This may be handled through a careful choice of performance indicators used in the benchmark. It is a useful tool to describe an industry status "here and now" but as it is based on today's technologies and practice, it provides little guidance on what level mitigation can be achieved in the future – as in some cases, technology is yet to be invented. Can a benchmark then be used as a forward looking method? The use of an average industry benchmark as a reference to allocate effort will immediately define "winners" and losers" – i.e., installations that perform better or worse than the chosen benchmark target. While the effect on their cost would be a fair reflection of the cost associated with CO2 emissions, it may be difficult to agree to, unless the benchmark is set as a future target, as illustrated in Figure 5 . There is an asymmetry of information between any industry and a government when it comes to assessing the ability to adjust processes and to invest in new technologies to reduce greenhouse gas emissions. It is not, a priori , in an industrial actor's interest to reveal the full extent of its mitigation potential and its real cost. Because of these data needs, other possible performance standards have been proposed, such as industrial average carbon intensity. Over time, the standard would be strengthened at an agreed-upon rate toward the most efficient company or companies. A trading program could be created between companies, with companies with intensities greater than the industry average buying necessary allowances from companies with intensities less than the industry average. Essentially, the system would constitute a separate cap-and-trade program based on carbon intensity rates rather than a cap based on annual emissions. While such an approach would mitigate some of the data needs of a technically based benchmark, issues such as level of aggregation for averages would remain. Financing Mechanism Because a major focus of a sectoral approach is to encourage carbon policies in developing countries, a financing mechanism to assist the transfer of technology and expertise is usually included in a proposal, particularly the more voluntary the approach is. These mechanisms may also include assistance to domestic companies that are inefficient producers to bring them up to the agreed-upon performance standard. For example, the Dutch domestic sectoral approach to improve industrial energy efficiencies includes financial and regulatory incentives to encourage industry to sign voluntary agreements to reduce energy intensity. The funding source for these incentives could come from allowance auctions (under a cap-and-trade program), carbon tax revenues, or other mechanisms. Crediting Mechanism Most proposals to credit reductions under a sectoral approach are tied to the allowances used in a cap-and-trade program. As noted earlier, allowances are essentially a form of currency that can be converted to a monetary value via a market. In some ways, a voluntary sectoral scheme with crediting mechanisms already exists under the Kyoto Protocol: The Clean Development Mechanism (CDM) provides a means for financing and receiving credit for installing technology that reduces emissions in countries without mandatory carbon policies. However, CDM projects are on an ad hoc basis, and a sectoral scheme designed to address the purposes identified here would require more structure and direction. As illustrated by Baron and Ellis in Figure 6 , the project-by-project baseline and reduction target of CDM would need to be replaced by a broader country-specific, or policy specific, baseline and a calculated emission reduction target. The approach would cover the entire sector, not just the most cost-effective opportunities as with CDM. Facilities that perform poorly would diminish the total quantity of credits available to the sector as a whole, unless the program was voluntary with a "no-lose" provision. The difficulties in setting these baselines and reduction targets were noted previously. Implications Table 5 summarizes the three general approaches to address trade-related issues with respect to the various objectives of these approaches. As indicated, each focuses on different objectives. With respect to achieving the more comprehensive solution to trade issues—promoting an international agreement—the range presented by the three approaches is clear and distinct. Support for domestic industries, the approach most commonly included in legislative proposals, is not focused on this objective; it is focused on preserving the industry's current competitive position and jobs and may, depending on the details, help transition that industry to the future. Trade measures for foreign competitors, another approach commonly included in legislative proposals, may provide a stick for international negotiation, but the primary focus is on protecting greenhouse gas-intensive, trade-exposed industries from "unfair" competition while the country awaits an international agreement. Finally, the sectoral approach represents a range of options focused on integrating developing countries' industrial bases into a mutually acceptable international framework that provides a level playing field for all participants. Whether any of these approaches would have appreciable effects on carbon leakage is unclear. As the U.S. debate on climate change proceeds, various proposals for reducing greenhouse gas emissions contain provisions to address the trade-related issues presented here. Two of the most common options are (1) subsidies for affected industries through allocation of free allowances within cap-and-trade policies; and (2) border adjustments through an international reserve allowance program. In addition to these domestic options, the Bali Action Plan includes sectoral approaches as options for the next phase of the Kyoto Protocol. Other alternatives are also likely to be debated. Free allocation of allowances to greenhouse-gas intensive, trade-exposed industries is more narrowly focused on assisting domestic industries maintain their current competitiveness in the face of a domestic greenhouse gas reduction program. It has the virtue of relative simplicity compared with the other approaches and options, but no greater guarantee of success. Companies may choose to accept the assistance and not make the necessary improvements to existing facilities to remain competitive in the increasingly carbon-constrained future. There are metrics and benchmarks that could be used to allocate free allowances (carbon intensity, output-based metrics) that can reduce these problems, but introduce complexity in terms of increased data needs and methodological considerations. The allocation also comes at the cost of making the program more expensive for the other participants. The International Reserve Allowance scheme is a complex system focused on leveling the playing field for domestic producers against competitors whose countries are not implementing comparable greenhouse gas reductions. The international scope of the option and the complex nature of trade makes design of a program difficult. Terms including "comparable action," "similar products, and "embedded carbon" would have to be defined in a manner that avoids arbitrary and unjustifiable discrimination between exporting countries in order to comply with WTO requirements, and methodologies developed to give meaning to them. Annual assessments of countries' actions would have to be made and new baselines set. Then a price per ton of embedded carbon would have to be determined. The use of allowances, instead of money, removes the transparency of a countervailing duty and makes tracking the impact of the scheme on other parts of the economy difficult to determine. Finally, it is unclear how the affected trading partners would respond, economically, environmentally, or politically. This might encourage one to move to the sectoral approach as potentially more effective. It is focused on achieving an international agreement that would make the playing field at least acceptable to all parties. However, there is no blueprint currently that parties agree is the basis for developing such an approach. It is possible that the 2009 Copenhagen conference will resolve the fundamentals for such an approach, but what sort of contingencies one should consider in the meanwhile, or in the face of failure, is unclear. Finally, it is the details of any of these options that would ultimately determine their effectiveness in achieving the various objectives. The potential options are almost endless. For example, if a domestic assistance approach is chosen, allocation options include production output, historic emissions, company profits or revenues, and technology or best practices benchmarks. Duration options for such an approach would include anticipated technology or best practices advancements (or best currently available), consummation of an international agreement, or some criterion related to the economic health of the sector or industry. Options for data collection include publicly available data from the Departments of Energy and/or Commerce, legislatively-mandated requirement for the collection of data from companies wishing to receive assistance, or government estimates based on best available data or modeling. In any case, the task would be daunting for any of the approaches. The design of an assistance program—the goals, eligible participants, implementation, and enforcement—would be difficult to define in a manner that satisfies all parties. There is every incentive for any industry facing a cost increase from carbon policies to claim that its competitive position could be diminished, thereby justifying special consideration by the government. The government would be in the difficult position of picking winners and losers, sometimes without access to important but proprietary data.

As the debate on reducing greenhouse gases (GHGs) has progressed, increasing concern has been raised about how a U.S. reduction program would interact with those of other countries. In a global context where currently some countries have legally binding policies to reduce greenhouse gas emission and other countries do not—i.e., differentiated global carbon policies—the potential exists that countries imposing carbon control policies will find themselves at a competitive disadvantage vis-à-vis countries without comparable policies. The risks accompanying establishment of carbon control policies, in the absence of similar policies among competing nations, have been central to debates on whether the United States should enact greenhouse gas legislation. Specifically, concerns have been raised that if the United States adopts a carbon control policy, industries that must control their emissions or that find their feedstock or energy bills rising because of costs passed-through by suppliers may be less competitive and may lose global market share (and jobs) to competitors in countries lacking comparable carbon policies. In addition, this potential shift in production could result in some of the U.S. carbon reductions being counteracted by increased production in less regulated countries (commonly known as "carbon leakage"). There are three basic approaches, which are not mutually exclusive, to assist greenhouse gas-intensive, trade-exposed industries: (1) directly supporting domestic industries; (2) penalizing foreign competitors; and (3) developing alternative sectoral approaches. Importantly, these are presumably transitional actions, pending some international agreement that "levels the playing field." Each approach has its own focus. Support for domestic industries, embodied in most legislative proposals, is focused on preserving the industry's current competitive position and jobs and may, depending on the details, help transition that industry to the future. It does not directly promote an international agreement. Trade measures levied against foreign competitors, another approach being proposed, may provide a stick for international negotiation, but the primary focus is on protecting greenhouse gas-intensive, trade-exposed industries from "unfair" competition—producers in countries not imposing comparable carbon control policies. Finally, the sectoral approach represents a range of options focused on integrating developing countries' industrial base into a mutually acceptable international framework that provides a level playing field for all participants. Whether any of these approaches would have any appreciable effect on carbon leakage is unclear. The design of an assistance program—the goals, eligible participants, implementation and enforcement—would be difficult to define in a manner that satisfies all parties. There is every incentive for any industry facing a cost increase from carbon policies to claim that its competitive position could be diminished, thereby justifying special consideration by the government. The government would be in the difficult position of picking winners and losers, sometimes without access to important, but proprietary, data.

Background In the United States, states have traditionally exercised primary responsibility for the administration of elections for federal and state offices. Because of this decentralized authority, there is often significant variation in how different states regulate elections. For instance, states are likely to use different methods to establish boundaries for electoral districts, to register voters, to administer elections, to report election results, and to otherwise regulate the electoral process. The federal government, however, also has significant authority to regulate how elections are run, and in many instances it has directed how states are to administer the election process. For instance, in 1986, Congress passed the Uniformed and Overseas Citizens Absentee Voting Act. This act was intended to ensure that members of the uniformed services and U.S. citizens who live abroad are able to register and vote in federal elections. The law was enacted to improve absentee registration and voting for this group of voters. Similarly, in 1993, Congress passed the National Voter Registration Act ("Motor Voter Act") with the intention of making it easier for all citizens to register to vote. The Motor Voter Act requires that, for federal elections, states must establish procedures so that eligible citizens are afforded the opportunity to register at the time they apply for or renew a driver's license, by mail, or in person. Congressional interest in the process of holding elections increased even more as a result of the disputed 2000 presidential elections. In 2002, Congress passed the Help America Vote Act of 2002 (HAVA). HAVA provides federal requirements for several aspects of election administration, including voting systems, provisional ballots, voter information, voter registration, and the provision of identification by certain voters. For instance, HAVA requires that voting systems used in federal elections provide for error correction by voters (either directly or via voter education and instruction), manual auditing for the voting system, accessibility to disabled persons (at least one fully accessible machine per polling place) and alternative languages, and a method to meet federal machine error-rate standards. Systems are also required to maintain voter privacy and ballot confidentiality, and states are required to adopt uniform standards for what constitutes a vote on each system. HAVA also provides extensive regulation of the manner in which states maintain voter registration lists. Various proposals have been made that would further this enhanced level of federal control over the administration of election procedures. For instance, suggestions have been made that state agencies be required to share information to facilitate accurate registration lists; to standardize mail-in and absentee balloting; to establish a uniform closing time for polls; to provide for multiple-day elections; and to standardize the number and accessibility of polling stations. Other suggestions include standardizing the supervision of voting; how votes are counted, compiled, and published; and how to allocate electoral votes within a state based on popular votes. Congress could also decide to regulate even more fundamental aspects of federal elections. For instance, some states utilize commissions to establish the size and shape for electoral districts, and Congress might require that states adopt some form of commission to inform this process. Or Congress might choose to regulate the primary process. For instance, it has been suggested that Congress could require states to hold "top-two" primaries, in which all candidates run on one slate, and the top two vote getters then oppose each other in a general election. Further, suggestions have been made that the federal government could determine what form of voter identification can be required at the state level. This report focuses on Congress's constitutional authority to regulate how states establish and implement election procedures. In evaluating any such proposals, an initial question to be asked is which elections will be affected. As noted, state and local authorities have a significant role in regulating state and federal elections. Congress, however, also has authority to regulate elections, and that authority may vary depending on whether the election is for the Presidency, the House, the Senate, or for state or local offices. Further, there may be variation in whether a particular aspect of an election, such as balloting procedures, is amenable to congressional regulation. Consequently, evaluating the authority of Congress to establish standardized election procedures would appear to require a consideration of a variety of different proposals and scenarios. Relevant Constitutional Provisions The authority of Congress to legislate regarding these various issues in different types of elections would appear to derive principally from four constitutional provisions: The Elections Clause The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof; but the Congress may at any time by Law make or alter such Regulations, except as to the Places of chusing Senators. U.S. Const. Article I, §4, cl. 1. Day of Chusing Presidential Electors Clause The Congress may determine the Time of chusing the [Presidential] Electors, and the Day on which they shall give their votes; which Day shall be the same throughout the United States. U.S. Const. Article II, §1, cl. 4. Fourteenth Amendment Equal Protection Clause No State shall make or enforce any law which shall ... deny to any person within its jurisdiction the equal protection of the laws. . . . . The Congress shall have power to enforce, by appropriate legislation, the provisions of this article. U.S. Const. XIV, §§1 & 5. Fifteenth Amendment The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude. The Congress shall have power to enforce this article by appropriate legislation. U.S. Const. XV, §§1 & 2. Power as Regards Different Types of Elections Although the Constitution is silent on various aspects of the voting process, the Constitution seems to anticipate that states would be primarily responsible for establishing procedures for elections. Federal authority to direct how states administer these regulations, however, is also provided for in the Constitution. Congress's power is at its most broad in the case of House elections, which have historically always been decided by a system of popular voting. Its power may be more limited in elections for Senators or President, and is at its narrowest as regards state elections. House Elections As noted above, Article I, Section 4, cl. 1 states that Congress may determine "the Times, Places and Manner" for such elections. The Supreme Court and lower courts have interpreted the above language to mean that Congress has extensive power to regulate most elements of a congressional election. For instance, the Supreme Court has noted that the right to vote for Members of Congress is derived from the Constitution and that Congress therefore may legislate broadly under this provision to protect the integrity of this right. The Court has stated that the authority to regulate the times, places, and manner of federal elections: embrace[s] [the] authority to provide a complete code for congressional elections, not only as to times and places, but in relation to notices, registration, supervision of voting, protection of voters, prevention of fraud and corrupt practices, counting of votes, duties of inspectors and canvassers, and making and publication of election returns; in short, to enact the numerous requirements as to procedure and safeguards which experience shows are necessary in order to enforce the fundamental right involved.... [Congress] has a general supervisory power over the whole subject. Consequently, it would appear that Congress has broad authority to further enhance its level of federal control over the administration of House election procedures. Senate Elections Unlike House elections, Senate elections were, until ratification of the Seventeenth Amendment, decided by a vote of the state legislatures, not by popular vote. This helps explain why congressional power over Senate elections, while almost as broad as it is for House elections, contains one exception—that Congress may not regulate "the Places of chusing Senators." As originally implemented, this language would have limited the authority of Congress to designate where state legislatures would meet for such votes. This deference to the prerogatives of state legislatures would appear to be obsolete now that all Senate elections are decided by popular vote. However, nothing in the Seventeenth Amendment explicitly repealed this restriction, and the meaning of the clause could arguably apply to congressional regulation of sites for popular voting. Arguably, if Congress attempted to establish legislation regulating where states must establish polling sites for Senate elections, such legislation might run afoul of textual limitations of this provision. On the other hand, for practical purposes, most states, if subjected to federal regulation for House elections establishing the location of polling places, would be likely to follow such directions for Senate elections occurring at the same time, if no other reason than administrative convenience. Presidential Elections The power of Congress to regulate presidential elections is not as clearly established as the power over House and Senate elections. First, the text of the Constitution provides a more limited power to Congress in these situations. Whereas Article I, Section 4, cl. 1 allows regulation of the "time, place and manner" of congressional elections, Article II, Section 1, cl. 4 provides only that Congress may determine the "time" of choosing presidential electors. Further, despite modern state practice providing for popular voting for electors, the appointment of presidential electors was historically and remains today a power of the state legislatures. Consequently, principles of federalism might incline the Supreme Court to find the appointment of presidential electors less amenable to federal regulation. The major exception to this would be congressional authority under the Fourteenth and Fifteenth Amendments; these powers are addressed infra . The case law on this issue is ambiguous, although Congress's regulatory authority over presidential elections does seem to be more extensive than it might appear based on the text of the Constitution. For instance, the Court has allowed congressional regulation of political committees which seek to influence presidential elections, arguing that such legislation is justified by the need to preserve the integrity of such elections. In Burroughs v. United States , the Supreme Court reasoned that [w]hile presidential electors are not officers or agents of the federal government, they exercise federal functions under, and discharge duties in virtue of authority conferred by, the Constitution of the United States. The President is vested with the executive power of the nation. The importance of his election and the vital character of its relationship to and effect upon the welfare and safety of the whole people cannot be too strongly stated. To say that Congress is without power to pass appropriate legislation to safeguard such an election from the improper use of money to influence the result is to deny to the nation in a vital particular the power of self protection. Congress, undoubtedly, possesses that power, as it possesses every other power essential to preserve the departments and institutions of the general government from impairment or destruction, whether threatened by force or by corruption. A question arises, however, whether Burroughs , which involves the regulation of third parties to elections, can be distinguished from the regulation of states directly regarding their administration of presidential elections. In Burroughs , the Court distinguished the legislation under consideration (regulation of political committees) from legislation more directly dealing with state appointment of electors, noting that [t]he congressional act under review seeks to preserve the purity of presidential and vice presidential elections. Neither in purpose nor in effect does it interfere with the power of a state to appoint electors or the manner in which their appointment shall be made. It deals with political committees organized for the purpose of influencing elections in two or more states, and with branches or subsidiaries of national committees, and excludes from its operation state or local committees. Its operation, therefore, is confined to situations which, if not beyond the power of the state to deal with at all, are beyond its power to deal with adequately. It in no sense invades any exclusive state power. Under this language, procedures within the province of states, such as the allocation of electors by a state, would appear to fall outside of the doctrine established in Burroughs . Although the Court was not asked to evaluate whether Congress had the power to establish the manner in which the presidential electors were appointed, the language above would appear to indicate that the Court in Burroughs had not intended its decision to extend Congress's authority to regulate presidential elections so that it was coextensive with the power to regulate congressional elections. Surprisingly, however, three U.S. Courts of Appeals, relying on Burroughs, reached precisely the opposite result. In upholding the validity of congressional regulation of registration procedures for federal elections under the National Voter Registration Act of 1993 (Motor Voter Act), three federal circuits appeared to find that Congress had the same authority to regulate presidential elections as it did House and Senate elections. However, of the three opinions, two made only passing references to the issue, and only the U.S. Court of Appeals for the Seventh Circuit (Seventh Circuit) discussed it at any length. In ACORN v. Edgar , Chief Judge Posner of the Seventh Circuit wrote that Article I, section 4 [providing authority over congressional elections] ... makes no reference to the election of the President, which is by the electoral college rather than by the voters at the general election; general elections for President were not contemplated in 1787.... But these turn out not to be [a] serious omission[] so far as teasing out the modern meaning of Article I, section 4 is concerned. Article II provides [congressional authority over the Time of choosing Electors.] Article II, section 1 ... has been interpreted to grant Congress power over Presidential elections coextensive with that which Article I, section 4 grants it over congressional elections. Burroughs v. United States , 290 U.S. 534 (1934). It should be noted that the federal registration standards developed under Motor Voter could probably have been decided under Congress's power over congressional elections, so that the reasoning of these cases would not appear essential to their holdings. These broad holdings, however, do stand as some of the few modern interpretations of Article II, Section 1, cl. 4 and Burroughs . Those cases' interpretations, however, would appear to be at odds with the limiting language of Burroughs quoted previously. Resolution of this issue may ultimately be important to any determination of whether proposals to standardize election procedures could be specifically applied to presidential elections. Where congressional and presidential election procedures are likely to overlap, such as requirements for absentee balloting, uniform closing times, multiple-day elections, number and accessibility of polling stations, etc ., regulation of congressional elections may be for practical purposes sufficient. However, where the issue at hand is unique to presidential elections (e.g., allocation of electors based on popular vote), the resolution of this issue may become essential. Party Primaries Political parties in the United States serve several functions, including, in most states, choosing nominees to stand for congressional elections and choosing state delegations to national party conventions that choose presidential nominees. As noted previously, Article I, Section 4, cl. 1 and Article II, Section 1, cl. 4 address Congress's authority over, respectively, congressional and presidential elections, and the Fourteenth Amendment supplies additional authority over state elections. In addition, it does appear that Congress's authority over a particular type of election may extend to the primaries for such election. For a time, the Supreme Court held that congressional power over the selection of congressional and presidential candidates did not reach political parties. Then, in United States v. Classic , the Court reversed itself. In Classic , the Court considered federal indictments issued against Louisiana election commissioners for ballot fraud while conducting a primary election to nominate a candidate of the Democratic Party to be a Representative in Congress. Louisiana law mandated that party nominations for Congress be established by primaries, and limited the ability of candidates defeated in such primaries from running in the general election. State law also mandated that the party primaries be conducted by the state at public expense, and be subject to numerous statutory regulations as to the time, place, and manner of conducting the election. Based on this election scheme, the Court found that engaging in ballot fraud in connection with the Louisiana Democratic primary was interference with the choice of the voters at a stage of the election procedure when their choice could have a practical effect on the ultimate decision of who would represent the district. In effect, the Court found that the primary in Louisiana was an integral part of a two-step process that was created by the state to determine who was the most popular choice to serve in Congress. Noting the power of Congress under the Necessary and Proper Clause "to make all laws which shall be necessary and proper for carrying into execution the foregoing powers ... ," the Court held that it was within the authority of Congress (and the states) to regulate the manner in which primaries were to be held. For instance, the Court has held that political parties may be limited by a state to one candidate for each office on the ballot, and that persons affiliated with such party not seek an office outside of the party process. Further, under state law, the Court has held that smaller parties can be directed to choose their nominees by convention rather than by primary election. This latter case was decided in the context of an Equal Protection Clause challenge, based on the fact that major parties were permitted to choose their candidates by primary election. While noting that the procedures were different, the Court found that the convention method was not inherently burdensome on minority parties, while providing a state-sponsored primary for all parties would be burdensome on the states. It should be noted, however, that not all activities of political parties may be subject to state or congressional control. For instance, lower courts have rejected constitutional challenges to party rules based on the one person, one vote requirement under the Equal Protection Clause. Or, in Bachur v. Democratic National Party , the U.S. Court of Appeals for the Fourth Circuit rejected a challenge to a Democratic National Committee rule requiring proportional representation of women among delegates. The court reasoned that because primary votes are so removed from the choice of presidential party nominee, and because delegates perform a number of internal party functions besides choosing a nominee, rules applicable to general elections need not apply. Authority to Prevent Disenfranchisement in All Elections Congress does not have general legislative authority to regulate the manner and procedures used for elections at the state and local level. Nor, as noted above, does it appear to have complete authority to regulate presidential elections. Congress does, however, have extensive authority to prevent voter disenfranchisement by a state or locality. For instance, the Civil War Amendments, the Nineteenth Amendment, the Twenty-fourth Amendment, and the Twenty-sixth Amendment all seek to prevent discrimination in access to voting, and authorize Congress to exercise power over federal, state, and local elections to implement these protections. The most significant of these provisions is Congress's enforcement authority under the Fourteenth Amendment to provide for equal protection and under the Fifteenth Amendment to prevent disenfranchisement based on race. Fourteenth Amendment and Equal Protection The Fourteenth Amendment provides, among other things, that states shall not deprive citizens of equal protection of the laws, and Section 5 of that amendment provides that Congress has the power to legislate to enforce its provisions. This power has been used by Congress to expand access to the polls. For instance, in Katzenbach v. Morgan , the Court held that Section 5 of the Fourteenth Amendment authorized Congress not just to enforce the doctrine of equal protection as defined by the courts, but also to help define its scope. In Katzenbach , the Court upheld a portion of the Voting Rights Act of 1965 which barred the application of English literacy requirements to persons who had reached sixth grade in a Puerto Rican school taught in Spanish. In Flores v. City of Boerne , however, the Court limited the reach of Congress's Section 5 authority in a way that may have implications for election law. The Flores case arose when the City of Boerne denied a church a building permit to expand, because the church was in a designated historical district. The church challenged this action, asserting that the city had not demonstrated a compelling interest in applying its zoning legislation to the church as required by Religious Freedom Restoration Act (RFRA). RFRA, passed in response to the 1990 Supreme Court case of Employment Division v. Smith , was an attempt by Congress to reinstate the compelling governmental interest test which had been used to challenge the application of generally applicable laws to religious institutions. In Flores , the Court struck down this application of RFRA as beyond the authority of Congress under Section 5 of the Fourteenth Amendment. In striking down this RFRA application, the Supreme Court held that there must be a "congruence and proportionality" between the injury to be remedied and the law adopted to that end. RFRA focused on no one area of alleged harm to religion, but rather broadly inhibited the application of all types of state and local regulations to religious institutions. Since the Court found no pattern of the use of neutral laws of general applicability to disguise religious bigotry and animus against religion, it found RFRA to be an overbroad response to a relatively nonexistent problem. Similarly, it might be difficult to justify an overall regulation of state and local elections based on the Fourteenth Amendment, absent a strong showing of systemic disenfranchisement of voters. Rather, Flores would seem to dictate that Congress would need to establish narrow proposals showing that particular voting procedures threatened constitutional rights, and that the legislation was a congruent and proportional response to such threat. For instance, the question has been raised as to whether the case of Bush v. Gore , which found Equal Protection concerns regarding the disparate treatment of voters, would support congressional legislation to standardize voting technologies and procedures in all elections, including presidential, state, and local. In Bush v. Gore , the Court found that a failure to provide a standard procedure for resolution of ballot disputes raised equal protection issues. A close examination of that case, however, would seem to indicate that the Supreme Court did not intend to significantly extend the application of the Equal Protection Clause, and consequently the Court may not be amenable to the expansion of congressional authority in this area. In Bush v. Gore , a dispute arose regarding, among other things, how to count punch-card election ballots where the paper "chads" had not been fully dislodged. The Supreme Court held that the failure of the Florida Supreme Court to set standards for evaluating these ballots violated the Equal Protection Clause of the Fourteenth Amendment. On its face, this would appear to make it more likely that Congress could pass legislation under Section 5 of the Fourteenth Amendment to avoid these or similar problems. Under Flores , such laws would be valid only if Congress could establish that disparity in the use of voting technologies and procedures has historically resulted in violations of the Equal Protection Clause. In fact, it would be likely that Congress could establish a record of disparity in the application of voting technologies and procedures, as states have historically delegated authority over elections to lesser subdivisions such as electoral districts. These subdivisions, in turn, choose voting methods and procedures appropriate to their size, density and budget, with only general guidance from the state legislatures. Thus, significant variations in voting technologies and procedures probably do occur in most states. There is language in Bush v. Gore , however, which would make it unlikely that such variations would be found to be a violation of the Equal Protection Clause. In essence, this language appears to limit the holding in Bush v. Gore to only those election procedures that are under the control of a judicial officer. The recount process, in its features described here, is inconsistent with the minimum procedures necessary to protect the fundamental right of each voter in the special instance of a statewide recount under the authority of a single state judicial officer. Our consideration is limited to the present circumstance, for the problem of equal protection in election processes generally presents many complexities.... The question before the Court is not whether local entities, in the exercise of their expertise, may develop different systems for implementing elections. Instead, we are presented with a situation where a state court with the power to assure uniformity has ordered a statewide recount with minimal procedural safeguards. When a court orders a statewide remedy, there must be at least some assurance that the rudimentary requirements of equal treatment and fundamental fairness be satisfied. Based on the above language, disparity in voting procedures is only likely to rise to the level of constitutional violation when such disparate procedures are under the authority of single judicial officer, such as during a recount. It is not clear that Congress could establish a history of voting discrimination in these circumstances. Nor is it likely that the Court would find significant intrusions on state or local election district authority to set technology or procedure standards to be proportionate and congruent to such violations as have existed. Consequently, it would appear that the impact of the case of Bush v. Gore on the issue of congressional authority over elections would be minimal. Fifteenth Amendment and Race Discrimination Congress also has authority under the Fifteenth Amendment to address the narrower issue of voter discrimination based on race, although the Court has also established limits on this power. The Fifteenth Amendment was ratified in 1870, in the wake of the Civil War, with the intent of ensuring the enfranchisement of former slaves. After nearly a century of continued voting discrimination, however, Congress passed the Voting Rights Act of 1965 (Voting Rights Act), which is designed to prevent discrimination in voting. The passage of this act was initially upheld by the Court as being within Congress's authority to enforce the Fourteenth Amendment. In the case of Shelby County v. Holder , however, the Supreme Court imposed limits on the most stringent part of the act, Section 5. Section 5 requires certain states and jurisdictions with a history of voting discrimination to obtain preclearance approval from either the U.S. Attorney General or the U.S. District Court for the District of Columbia before implementing any change to a voting practice or procedure. Section 4(b) defined the jurisdictions subject to or "covered" by Section 5 as ones that had a voting test (such as a literacy test) or device (such as a poll tax) in place as of November 1, 1972, and less than 50% turnout for the 1972 presidential election. In 2006, Congress amended the act to extend the applicability of the preclearance requirements until 2031. In order to be granted preclearance, jurisdictions had the burden of proving that a proposed voting change would have neither the purpose nor the effect of denying or abridging the right to vote on account of race, color, or membership in a language minority group. A proposed change to voting procedures would be determined to have a discriminatory effect—and accordingly, preclearance would be denied—if it would lead to retrogression in minority voting strength. In Shelby County , the Court found that the application of this scheme under the current formula for determining which jurisdictions are "covered" exceeded Congress's authority under the Fifteenth Amendment. In Shelby County , the Court noted that, except for the limited circumstance of admission to the union, the federal government is not generally prevented from treating different states differently. The Court, however, also pointed out that the federal government does not have a general right to reject individual state enactments before they go into effect, and that the states retain broad autonomy in structuring their legislative priorities. Thus, the Court applied a "fundamental principle of equal sovereignty" analysis to the Voting Rights Act, requiring that a "statute's disparate geographic coverage [be] sufficiently related to the problem that it targets." In Shelby County , the Court found that the coverage provisions of Section 4(b) were based on decades-old data and the prior existence of practices that had long been eradicated. For instance, the formula was based on whether states had literacy tests and low voter registration and turnout in the 1960s and early 1970s, despite the fact that such tests have been banned nationwide for over 40 years. Further, the Court found that voter registration and turnout numbers in the covered states had risen dramatically in the years since. Finally, the Court concluded that the specific racial disparity in voter participation that had justified the preclearance remedy and the coverage formula no longer existed. Thus, the Court struck down the coverage formula, finding that the disparate treatment of states in the context of election regulation was not sufficiently related to the apparent governmental concern. As regards the Voting Rights Act, Shelby County would appear to preclude the application of Section 5 unless Congress can reformulate Section 4(b) to more closely reflect current aspects of voter participation in various jurisdictions. It is not clear, however, whether Shelby County has significant implications for election regulations in other contexts. Most election law is national in scope, and does not contain geographical variations based on historical practice. Thus, "fundamental principle of equal sovereignty" may have limited impact outside of the Voting Rights Act context. Federalism and Election Regulation Tenth Amendment As noted, modern election law is mostly regulated at the state level, but there are a variety of federal laws that direct how states will implement certain aspects of elections. While concurrent jurisdiction between the states and federal government over a particular issue area is relatively common, it is less common for the federal government to direct how the states will exercise its authority in such area. In other contexts, the directing or "commandeering" of states to implement federal programs can raise Tenth Amendment concerns. This, however, does not appear to be the case with election laws. The Tenth Amendment provides that "powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Initially, the Supreme Court interpreted the Tenth Amendment to have substantive content, so that certain "core" state functions would be beyond the authority of the federal government to regulate. Thus, in National League of Cities v. Usery , the Court struck down federal wage and price controls on state employees as involving the regulation of core state functions. The Court, however, overruled National League of Cities in Garcia v. San Antonio Metropolitan Transit Authority. In sum, the Court in Garcia seems to have said that most disputes over the effects on state sovereignty of federal commerce power legislation are to be considered political questions, and that the states should look for relief from federal regulation through the political process. The Court soon turned, however, to the question of how the Constitution limits the process by which the federal government regulates the states. In New York v. United States , Congress had attempted to regulate in the area of low-level radioactive waste. In a 1985 statute, Congress provided that states must either develop legislation on how to dispose of all low-level radioactive waste generated within the state, or the state would be forced to take title to such waste, which would mean that it became the state's responsibility. The Court found that although Congress had the authority under the Commerce Clause to regulate low-level radioactive waste, it had only the power to regulate the waste directly. Here, Congress had attempted to require the states to perform the regulation, and decreed that the failure to do so would require the state to deal with the financial consequences of owning large quantities of radioactive waste. In effect, Congress sought to "commandeer" the legislative process of the states. In the New York case, the Court found that this power was not found in the text or structure of the Constitution, and it was thus a violation of the Tenth Amendment. Thus, the question arises as to whether Tenth Amendment challenges can be brought when the federal government directs states on how to implement elections. For instance, there have been several challenges to the Motor Voter Act. The Motor Voter Act provides that a state driver's license application contain information enabling it to also serve as an application to register to vote in federal elections; requires states to create a mail-order form for registering to vote; and provides that states designate all offices that dispense welfare or provide benefits to the disabled as voter registration agencies. In addition, the law requires that states assist voting by persons in certain vulnerable populations. These provisions of the Motor Voter Act have been found to fall within the power of Congress. As noted, Congress has the authority under Article I, Section 4, cl. 1 to provide for the "The Times, Places and Manner of holding Elections for Senators and Representatives." In ACORN v. Edgar , for instance, the Seventh Circuit observed that the language of Article I, Section 4, cl. 1 "is broadly worded and has been broadly interpreted." The court noted that the phrase "Manner of holding Elections" has been interpreted to include registering voters, and the power under the section has been held to extend beyond general federal elections to include even regulation of primaries. Further, the court noted that such authority as is found in Article I, Section 4, cl. 1 is supplemented by the Necessary and Proper Clause. As noted, one might ask whether the principles of the Tenth Amendment would apply in this circumstance, so that directing state agencies to implement federal regulations would violate the "anti-commandeering" requirements of the Tenth Amendment. However, such a Tenth Amendment argument was rejected in Edgar . The court in that case noted that the Tenth Amendment has no application to Article I, Section 4, cl. 1 which clearly contemplates that states will have the burden of administering federal elections. Thus, this clause, unlike most other provisions of the Constitution, is direct authority for Congress to regulate states as to the "Times, Places and Manner" of elections. The court in Edgar did note that there may be some theoretical limits to how Congress exercises its power under Article I, Section 4, cl. 1. For instance, the court contemplated that if Congress attempted to use that power to "destroy state government" by deeming all employees of the state full-time federal voting registrars in order to make sure that every eligible federal voter in every state was registered, then the limits of the authority might be considered. However, the court found that requirements imposed by the Motor Voter Act or similar proposals did not represent an extraordinary financial or administrative burden on the state. Spending Power The Spending Clause grants Congress the authority "to pay the debts and provide for the common defense and general welfare of the United States...." Under this power, Congress has expansive authority to spend money for the general welfare, which could encompass making monies available to state and local governments to modify their election procedures. Further, the allocation of such grant monies could be conditioned on compliance by state or local officials with national standards for election procedures. Such grant conditions need not be limited by the authority of Congress discussed above to directly legislate on the issue, but could address election procedures regardless of whether they were for the House, Senate, presidential, state, or local elections. Considering the number of federal programs and the amount of federal funds provided to the states, this represents a significant power for Congress to exercise. Although most grant conditions by Congress are constitutionally uncontroversial, the Supreme Court has suggested that there are limits on the Spending Clause authority. In South Dakota v. Dole , Congress enacted the National Minimum Drinking Age Amendment of 1984, which directed the Secretary of Transportation to withhold a percentage of federal highway funds from states in which the age for purchase of alcohol was below 21 years. The state of South Dakota, which permitted 19-year-olds to purchase beer, brought suit, arguing that the law was an invalid exercise of Congress's power under the Spending Clause to provide for the "general welfare." The Supreme Court held that, as the indirect imposition of such a standard was directed toward the general welfare of the country, it was a valid exercise of Congress's spending power. The Court did, however, note some limits to this power. First, a grant condition must be related to the particular national projects or programs to which the money was being directed. In Dole , the congressional condition imposing a specific drinking age was found to be related to the national concern of safe interstate travel, which was one of the main purposes for highway funds being expended. Second, the Court suggested that in some circumstances, the financial inducements offered by Congress might be so coercive as to pass the point at which "pressure turns into compulsion," which would suggest a violation of the Tenth Amendment. In Dole , however, the percentage of highway funds that were to be withheld from a state with a drinking age below 21 was relatively small, so that Congress's program did not coerce the states to enact higher minimum drinking ages than they would otherwise choose. In the context of election regulation, it would appear that any proposed legislation to influence state behavior regarding elections would, under Dole , have to involve federal funds that are in some way related to the funding of elections. It is not clear, however, that the coercion analysis of Dole would be applicable in all cases. For instance, as noted previously in ACORN v. Edgar , the Supreme Court had found that Tenth Amendment commandeering limitations were not applicable to congressional authority over congressional elections, as the Constitution contemplates that Congress can dictate the manner in which the states administer such elections. Thus, it would appear that the Tenth Amendment limitations found in the coercion doctrine would apply only to those election contexts where Congress did not already have legislative authority to regulate that state.

In the United States, states have primary responsibility for the administration of federal elections. The federal government, however, has significant authority to determine how these elections are run, and may direct states to implement such federal regulations as the federal government provides. This authority can extend to registration, voting, reporting of results, or even more fundamental aspects of the election process such as redistricting. This report focuses on Congress's constitutional authority to regulate how states administer elections. Congress's authority to regulate a particular type of election may vary depending on whether that election is for the Presidency, the House, the Senate, or for state and local positions. Further, there may be variations in what aspects of elections are amenable to regulation. Consequently, evaluating Congress's authority to establish election procedures requires an examination of a variety of different proposals and scenarios. Although the Constitution is silent on various aspects of the voting process, it seems to anticipate that states would be primarily responsible for establishing election procedures. Federal authority to regulate federal elections, however, is specifically provided for in the Constitution. There are two main provisions at issue—Article I, Section 4, cl. 1, which provides Congress the authority to set the "Times, Places and Manner" of congressional elections, and Article II, Section 1, cl. 4, which provides that Congress may designate the "Time" for the choosing of Presidential Electors. Congress's power is broadest in the case of House elections, which have historically always been decided by a system of popular voting. Congressional power over Senate elections, while almost as broad as it is for House elections, contains one textual exception—that Congress may not regulate "the Places of chusing Senators." On the other hand, the power of Congress to regulate presidential elections is not as clearly established as the power over House and Senate elections. As noted above, the text of the Constitution provides Congress only the limited power to designate the "Time" of the choosing of Presidential Electors. It does appear that Congress's regulatory authority over presidential elections is more extensive than might appear based on the text of Article II, Section 1, cl. 4. How much more extensive, however, remains unclear. There are also a variety of other constitutional provisions that provide Congress the power to regulate all elections. This includes Congress's authority under the Civil War Amendments—Thirteenth, Fourteenth, and Fifteenth—and the Nineteenth, Twenty-fourth, and the Twenty-sixth Amendments, which provide Congress the power to prevent various types of discrimination in access to voting. Further, to the extent that there are gaps in Congress's power to regulate federal, state, or local elections, Congress might use the Spending Clause to condition the receipt of federal monies upon compliance with federal requirements. This power would extend to nonfederal elections, over which Congress has little textual authority. It should be further noted that legislation in this area may require state agencies to implement federal election mandates. Such mandates, however, do not appear to run afoul of the "anti-commandeering" requirements of the Tenth Amendment, as the Constitution appears to contemplate that states will bear the burden of administering federal election regulations.

Introduction The international saga of Andrew Speaker, a traveler thought to have XDR-TB, an extensively drug-resistant form of tuberculosis, placed a spotlight on existing mechanisms to contain contagious disease threats and raised numerous legal and public health issues. This report presents the factual situation presented by Andrew Speaker, an analysis of various public health emergency measures available to contain emergent public health threats when individuals with serious communicable diseases attempt to use public transportation such as commercial aviation, and legal issues related to the use of such public health measures. Background Tuberculosis (TB) is a bacterial infection which usually attacks the lungs but can also damage other parts of the body. It is spread when an infected person coughs, sneezes, sings, or talks and another person breathes in the bacteria. The risk of becoming infected depends on various factors including the extent of the disease in the person with TB, the duration of the exposure, and ventilation. For example, when an infected individual travels on an airplane, the risk to other passengers is increased by proximity to the infected person, and the time spent on board. While the overall risk of TB or any communicable disease being transmitted on board aircraft is low, the increasing availability and duration of air travel increase the possibility of exposure to people with TB. The World Health Organization (WHO) has stated that one in three people in the world is infected with dormant TB bacteria. Generally, these individuals become ill only when the bacteria become active, often as a result of lowered immunity, such as when an individual has HIV/AIDS. TB is usually treatable with antibiotics, but antibiotic resistance has been increasing, partly as a result of the misuse or mismanagement of the medication. Multi-drug resistant TB (MDR-TB) is resistant to two of the most effective antibiotics. Extensively drug resistant TB (XDR-TB) is a type of MDR-TB which is resistant not only to the first-line antibiotics, but also to other second-line drugs. XDR-TB is a serious condition because the treatment options are limited and successful treatment is not always possible. In 2006 WHO issued a global alert about XDR-TB which has been described as underscoring "the harsh reality that XDR-TB has the potential to transform a once treatable infection into an infectious disease as deadly, if not more so, than TB at the beginning of the 20 th century." On May 12, 2007, Andrew Speaker, a man with tuberculosis, flew from Atlanta, GA, to Europe, where he was married in Greece, and then traveled to Italy. While Mr. Speaker was in Europe, the Centers for Disease Control and Prevention (CDC) completed testing showing that he was infected with XDR-TB. At that point, CDC attempted to reach the patient in Europe, and to prevent his use of public transportation, such as passenger aviation, for his return to the United States. Fearing he would not be able to return to the United States for treatment, Mr. Speaker, without CDC's knowledge, flew to Canada and entered the United States by car on May 24. Although CDC had alerted U.S. Customs and Border Protection (CBP) in the Department of Homeland Security to the possibility that Mr. Speaker was en route to the United States, Mr. Speaker was not stopped at the border. Once in the United States, Mr. Speaker contacted CDC, and voluntarily went to a hospital in New York City. On May 25, CDC issued a federal order of provisional quarantine and medical examination pursuant to Section 361 of the Public Health Service Act. (This was the first such order since 1963. ) Mr. Speaker was then flown in a CDC aircraft to an Atlanta hospital, and later to the National Jewish Medical and Research Center in Denver, for treatment. On June 2, the federal order was rescinded when Denver health officials assumed public health responsibility for Mr. Speaker's case. On July 3, 2007, physicians determined that Mr. Speaker had multi-drug resistant tuberculosis (MDR-TB) rather than XDR-TB. On July 17, he had surgery to remove diseased and damaged tissue in his lung. Mr. Speaker was released from the National Jewish Medical and Research Center in Denver on July 26 after doctors determined that he was no longer contagious and had no further detectable evidence of infection. He was to continue antibiotic treatment for two years and was required to check in with local health authorities five days a week and have his treatment directly observed by health care workers. On April 28, 2009, Mr. Speaker filed suit claiming that the CDC violated the Privacy Act by disclosing protected information concerning his identity and medical history and seeking damages. The district court granted the CDC's motion to dismiss the case for failure to state a claim. However, on appeal, the Eleventh Circuit reversed the district court decision finding that Mr. Speaker had provided enough factual specificity and raised a reasonable inference. The case was remanded for consideration on the merits. Public Health Emergency Response Measures Incidents involving persons with serious communicable diseases who disregard medical advice and either board commercial aircraft or express the intention to fly, cross borders, or take other forms of public transportation, have prompted the expansion of public health measures which may be used in emergency situations involving a public health threat. Some available measures, such as quarantine and isolation authorities, date back many hundreds of years, while others, such as the public health "Do Not Board" list, are recent measures, largely implemented in response to the Andrew Speaker incident in 2007. Quarantine and Isolation Authority Although the terms are often used interchangeably, quarantine and isolation are two distinct concepts. Quarantine typically refers to the "(s)eparation of individuals who have been exposed to an infection but are not yet ill from others who have not been exposed to the transmissible infection." Isolation refers to the "(s)eparation of infected individuals from those who are not infected." Primary quarantine authority typically resides with state health departments and health officials; however, the federal government has jurisdiction over interstate and border quarantine. Federal quarantine and isolation authority may be found in Section 361 of the Public Health Service Act, 42 U.S.C. § 264, wherein Congress has given the Secretary of Health and Human Services (HHS) the 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." While also providing the Secretary with broad authority to apprehend, detain, or conditionally release a person, the law limits the Secretary's authority to the communicable diseases published in an executive order of the President. Executive Order 13295 lists the communicable diseases for which this quarantine authority may be exercised, and specifically includes infectious tuberculosis. In 2000, the Secretary of HHS transferred certain authorities, including interstate quarantine authority, to the director of the CDC. Both interstate and foreign quarantine measures are now carried out by CDC's Division of Global Migration and Quarantine. HHS also works closely with the Department of Homeland Security (DHS) and its agencies. HHS and DHS signed a memorandum of understanding in 2005 that sets forth specific cooperation mechanisms to implement their respective statutory responsibilities for quarantine and other public health measures. DHS has three agencies that may aid CDC in its enforcement of quarantine rules and regulations pursuant to 42 U.S.C. § 268(b). They are U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and the United States Coast Guard. In addition to DHS, CDC may also rely on other federal law enforcement agencies and state and local law enforcement agencies. While the federal government has authority to authorize quarantine and isolation under certain circumstances, it should be noted that the primary authority for quarantine and isolation exists at the state level as an exercise of the state's police power. States conduct these activities in accordance with their particular laws and policies. CDC acknowledges this deference to state authority as follows: In general, CDC defers to the state and local health authorities in their primary use of their own separate quarantine powers. Based upon long experience and collaborative working relationships with our state and local partners, CDC continues to anticipate the need to use this federal authority to quarantine an exposed person only in rare situations, such as events at ports of entry or in similar time-sensitive settings. The situation involving Andrew Speaker highlights a possible limitation of the federal quarantine and isolation power in that the federal statute authorizing quarantine authority does not directly address persons leaving the country. The law is clear in its application to persons coming into the United States from a foreign country or U.S. possession, and for persons moving from state to state. But the law does not address preventing the movement of persons with communicable diseases out of the country. Historically, quarantine has been used to keep people out of an area and/or to contain them if they may be contagious, but as the case of Mr. Speaker illustrates, in this age of global travel, public health authorities may have to deal with the possibility of detaining a person to prevent the exportation of an infectious disease. The CDC, on November 22, 2005, announced proposed changes to its quarantine regulations. While these proposed regulations were not finalized, they would have constituted the first significant revision of the regulations in Parts 70 and 71 in 25 years. The proposed changes were an outgrowth of the CDC's experience during the spread of Severe Acute Respiratory Syndrome (SARS) in 2003, when the agency experienced difficulties locating and contacting airline passengers who might have been exposed to SARS during their travels. The proposed regulations would have expanded reporting requirements for ill passengers on board flights and ships arriving from foreign countries. They would also have required airlines and ocean liners to maintain passenger and crew lists with detailed contact information and to submit these lists electronically to CDC upon request. The proposed regulations also addressed the due process rights of passengers who might be subjected to quarantine after suspected exposure to disease. In her congressional testimony regarding XDR-TB and the situation involving Andrew Speaker, CDC Director Dr. Julie Gerberding summarized CDC efforts to control the spread of tuberculosis, particularly emerging drug-resistant TB threats: To control TB, HHS/CDC and its partners must continue to apply fundamental principles including: (1) State and local TB programs must be adequately prepared to identify and treat TB patients so that further drug resistant cases can be prevented; (2) TB training and consultation must be widely available so that private health care providers recognize and promptly report tuberculosis to the public health system; (3) State and local public health laboratories must be able to efficiently perform and interpret drug susceptibility and genotyping results in TB specimens; and (4) CDC and local health authorities must work collaboratively to ensure that isolation and quarantine authorities are properly and timely exercised in appropriate cases. The Public Health "Do Not Board" List In response to the Andrew Speaker incident, federal agencies have developed a new travel restriction tool to prevent the spread of communicable diseases of public health significance. The public health Do Not Board (DNB) list was developed by the Department of Homeland Security (DHS) and the CDC, and made operational in June 2007. The DNB list enables domestic and international health officials to request that persons with communicable diseases who meet specific criteria and pose a serious threat to the public be restricted from boarding commercial aircraft departing from or arriving in the United States. The list provides a new tool for management of emerging public health threats when local public health efforts are not sufficient to keep certain contagious people from boarding commercial flights. In order to place a person on the DNB list, state and local health officials contact their local CDC quarantine station. The CDC determines if the person is (1) likely contagious with a communicable disease that presents a serious public health threat, (2) unaware of or likely to not comply with public health recommendations and medical treatment, and (3) likely to try boarding a commercial aircraft. Once a person is placed on the DNB list, airlines are instructed not to issue a boarding pass to the person for any commercial domestic flight or for a commercial international flight arriving in or departing from the United States. Other forms of transportation, such as buses and trains, are not covered by the DNB list. Once a patient is determined to be noncontagious, the CDC and DHS remove the person from the list, usually within 24 hours. The list is not limited to the communicable diseases that are covered under quarantine and isolation laws. The CDC released a report in September 2008, in which it analyzed the first year's experience with the DNB list. According to the report, the CDC received 42 requests to add persons to the DNB list, all of whom had suspected or confirmed pulmonary TB. The agency approved 33 of the requests, of which 28 were placed by public health departments in the United States, and 14 were placed on the list while they were outside of the country. Two of the 33 persons placed on the DNB list attempted to evade the air travel restriction, and both were detained by border officials and were taken to local hospitals for evaluation and treatment. In the editorial portion of the report, the CDC indicated that "(j)udicious use of the public health DNB list can obviate the human and economic costs associated with conducting contact investigations when people with communicable diseases travel on commercial aircraft." International Health Regulations In May 2005 the World Health Assembly adopted a revision of its 1969 International Health Regulations (IHR), giving a new mandate to WHO and member states to increase their respective roles and responsibilities for the protection of international public health. The IHR(1969) had focused on just three diseases (cholera, plague, and yellow fever). In addition, compliance of State Parties with the IHR(1969) was uneven, a result of, among other things, resource limitations in poorer countries, and political factors, such as the reluctance to announce the presence of a contagious disease within one's borders and face economic and other consequences. The IHR(2005), which entered into force in June 2007, have broadened the scope of the 1969 regulations by addressing existing, new, and re-emergent diseases, as well as emergencies caused by non-infectious disease agents. The IHR(2005) require State Parties to notify WHO of all events that may constitute a "public health emergency of international concern," and to provide information regarding such events. The IHR(2005) also include provisions regarding designated national points of contact, definitions of core public health capacities, disease control measures such as quarantine and border controls, and others. The IHR(2005) require WHO to recommend, and State Parties to use, control measures that are no more restrictive than necessary to achieve the desired level of health protection. The IHR were agreed upon by a consensus process among the member states, and represent a balance between sovereign rights and a commitment to work together to prevent the international spread of disease. The IHR(2005) are binding on all WHO member states as of June 15, 2007, except for those that have rejected the regulations or submitted reservations. The United States accepted the IHR(2005) with three reservations, including the reservation that it will implement the IHR(2005) in line with U.S. principles of federalism. State Parties now have a two-year period in which to assess the ability of existing national structures and resources for meeting the core surveillance and response capacities requirements set out in the regulations and to develop plans of action to ensure that these capacities are in place. Within five years of the entry into force date, State Parties must complete development of public health infrastructure that ensures full compliance with the regulations. According to the IHR (2005), State Parties are not to bar the entry of a conveyance for public health reasons, but are rather to manage the public health threat through isolation, quarantine, disinfection, or other such applicable methods. Article 43 of the IHR allows nations to implement additional health measures in accordance with their relevant national law and obligations under international law in response to specific health concerns. If a State Party implements additional health measures significantly interfering with international traffic, the public health rationale and relevant scientific information for the measures must be provided to WHO. The WHO shall share the information with State Parties and institute procedures to find a mutually acceptable solution. In June, 2008 WHO updated its aviation guidelines for tuberculosis prevention. WHO notes in the guidelines that TB and other airborne infectious diseases can fall within the scope of the IHR(2005) in cases where public health risks present a serious and direct danger to human health that may spread internationally. While TB is not listed in the IHR(2005) as a disease that would always be considered as a potential public health emergency of international concern requiring notification to WHO, it may be the subject of a potential international emergency under the IHR(2005). The guidelines state that airline companies are expected to comply with the IHR and the laws of the countries in which they operate. IHR requirements as implemented by State Parties which may affect airlines include those relating to detection and control of public health risks, such as information-sharing requirements, notification of cases of illness, and medical examination or other health measures for ill or possibly ill travelers. WHO guidelines also note that confidentiality issues may arise when health authorities request the release of passenger and crew lists, as well as when health authorities need to release the name of a passenger with TB to an airline in order to confirm that the passenger was on a particular flight or flights. One of the difficulties raised by Mr. Speaker's situation was the interaction of the varying state, federal, and international laws, regulations, and authorities. The director of CDC, Dr. Julie Gerberding, observed that there were difficulties determining how CDC was to use its assets and how the statements of principle in the international health regulations were to be applied in a specific situation to determine, for example, who should pay to move a patient, and who should care for a patient in isolation or quarantine. Civil Rights Introduction The situation presented by Andrew Speaker raises a classic civil rights issue: to what extent can an individual's liberty be curtailed to advance the common good? The U.S. Constitution and federal civil rights laws provide for individual due process and equal protection rights as well as a right to privacy, but these rights are balanced against the needs of the community. With the advance of medical treatments in recent years, especially the use of antibiotics, the civil rights of the individual with a contagious disease have been emphasized. However, classic public health measures such as quarantine, isolation, and contact tracing are, nevertheless, available in appropriate situations and, as new or resurgent diseases have become less treatable, some of these classic public health measures have been increasingly used. Therefore, the issue of how to balance these various interests in a modern culture which is sensitive to issues of individual rights has become critical. Constitutional Rights to Due Process and Equal Protection Constitutional rights to due process and equal protection may be implicated by the imposition of a quarantine or isolation order. The Fifth and Fourteenth Amendments prohibit governments at all levels from depriving individuals of any constitutionally protected liberty interest without due process of law. What process may be due under certain circumstances is generally determined by balancing the individual's interest at stake against the governmental interest served by the restraints, determining whether the measures are reasonably calculated to achieve the government's aims, and deciding whether the least restrictive means have been employed to further that interest. In O ' Connor v. Donaldson the Supreme Court examined the civil commitment of an individual to a mental hospital and held that "a State cannot constitutionally confine without more a nondangerous individual who is capable of surviving safely in freedom by himself or with the help of willing and responsible family members or friends." Clearly, an individual who is highly contagious with a serious illness may be considered dangerous, and thus subject to involuntary confinement if there is no less restrictive alternative. The lesson of Donaldson is that such confinements must be carefully examined in order to comport with the constitutional right to due process. Donaldson also raises the issue of whether less restrictive programs are required prior to the imposition of the more restrictive application of isolation or quarantine. It could be argued that the least restrictive alternative must first be applied or more restrictive alternatives will run afoul of constitutional requirements. The unequal treatment of certain socially disfavored groups with regard to quarantine also raises equal protection issues. For example, in Wong Wai v. Williamson a board of health resolution mandated Chinese residents to be quarantined for bubonic plague unless they submitted to inoculation with a serum with "the only justification offered for this discrimination ... a suggestion ... that this particular race is more liable to the plague than any other." The court struck the resolution as a violation of the equal protection clause. Although the Constitution does not specifically grant a right to travel, the Supreme Court has held that there is a fundamental right to travel. This right, and the applicable due process procedures, have been examined in the context of transportation security, particularly regarding alleged terrorists. Generally, restrictions on travel, such as identification policies for boarding airplanes, have not been found to violate the Constitution. If the public safety arguments have prevailed regarding restrictions due to transportation security, they would be likely to prevail against a serious public health threat. However, the seriousness of the threat and the due process procedures used would be key to any constitutional determination. Federal Nondiscrimination Laws In addition to constitutional issues, discrimination against an individual with an infectious disease may be covered by certain federal laws, notably Section 504 of the Rehabilitation Act, the Americans with Disabilities Act (ADA), and the Air Carrier Access Act (ACAA). However, under these statutes, an individual with a contagious disease does not have to be given access to a place of public accommodation or employment if such access would place other individuals at a significant risk. Although the language of Section 504 does not specifically discuss contagious diseases, the Supreme Court dealt with discrimination issues in the context of tuberculosis and Section 504 in School Board of Nassau County v. Arline. The Court found that in most cases an individualized inquiry is necessary in order to protect individuals with disabilities from "deprivation based on prejudice, stereotypes, or unfounded fear, while giving appropriate weight to such legitimate concerns of grantees as avoiding exposing others to significant health and safety risks." The Court adopted the test enunciated by the American Medical Association (AMA) amicus brief and held that the factors which must be considered include "findings of facts, based on reasonable medical judgments given the state of medical knowledge, about (a) the nature of the risk (how the disease is transmitted), (b) the duration of the risk (how long is the carrier infectious), (c) the severity of the risk (what is the potential harm to third parties) and (d) the probabilities the disease will be transmitted and will cause varying degrees of harm." The Court also emphasized that courts "normally should defer to the reasonable medical judgments of public health officials." The ADA provides nondiscrimination protections to individuals with contagious diseases but balances this protection with requirements designed to protect the health of other individuals. Title I of the ADA, which prohibits employment discrimination against otherwise qualified individuals with disabilities, specifically states that "the term 'qualifications standards' may include a requirement that an individual shall not pose a direct threat to the health or safety of other individuals in the workplace." In addition, the Secretary of Health and Human Services (HHS) is required to publish, and update, a list of infectious and communicable diseases that may be transmitted through handling the food supply. Similarly, Title III, which prohibits discrimination in public accommodations and services operated by private entities, states the following: Nothing in this title shall require an entity to permit an individual to participate in or benefit from the goods, services, facilities, privileges, advantages and accommodations of such entity where such individual poses a direct threat to the health or safety of others. The term 'direct threat' means a significant risk to the health or safety of others that cannot be eliminated by a modification of policies, practices, or procedures or by the provision of auxiliary aids or services. Although Title II, which prohibits discrimination by state and local government services, does not contain such specific language, it does require an individual to be "qualified" and this is defined in part as meeting "the essential eligibility requirements of the receipt of services or the participation in programs or activities." This language has been found by the Department of Justice to require the same interpretation of direct threat as in Title III. Contagious diseases were discussed in the ADA's legislative history. The Senate report noted that the qualification standards permitted with regard to employment under Title I may include a requirement that an individual with a currently contagious disease or infection shall not pose a direct threat to the health or safety of other individuals in the workplace and cited to School Board of Nassau County v. Arline , the Section 504 case discussed previously. Similarly, the House report of the Committee on Education and Labor reiterated the reference to Arline and added "[t]hus the term 'direct threat' is meant to connote the full standard set forth in the Arline decision." The Air Carrier Access Act (ACAA) prohibits discrimination by air carriers against "otherwise qualified individual[s]" on the basis of disability. Enacted in 1986, prior to the ADA, the ACAA contains no statutory reference to communicable diseases. However, the regulations, like the ADA and its regulations, generally treat individuals with communicable diseases as falling within the definition of "individual with a disability." The regulations prohibit various actions by carriers against individuals with communicable diseases. A carrier may not "(1) refuse to provide transportation to the person, (2) require the person to provide a medical certificate, or (3) impose on the person any condition, restriction, or requirement not imposed on other passengers." However, an exception applies when an individual "poses a direct threat to the health or safety of others." "Direct threat" is defined as "a significant risk to the health or safety of others that cannot be eliminated by a modification of policies, practices, or procedures, or by the provision of auxiliary aids or services."

The international saga of Andrew Speaker, a traveler thought to have XDR-TB, a drug-resistant form of tuberculosis, placed a spotlight on existing mechanisms to contain contagious disease threats and raised numerous legal and public health issues. This report presents the factual situation presented by Andrew Speaker. It also discusses the application of various public health measures available to contain an emerging public health threat posed by an individual who ignores medical advice and attempts to board an airplane or take other forms of public transportation. These measures include quarantine and isolation authorities, the "Do Not Board" List, and application of certain provisions of the International Health Regulations. This report also examines constitutional issues relating to due process and equal protection. Legal issues which may be raised by application of federal nondiscrimination laws when emergency public health measures are used to contain emerging public health threats are also discussed.

Introduction Ukraine's "Orange Revolution" has sparked a great deal of interest in Congress andelsewhere. Some hope that Ukraine may finally embark on a path of comprehensive reforms andEuro-Atlantic integration after nearly 15 years of half-measures and false starts. Others are interestedin the geopolitical implications of a pro-Western Ukraine in the former Soviet region and in relationsbetween Russia and the West. Some analysts detect a new wave of democracy sweeping thepost-Soviet region, from the "Rose Revolution" in Georgia in November 2003-January 2004, to the"Orange Revolution" in November 2004-January 2005, and possibly to the overthrow of the regimein Kyrgyzstan in March 2005. In 2004, many observers believed that Ukraine was at a key period in its transition that couldshape its geopolitical orientation for years to come, in part due to presidential elections held onOctober 31, November 21, and December 26, 2004. In their view, the elections could move Ukrainecloser to either integration in Euro-Atlantic institutions, real democracy and the rule of law, and agenuine free market economy; or they could move Ukraine toward a Russian sphere of influence,with "managed democracy" and an oligarchic economy. For the past decade, Ukraine's politicalscene had been dominated by President Leonid Kuchma and the oligarchic "clans" (regionally basedgroups of powerful politicians and businessmen) that supported him. The oligarchs chose PrimeMinister Viktor Yanukovych as their candidate to succeed Kuchma as President. The chiefopposition candidate, former Prime Minister Viktor Yushchenko, was a pro-reform, pro-Westernfigure. International observers criticized the election campaign and the first and second rounds ofthe election as not free and fair, citing such factors as government-run media bias in favor ofYanukovych, abuse of absentee ballots, barring of opposition representatives from electoralcommissions, and inaccurate voter lists. Nevertheless, Yushchenko topped the first round of the voteon October 31 by a razor-thin margin over Yanukovych. Other candidates finished far behind. After the November 21 runoff between the two top candidates, Ukraine's Central ElectionCommission proclaimed Yanukovych the winner. Yushchenko's supporters charged that massivefraud had been committed. Hundreds of thousands of Ukrainians demonstrated against the fraud,in what came to be known as the "Orange Revolution," after Yushchenko's chosen campaign color. They blockaded government offices in Kiev and appealed to the Ukrainian Supreme Court toinvalidate the vote. The court invalidated the runoff election on December 3, and set a repeat runoffvote on December 26. Yushchenko won the December 26 re-vote, with 51.99% of the vote toYanukovych's 44.19%. After several court challenges by Yanukovych were rejected, Yushchenkowas inaugurated as President of Ukraine on January 23, 2005. On February 4, 2005, the Ukrainianparliament approved President Yushchenko's appointment of Yulia Tymoshenko as Prime Ministerof Ukraine by a vote of 373-0. Tymoshenko is an energetic, charismatic leader with a sometimescombative political style who campaigned effectively on Yushchenko's behalf. She is a controversialfigure due in part to her alleged involvement in corrupt schemes as a businesswoman and agovernment minister during the Kuchma regime. (1) During the campaign, Yushchenko accused the authorities of trying to poison him. OnSeptember 6, 2004, he fell seriously ill, shortly after attending a dinner with the chief of theUkrainian security services. After his condition worsened, he was rushed to the Rudolfinerhausmedical clinic in Austria. Doctors were unable to determine the cause of the illness at the time. Yushchenko soon resumed campaigning, but his face was, and remains, severely pockmarked. OnDecember 11, doctors at Rudolfinerhaus, reportedly with the help of American experts, confirmedthat Yushchenko had been poisoned with a massive dose of the toxic substance dioxin. Ukrainianlaw enforcement officials are investigating the poisoning plot, and say they have developedinformation on who was behind the plot and who carried it out, but have not disclosed details. Ukrainian officials have hinted that the poison may have come from Russia, although the Ukrainiangovernment has not accused the Russian government of complicity in the plot. Ukraine's Priorities President Yushchenko has set an ambitious set of domestic priorities for the new government.Yushchenko has said that his key domestic priorities include reducing the size of the unofficial,"shadow" economy, especially by reducing taxes and eliminating loopholes and exemptions forfavored businesses. Another key goal is to maintain macroeconomic stability, although this effortmay be challenged by campaign promises to increase social spending. Yushchenko has pledged tofight corruption, a critical problem in Ukraine, including through administration and civil servicereforms. Other priorities include improving the independence and effectiveness of the judiciary; andattracting foreign investment. (2) Yushchenko has vowed to prosecute those guilty of crimes,including fraud during the election, the 2000 murder of Ukrainian journalist Georgi Gongadze, andthe attempt on Yushchenko's own life. Yushchenko has said that he does not envision wholesale reversal of the sometimes dubiousprivatization deals of the past 15 years (a possible relief to some oligarchs) but that he will revisithighly questionable privatizations that have occurred in recent years, which he has estimated at about20-30 firms. In addition, he has raised the possibility that current owners could keep the companies,if they paid the government an additional amount to make up the difference between the fair marketprice of the firm and what they originally paid for it. One privatization, the huge Kryvrizhstal steelworks, has already been overturned. According to press reports, international steel companies,including U.S. Steel and Russian firms, may be interested in bidding on the firm if it is re-privatized. However, Prime Minister Tymoshenko has resisted limiting the number of deals under investigationand has launched a much broader inquiry that could involve hundreds or even thousands of firms. Western observers have expressed concern that the current uncertainty over privatization andother government policies is having an unsettling effect on Ukraine's investment climate. Effortsto overturn previous privatizations could result in lengthy court battles. In addition, potentiallong-term investors could fear that their property could be expropriated if politically-determined"rules of the game" are changed once again in the future, instead of firmly establishing the rule oflaw. Some Western observers are also concerned that the government seems focused on boostingtax collection to pay for increased social spending promised during the campaign rather than onreforms that would attract more foreign investment. Indeed, such efforts, undertaken withoutconsultation with investors and in the hands of corrupt bureaucrats, could actually discourageinvestment, they say. Foreign Policy Yushchenko's main foreign policy priority is expanding ties with the EU, seeking EUdesignation as a market economy as a first step. After Ukraine receives World Trade Organizationmembership, which Yushchenko wishes to achieve by the end of 2005, Ukraine will seek a free tradezone with the EU, and by 2007 start talks on EU membership, an objective Yushchenko believes canbe achieved within a decade. However, EU officials have tried to downplay the chances forUkrainian membership in the EU, instead calling for practical steps to improve relations within thecontext of the EU's European Neighborhood policy, which could include EU designation as a marketeconomy, assistance for Ukraine's WTO candidacy, a feasibility study for an EU-Ukraine free tradearea, and other forms of assistance. President Yushchenko has said that he favors eventual Ukrainian membership in NATO. TheKuchma regime, at least until the presidential election campaign, when it recanted under allegedRussian pressure, claimed to seek membership in the Alliance, and the United States expressedsupport for Ukraine's aspirations. NATO and Ukraine formed a NATO-Ukraine Commission tofoster cooperation. In 2002, the two sides developed a NATO-Ukraine Action Plan to outline goalsand objectives for political and military reform in Ukraine. However, Ukraine's lack of progress onreforms under Kuchma made such efforts largely ineffective. In April 2005, NATO launched an"Intensified Dialogue" with Ukraine on its membership aspirations and relevant reforms, withouthowever committing the Alliance to any decision on membership. Ukraine's Foreign Minister BorisTarasyuk has said that Ukraine could be ready to join NATO as early as 2008. Other observers aremore skeptical, noting that Ukraine faces serious challenges in reforming its armed forces andsecurity sector, not to mention the broader tasks of political and economic reform. Moreover, somemembers of the government, including those with economic ties to Russia, are skeptical or opposedto NATO membership for Ukraine. President Yushchenko has noted that another obstacle to Ukraine's possible NATOmembership is a lack of public support at present. According to a June 2005 poll by the RazumkovCenter for Economic and Political Research and the Kyiv International Institute of Sociology, 56.7%of those polls were opposed to NATO membership for Ukraine, while only 22.4% supported theidea. Ukrainian officials believe an extensive public information effort will be needed to strip awaymisinformation and Soviet-era prejudices toward the Alliance. Some observers have speculated thata stronger push for NATO membership may have to wait until after the March 2006 elections, inorder to avoid giving the government's opponents a campaign issue, particularly in eastern Ukraine,where pro-Russian sentiments are strong. (3) Yushchenko has tried to allay public concerns by saying any futuredecision to join NATO would be put to a national referendum first. Despite Russia's strong support for his opponent during the campaign, Yushchenko has saidthat he favors good relations with Russia. In his first foreign visit as President, Yushchenko heldmeetings with Russian President Vladimir Putin in Moscow on January 24. Yushchenko calledRussia a permanent strategic partner of Ukraine, but insisted that he will subordinate participationin the Russian-led Single Economic Space (SES) and the Commonwealth of Independent States tohis goal of Euro-Atlantic integration. Specifically, Ukrainian leaders have said that they mayconsider a free trade zone within the SES, but not a customs union or a currency union. Russian observers have expressed concern about how Ukraine's new European orientationand reprivatization plans will affect bilateral economic ties. About 90% of Ukraine's oil and 80%of its natural gas supplies come from Russia, and a substantial portion of the rest is transportedthrough Russia. Russia is also Ukraine's largest export market, absorbing 18% of Ukraine's exportsin 2003. 78% of Russia's lucrative natural gas exports to Western Europe transit Ukraine. (4) Russia and Ukraine haveestablished a joint consortium to supply Western Europe with gas, but Ukraine is seeking to includewestern European firms as well. Russian businessmen could see advantages in a more favorableclimate for foreign investment in Ukraine. Ukrainian officials have assured Russia that Ukraine'sNATO aspirations would not affect the status of the Russian Black Sea Fleet in Ukraine, which holdsa lease there through 2017. One possible area of controversy between Moscow and Kiev could be policy towardpost-Soviet countries. Moscow may be uneasy about Ukraine's possibly more active role in theGUAM group of countries (an acronym based on the countries forming it: Georgia, Ukraine,Azerbaijan and Moldova). Although having widely varying political and economic conditions, thesecountries have in common a desire to maintain their sovereignty that they sometimes see threatenedby Russia and the Russian-dominated CIS. One particular area in which these countries could work together is diversification of sourcesof energy and the pipelines needed to transport that energy. Ukraine is currently studying how to move forward with a plan to extend into Poland an oil pipeline that currently runs from an oilterminal at the port of Odesa to the town of Brody. The Odesa-Brody pipeline could be used totransport Caspian Sea oil through Georgia, across the Black Sea in tankers to the Odesa-Brodypipeline and into Western Europe, thereby reducing dependence on Russian oil, and reducingRussia's control of regional pipelines. However, due to a decision of the previous government, thepipeline currently runs in "reverse mode," transporting Russian oil to the Odesa terminal and out tothe Mediterranean Sea. The new government faces problems in restoring the pipeline's originallyplanned direction, including a lack of oil supplies to fill the pipeline, and Russian pressure onUkraine and on potential oil suppliers such as Kazakhstan, aimed at thwarting the project. Ukraine's new government supports Moldova's desire to reintegrate its breakawayTransnistria region. In May 2005, Ukraine offered a peace plan for Moldova that called forinternationally monitored elections in Transnistria and for Transnistria's autonomy within Moldova. Moldova welcomed Kiev's initiative in principle but reacted cautiously to some of its details andomissions, noting for example that it does not mention the need for a Russian troop withdrawal fromMoldova. Perhaps as importantly, Ukraine has promised to crack down on the lucrative, often illegaltrade between Ukraine and Transnistria. This could put heavy pressure on the Transnistria leadership,perhaps making a negotiated settlement more likely. Russia would likely view Ukraine's stance asan effort to undermine Moscow's influence in Transnistria. Another potential problem for Russian-Ukrainian relations is the fear expressed by someRussian observers that Ukraine may try to "export" its democratic revolution to other countries inthe region, including Belarus and even Russia itself. Although Ukrainian leaders deny suchintentions, Ukrainian NGOs that played an important role in the Orange Revolution, including theyouth group "Pora" have expressed such goals. Moreover, the very existence of a successfuldemocratic revolution could raise expectations in other CIS countries, particularly if Ukraine'sreforms result in greater prosperity for Ukrainians. The fear of a "color revolution" in Belarus hasled Belarusian dictator Aleksandr Lukashenko to intensify a crackdown on opponents, independentmedia, and NGOs. He has also put in place Soviet-style policies to reduce contacts betweenBelarusians and foreigners who could "contaminate" them with democratic ideas. Prospects Ukraine's new leaders have several things in their favor in their efforts to reform Ukraine andmove it closer to the West. Ukraine's new leadership has many competent figures, is fairly young,and highly motivated. Yushchenko enjoys strong public support at present. The former regime'ssupporters have been thrown into disarray by their unexpected defeat, and many of them appear tobe currying favor with the new regime. With the exception of the Communist Party, which hasdeclined in importance since independence, the opposition does not have a set of principles toprovide cohesion. Ukraine is also benefitting from substantial goodwill from the United States andother Western countries, in marked contrast to the former regime, which had isolated itself fromWest by its actions and had become more dependent on Russia. Potential Obstacles However, Ukraine faces many obstacles as well. Many of its goals, such as rooting outcorruption, may be easy to proclaim but very difficult to achieve. It is possible that some in the newleadership, many of whom served in the old regime, may be tempted to engage in corruption and usethat regime's quasi-authoritarian methods. A related issue is whether those businessmen whosupported the "Orange Revolution" will expect to become the "new oligarchs" of Ukraine, and, ifso, what impact a possible struggle between "old" and "new" oligarchs over Ukraine's economicresources will have on reform efforts. Yushchenko has formed a center-right pro-presidential bloc called People's Union-OurUkraine. People's Union-Our Ukraine is in a loose coalition with other groups, including the YuliaTymoshenko Bloc, the centrist Party of Industrialists and Entrepreneurs (led by First Deputy PrimeMinister Anatoli Kinakh), the centrist People's Party (headed by parliament chairman VolodymyrLytvyn), and the leftist Socialist Party. Reforms have been slowed as much by dissension within thecoalition than effective opposition by the Communists and supporters of oligarchs from easternUkraine. Personal and policy conflicts among coalition partners have led to confusion over thegovernment's policies on many issues, including such fundamental ones as the proper amount ofgovernment control over the economy. Key legislation needed for Ukraine's admission to the World Trade Organization (includinglegislation to fight Ukraine's severe optical media piracy problem) has been voted down by theparliament, including by some members of Yushchenko's own People's Union-Our Ukraine group,putting Yushchenko's goal of joining the WTO in 2005 in jeopardy. Some Ukrainian and Westernobservers have complained that part of the problem is that President Yushchenko has not exercisedconsistent discipline and leadership over the government and parliament to push needed legislationthrough and to ensure coherent government policies. Other observers note that the new governmenthas been in place only a few months, and that these problems could be eased after the March 2006parliamentary elections, when a still-popular Yushchenko may be able to form a more homogenousmajority in parliament. Regional differences in Ukraine may present another problem. Ukrainian officials havesharply warned leaders in eastern Ukraine that any talk of separatism would be severely punished.Yushchenko's electoral support was overwhelmingly concentrated in western and central Ukraine. Due in part to the previous regime's propaganda that attempted to portray Yushchenko asanti-Russian and an extreme nationalist, even as a Nazi, the new government may face a challengein gaining the support of people in eastern and southern Ukraine. In contrast to setbacks on somereform issues, the new government has moved more quickly to replace loyalists of the old regimein public posts, particularly in eastern Ukraine. Moreover, Ukrainian prosecutors have arrestedseveral leading figures of the old regime for various crimes, ranging from extortion to electoral fraudto fomenting separatism. Many of these people are closely associated with the Donetsk region andYanukovych. Reprivatization could also lead to a large-scale redistribution of property fromoligarchs in eastern Ukraine to those supporting Yushchenko. Efforts by Yanukovych and others to characterize these actions as political repression andcreate massive public support for themselves in eastern Ukraine have so far failed. Nevertheless,the government remains more popular in western Ukraine than in the east. In a June 2005 poll takenby Razumkov Center for Economic and Political Research and the Kyiv International Institute ofSociology, in western Ukraine, 54.9% strongly supported Yushchenko's actions as president (55.4%felt the same way about Prime Minister Tymoshenko), while the corresponding figures in easternUkraine were 18.9% for Yushchenko and 7.5% for Tymoshenko. This may be because some peoplefrom eastern and southern Ukraine may fear a transfer of economic resources from their regions,which they view as more productive, to poorer regions in western Ukraine. Also, Yushchenko'sopponents could play on fears that the new government will pressure people in eastern Ukraine,which is overwhelmingly Russian-speaking, to speak Ukrainian. Ukrainian officials have assuredpeople in eastern Ukraine that no efforts would be made to force use of the Ukrainian language onpeople in their region, for example by shutting down Russian-language schools and media. There is also the possible impact of the constitutional changes approved by the Ukrainianparliament in December 2004 as part of a political compromise to end Ukraine's political crisis. Thereforms, which will reduce the powers of the presidency, which will go into effect in September2005 if a new law on local government is passed and in January 2006 if it is not. Under the reform,the Cabinet of Ministers will be the supreme executive body in Ukraine. The President will havethe power to nominate the prime minister, the foreign minister, and the defense minister, subject tothe approval of parliament. The rest of the government will be nominated by the prime minister andapproved by the parliament. It is possible that these changes could be struck down as a result oflegal challenges. However, if the reforms go into force, they will make the results of the March 2006parliamentary elections even more important. International Obstacles. Ukraine could also faceimportant international obstacles. Perhaps the most important is Russia's policy. It is unclearwhether Russia will genuinely treat Ukraine as an equal, instead of attempting to pressure or punishthe new leadership. Russia could attempt to manipulate Ukraine's heavy dependence on Russianenergy. However, as in the past, Russia's leverage is somewhat limited by Ukraine's control of themain pipelines for Russian energy exports to Western Europe. Some analysts point to several recent incidents that could indicate that Russia may be tryingto pressure Kiev by playing the energy card. In April 2005, gasoline prices rose sharply in Ukraine. Prime Minister Tymoshenko accused Russian energy firms, which control not only most of Ukraine'scrude oil supplies but also its oil refineries and filling stations, of abusing their market position. Sheimposed price controls and called for greater government control of Ukraine's energy sector. TheRussian firms responded by cutting off gas supplies. President Yushchenko stepped in, sharplycriticized Tymoshenko for her non-market approach to the problem and reached a compromise withthe Russian firms. In another case, the Russian natural gas giant, Gazprom, has called for largeincreases in the price of gas to be supplied to Ukraine in 2006 and has accused Ukraine of a massivetheft of Russian gas. Sharply increased energy prices could have a negative impact on Ukraine'seconomy. The Ukrainian government has responded to the problem by trying to diversify itssupplies of oil and natural gas through negotiating deals with Turkmenistan, Kazakhstan and Iran,among other countries. Another way Russia could attempt to "punish" Kiev could be to bolster "pro-Russian"opposition forces in eastern and southern Ukraine. However, it should be noted that Russia has inthe past tried to play upon regional differences in Ukraine, most recently during the presidentialelections, without success. Ukraine's reform efforts might be hampered if Western countries do notprovide timely and effective assistance, which could come in the form of political support, economicaid, lower trade barriers, and support for WTO membership. Indicators of Success One indicator of success will be if Ukraine experiences a substantial increase in foreigninvestment. This would indicate that investors are happier with Ukraine's progress in such areas ofperennial concern as fighting corruption, reducing red tape, and enforcing the rule of law. Perhapsa more important indicator from the point of view of the majority of Ukraine's population would bean increase in living standards and a decrease in poverty. In recent years, Ukraine has experiencedhigh levels of economic growth, but the benefits of that growth have not reached all sectors of thepopulation. International observers may closely monitor the March 2006 parliamentary electioncampaign for signs of media access for opposition candidates, improved election laws andadministration, and other signs of free and fair elections. In the longer term, Ukraine's foreign policy success may be measured by whether it receivesa signal from the EU that it can be considered a candidate for eventual EU membership, and a similarsignal from NATO, perhaps in the form of a Membership Action Plan. However, it should be notedthat success in these areas depends as much or more on such issues as intra-EU politics,trans-Atlantic ties, and perceptions of Russia's future, as on Ukraine's own efforts. France, Germany,and other EU countries stress the importance of maintaining good relations with Moscow, in orderto preserve regional stability and economic ties with Russia. In addition, possible membership forUkraine poses difficult problems of its own for the EU, which is struggling to incorporate tenrecently admitted members, as well as possible future new members in Turkey and the Balkans. Onthe other hand, many of the EU's new members in central Europe, especially Poland and the Balticstates, are looking to counterbalance Russia and stabilize their eastern borders. They continue topush strongly for one day incorporating Ukraine, and possibly other post-Soviet countries, into theEU. If Ukraine becomes discouraged about the prospects for joining the EU, due to the EU's currentdifficulties, it is possible Kiev could push more strongly for NATO membership in a bid to showtangible gains in its Euro-Atlantic integration efforts. U.S. Policy U.S. officials supported the "Orange Revolution" in Ukraine, warning the former regime ofnegative consequences if it engaged in fraud, sharply criticizing fraud in the November 21 runoffvote, and hailing Yushchenko's ultimate victory. The United States also provided assistance toUkrainian non-governmental organizations that monitored the election and conducted exit polls todetect fraud. (5) In a showof support for the new leadership, President Bush and other NATO leaders met PresidentYushchenko at a NATO summit on February 22, 2005. President Yushchenko visited the UnitedStates from April 4-7, and had meetings with President Bush and Secretary of State Rice. Yushchenko's address to a joint session of Congress on April 6 was interrupted by several standingovations. The two leaders signed a joint statement that hailed Ukraine's democratic revolution and saidthe two countries would work to spread freedom in the region, as well as throughout Europe andbeyond, including in Belarus and Cuba. It restates the long-standing U.S. policy goal of ademocratic, secure Ukraine integrated in European and Euro-Atlantic institutions. In the statement,the United States pledged its assistance to help Ukraine make the necessary reforms to join the WTOin 2005 and its support for Ukraine's NATO aspirations. The Administration also called for"immediately" ending the application of the Jackson-Vanik amendment to Ukraine. The two sideswill establish an "energy dialogue" to help Ukraine achieve greater energy independence. Thestatement underlines the cooperation of the two sides to fight terrorism and weapons proliferation,especially in ballistic missiles, an area in which Ukraine is a world leader. In the statement, theUnited States pledges to help Kiev fight AIDS/HIV, a serious problem in Ukraine, and to providean additional $45 million to the Chernobyl Shelter Fund, which collects funds to repair the protectiveshelter over the reactor destroyed in the 1986 nuclear accident. Current U.S. aid levels for Ukraine are relatively modest. According to the FY2006 budgetsubmitted by the President, Ukraine will receive an estimated $93.5 million in U.S. aid in FY2005. The Administration proposed $115.9 million in aid for Ukraine in FY2006. The President soughtan additional $60 million to aid reform in Ukraine in an Iraq/Afghanistan FY2005 supplementalappropriations request. U.S. aid is focused on anti-corruption and rule of law efforts, media andNGO development, and election monitoring and other democracy-building programs. The UnitedStates also seeks to increase exchange programs between the two countries. As noted in the April 2005 Bush-Yushchenko joint statement, the United States will beinterested in seeing how the new government tackles such issues as weapons proliferation andhuman trafficking. During the Kuchma era, several arms trafficking scandals damaged Ukraine'sinternational reputation. In September 2002, the Administration announced that it had authenticateda conversation taped in Kuchma's office in July 2000, in which Kuchma gave approval for the saleof four Kolchuga early warning radar systems to Iraq, a sale banned by a U.N. Security Council armsembargo. The Yushchenko government has recently opened investigations into other arms sales,including the sale of 18 nuclear-capable long-range cruise missiles to Iran and China in 1999-2000. The United States is leading a NATO effort to help Ukraine destroy its vast stocks of obsolete smallarms and man-portable surface-to-air missiles. The 2005 State Department Trafficking in Persons report says that Ukraine is a sourcecountry for women and girls trafficked for purposes of sexual exploitation. The report designatesUkraine as a "Tier 2" country, which means that it does not comply with minimum standards for theelimination of trafficking, but is making "significant efforts" to do so. The report says Ukraine hasincreased the number of prosecutions and convictions of traffickers, but that shortcomings exist inseveral areas, including government corruption. The report notes that the new government aims toimprove Ukraine's performance on this issue. The report recommends that Ukraine "create a specialwitness protection program for trafficking victims, expand the legal definition of trafficking toconform with international requirements, ensure the appropriation of consistent resources for theanti-trafficking unit, and conduct sensitivity training to reduce victim blaming and breaches of victimconfidentiality." Iraq A key issue for U.S. policymakers is the withdrawal of Ukrainian troops from Iraq. U.S.officials said during 2004 that Ukraine's contribution of over 1,600 troops, while appreciated, wouldnot cause the United States to overlook Ukraine's democratic shortcomings during the presidentialelections. However, some observers were concerned that the leaders of the former regime werehoping that the United States would downplay election irregularities if Ukraine continued its troopdeployment in Iraq. During the campaign, Yushchenko pledged to quickly withdraw the troops ifelected, while Yanukovych supported the deployment, but raised the possibility that a continueddeployment could be conditioned on such factors as the granting of more reconstruction contractsin Iraq to Ukrainian firms. After taking office, President Yushchenko confirmed that he would pull Ukraine's troops outof Iraq after consultation with other Iraq coalition members and the Iraqi government. On March11, 2005, over 130 Ukrainian troops were withdrawn from Iraq. A further 550 left Iraq in May, andthe remaining troops will be withdrawn by the end of the year. The Administration has downplayedthe significance of the Ukrainian withdrawal. After an April 4 meeting with President Yushchenko,President Bush said that Yushchenko was "fulfilling a campaign pledge. I fully understand that. Buthe also has said that he's going to cooperate with the coalition in terms of further withdrawals, andI appreciate that." (6) Policy Issues One important issue for U.S. policy will be whether to take additional steps to help Ukraine.Many analysts say that the United States could provide additional support to Ukraine, for exampleby helping it obtain loans from international financial institutions for its reform plans. Ukraine'strade with the United States could be enhanced if the Department of Commerce determined Ukraineto be a market economy in the near future. (7) Some experts have said that Ukraine should receive funding underthe Millennium Challenge Account when it qualifies for such assistance. Finally, some observershave suggested that leading Western countries should hold an aid donor conference this year in orderto seek aid pledges and coordinate assistance efforts. In addition, U.S. assistance tailored toYushchenko's near-term agenda, and similar support from the EU, could be important toconsolidating the gains of democratic forces in Ukraine in the run-up to the March 2006parliamentary elections. Another potential issue is how or whether to deal with perceptions among some observersin the United States and elsewhere that the reform process in Ukraine is in a state of drift,particularly on economic reform. U.S. officials have praised the Yushchenko government as abeacon of democracy and reform and have appeared cautious about offering public criticism, perhapsbecause the government is only a few months old and perhaps for fear of undermining it. However,some observers argue that a more frank approach, expressed by high-level officials, could be usefulto help nudge the reforms forward. A third issue is whether the United States should strongly signal support for Ukraine's NATOaspirations. If the United States decided to make such a move, it would likely also have to cope withMoscow's strident opposition, as well as tension with several European NATO allies more eager toaccommodate Moscow on the issue. At present, Administration officials are approaching the issueof NATO membership for Ukraine with some caution. They have called on Ukraine to focus onimplementing its current Action Plan with NATO. During an April 4 press conference withYushchenko, President Bush said, "I'm a supporter of Ukraine becoming a member of NATO. Ithink it's important." But he cautioned that Ukraine's NATO membership "is not a given," notingthat Ukraine has to make reforms before it can join the Alliance. (8) There is also the issue of the impact of Ukraine's political crisis on the bilateral relationshipbetween the United States and Russia. Some Russian observers have viewed the "OrangeRevolution" as an American-engineered humiliation of and threat to Russia, as well as a part of ageopolitical offensive against Russian interests in the region. Administration officials have tried toavoid confrontation with Moscow on the issue, saying that the United States is only interested inpromoting democracy in the region and throughout the world. However, such assurances may beof little comfort to Russian elites, who may fear greater democracy could undermine their power athome and abroad, and to the Russian public, much of which views Ukraine as inseparable fromRussia. (9) Congressional Response During the Ukranian presidential election campaign and during the ensuing electoral crisis,the 108th Congress approved legislation calling for free and fair elections in Ukraine and urged theAdministration to warn Ukraine of possible negative consequences for Ukraine's leaders and forU.S.-Ukraine ties in the case of electoral fraud. On July 22, 2004, the Senate passed S. Con. Res.106by unanimous consent. The resolution noted the violations against OSCE standards for free and fairelections that took place during the Ukrainian election campaign. The resolution pledged Congress'ssupport for Ukraine's establishment of democracy, free markets, and a place in the Westerncommunity of democracies. H.Con.Res. 415 was passed by the House on October 4. It was identical to S.Con.Res. 106 , except that it added two clauses that "stronglyencourage" the President to fully employ U.S. government resources to ensure a free and fair electionand to stress to the Ukrainian government that the conduct of the elections would be "a central factorin determining the future relationship between the two countries." On November 18, 2004, justbefore the second round of the election, the Senate passed S.Res. 473 by unanimousconsent. As in the case of H.Con.Res. 415 , it warned Ukrainian leaders againstconducting a fraudulent election. However, it went further than H.Con.Res. 415 in thatit "strongly encourages" the Administration to impose sanctions against persons encouraging orparticipating in fraud. Senator Richard Lugar, chairman of the Senate Foreign Relations Committee, monitored theNovember 21, 2004 runoff at the request of President Bush. He said after the vote that "it is nowapparent that there was a concerted and forceful program of election day fraud and abuse enactedwith the leadership or cooperation of the authorities." Senator Lugar said that he had carried a letterfrom President Bush to President Kuchma that warned that a "tarnished election" will cause theUnited States to "review" its relations with Ukraine. Senator Lugar stressed that Kuchma "has theresponsibility and the opportunity for producing even at this point an outcome which is fair andresponsible." (10) The 109th Congress passed resolutions after President Yushchenko was inaugurated. OnJanuary 25, 2005, the House passed H.Con.Res. 16 , and the Senate passed S.Con.Res. 7 on the 26th. The identical resolutions include clauses congratulatingUkraine for its commitment to democracy and its resolution of its political crisis in a peacefulmanner; congratulating Yushchenko on his victory; applauding the candidates, the EU and otherEuropean organizations and the U.S. Government for helping to find that peaceful solution; andpledging U.S. help for Ukraine's efforts to develop democracy, a free market economy, and integrateinto the international community of democracies. Current Issues If the "Orange Revolution" continues to show progress, Congress could consider furtherlegislation on Ukraine, including ending the application of the Jackson-Vanik amendment toUkraine. The Jackson-Vanik amendment bars permanent normal trade relations (PNTR) status forcountries with non-market economies that do not permit freedom of emigration. The amendmentwas originally intended to pressure the Soviet Union to permit Jewish emigration. The success oflegislation on granting permanent NTR status may depend on issues not directly related to theprovisions of Jackson-Vanik, such as the assessment of Ukraine's efforts in fighting anti-Semitismand returning communal property to Jewish groups. Ukraine currently enjoys NTR status, subjectto annual determinations by the President that it permits free emigration. PNTR and U.S. supportfor WTO membership for Ukraine may also be held up by intellectual property rights concerns, highUkrainian agricultural tariffs, and other trade disputes. Several bills have been introduced that would authorize the President to grant Ukraine PNTRstatus. Three bills -- H.R. 1053 , offered by Representative Gerlach; H.R. 885 , introduced by Representative Hyde; and S. 410 (identical to H.R. 885 ), offered by Senator McCain -- would authorize the President to determine that Jackson-Vanikwould no longer apply to Ukraine and to grant permanent normal trade relations status to Ukraine. S. 46 , sponsored by Senator Levin, and H.R. 1170 , sponsored byRepresentative Levin, would also terminate Jackson-Vanik for Ukraine but add other provisions.These include affirming that the United States retains to right to impose safeguard measures againstimport surges from Ukraine and that Congress may express its view that a U.S.-Ukrainian bilateralagreement on conditions of Ukraine's accession to the WTO "does not adequately advance theinterests of the United States." (11) Congress also faces the issue of U.S. aid to the new government in Ukraine. On March 16,the House approved H.R. 1268 , the Iraq/Afghanistan supplemental appropriations bill. The bill reduced the Administration's $60 million request for Ukraine to $33.7 million. In its report( H.Rept. 109-16 ), the House Appropriations Committee "lauds the democratic initiative of theUkrainian people and intends this funding to be used for projects that will quickly show support forthe Yushchenko government, as well as for costs associated with supporting the upcomingparliamentary elections." The report did not address why the Committee had decided to reduce thePresident's request for Ukraine, but the Committee criticized the request in general for containingitems that did not constitute true emergencies, which therefore should be handled in the regularappropriations process. However, the Senate restored the $60 million in its version of the bill. Theconference version of the bill, signed by President Bush on May 11, 2005 ( P.L. 109-13 ), alsocontained $60 million for Ukraine. On June 28, the House passed H.R. 3057 , the FY2006 foreign aid appropriationsbill. The bill provides no earmark for Ukraine and provides $477 million for the former Sovietcountries as a whole. This amount is $5 million below the President's request and $78.5 millionbelow the FY2005 aid amount. The report accompanying the bill says the Committee "stronglysupports" President Yushchenko's reform efforts. Another bill, H.Res. 44 , calls for astaff exchange program between the House of Representatives and the Ukrainian parliament.

In January 2005, Viktor Yushchenko became Ukraine's new President, after massivedemonstrations helped to overturn the former regime's electoral fraud, in what has been dubbed the"Orange Revolution," after Yushchenko's campaign color. The "Orange Revolution" has sparkeda great deal of interest in Congress and elsewhere. Some hope that Ukraine may finally embark ona path of comprehensive reforms and Euro-Atlantic integration after nearly 15 years of half-measuresand false starts. Others are interested in the geopolitical implications of a pro-Western Ukraine inthe former Soviet region and in relations between Russia and the West. Some analysts detect a newwave of democracy sweeping the post-Soviet region. Yushchenko has said that his key domestic priorities include reducing the size of theunofficial, "shadow" economy, maintaining macroeconomic stability, and fighting corruption, amajor problem in Ukraine. Other critical priorities include improving the independence andeffectiveness of the judiciary and attracting foreign investment. Yushchenko has vowed to prosecutethose guilty of crimes, including fraud during the election, the 2000 murder of Ukrainian journalistGeorgi Gongadze, and an attempt on Yushchenko's life during the campaign, which has left himdisfigured. In foreign policy, Ukraine seeks closer ties with the European Union, NATO, and theUnited States, with the goal of eventual NATO and EU membership. Yushchenko has said that heviews Russia as a "strategic partner" of Ukraine, but that integration with the West will supercedeRussian-led integration efforts. The Bush Administration has hailed the "Orange Revolution" as a part of a wave ofdemocratization sweeping the region and the world, and has proposed a modest increase in U.S. aidto Ukraine. Experts believe that prompt U.S. and international assistance may be needed to help thenew government to boost public support before crucial March 2006 parliamentary elections. TheUnited States has also expressed hopes that the United States and Ukraine will work together moreeffectively on such issues as weapons proliferation and trafficking in persons. The Administrationhas downplayed Yushchenko's decision to honor a campaign pledge to pull Ukraine's troops out ofIraq by the end of this year. President Yushchenko visited the United States on April 4-7. During the Ukranian presidential election campaign and during the ensuing electoral crisis,Congress approved legislation calling for free and fair elections in Ukraine and urged theAdministration to warn the previous regime of possible negative consequences for Ukraine's leadersand for U.S.-Ukraine ties in the case of electoral fraud. The 109th Congress will consider aid fundingfor Ukraine, and may take up extending permanent Normal Trade Relations to Ukraine, terminatingthe application of the Jackson-Vanik amendment to Ukraine, which bars permanent NTR status forcountries with non-market economies that do not permit freedom of emigration. This report will notbe updated. For background on the Orange Revolution, see CRS Report RL32691(pdf) , Ukraine'sPolitical Crisis and U.S. Policy Issues , by [author name scrubbed].

Repayment of the Homebuyer Tax Credit After an Involuntary Conversion Generally, an involuntary conversion will not trigger acceleration of repayment in the tax year in which the involuntary conversion occurs. Under the exception for involuntary conversions, taxpayers who have received the homebuyer tax credit have two years from the date of the involuntary conversion to replace the property and, thereby, avoid acceleration of repayment. For those who purchased their homes in 2008, the involuntary conversion will not suspend their existing duty to repay the credit over a 15-year period. Those who purchased property in 2008 and received the maximum $7,500 credit were required to begin repayment of the credit at $500 per year beginning with their 2010 tax returns. If the property was destroyed or otherwise involuntarily converted in 2011, they still would be required to repay $500 on their 2011 and 2012 tax returns. Only acceleration of repayment is affected by an involuntary conversion. Although the acceleration provision is not triggered in the year of the involuntary conversion, the involuntary conversion must nonetheless be reported to the Internal Revenue Service (IRS) on the tax return for the year in which the involuntary conversion occurs. This is done on Form 5405. The form requires taxpayers to report any disposition or change in the use of the property on which the credit was based. On the 2010 Form 5405, two options apply to involuntary conversions. The first (line 13f) states, "My home was destroyed, condemned, or disposed of under threat of condemnation and I acquired or plan to acquire a new home within 2 years of the event (see instructions)." The second (line 13g) states, "My home was destroyed, condemned, or disposed of under threat of condemnation and I do not plan to acquire a new home within 2 years of the event (see instructions)." Even if the taxpayer does not currently intend to replace the property within two years, accelerated repayment is not due until the tax year for the year in which the two-year replacement period expires. Limitation on Repayment Based on Gain In some cases, a taxpayer may be unable or unwilling to replace a home within the two-year replacement period that provides an exception to the acceleration of repayment. In some of these cases, repayment may not be necessary due to the limitation based on gain. A taxpayer may have gain from an involuntary conversion due to either insurance proceeds (in the case of property that has been damaged or destroyed), condemnation awards, or selling price (in the case of property that has been sold under threat of condemnation). In this case, the taxpayer who does not replace the principal residence within the two years allowed must determine whether there was a gain or loss realized on the property. Section 36(f)(3) limits the repayment of the homebuyer credit to the amount of gain from the disposition of the property. If there is a loss or no gain, no accelerated repayment is required. However, for purposes of determining gain on the disposition, the property's adjusted basis must be reduced by the total amount of the homebuyer credit that was claimed. When there is a gain, that gain would be compared to the outstanding balance of the homebuyer credit. The smaller of the two would be the amount that is added to tax as accelerated repayment of the credit in the year in which the two-year replacement period expires. Appendix. Frequently Asked Questions Regarding Repayment of the Homebuyer Tax Credit After Damage or Destruction of the Taxpayer's Residence16 1. My principal residence was destroyed by flooding in 2011. Do I have to repay the outstanding balance of my homebuyer credit with my 2011 tax return? No. The destruction of your home is an involuntary conversion. The homebuyer tax credit provisions include an exception to the repayment acceleration requirements when the property is destroyed. •    If, within two years of the date your property was destroyed, you replace your principal residence with another that would have qualified you for the credit if acquired in 2008, repayment of your credit will not be accelerated. •    If you do not replace the residence within this two-year period, your credit will be accelerated, but will be reported on the tax return for the tax year in which the two-year period expires. •    Despite the involuntary conversion, if your residence was purchased in 2008, you must continue to repay the usual amount ($500 per year if the credit was $7,500) with your tax returns. 2. My residence was not completely destroyed by the flooding, but it was severely damaged. I will have to move out of it while it is being repaired. Do I have to repay the outstanding balance of my homebuyer credit with my 2011 tax return? No. Generally, you do not abandon your principal residence due to temporary absences; therefore, it is likely that you would not be considered to have ceased using the property as your principal residence even if you actually move out of it while it is being repaired. Additionally, your property does not need to be completely destroyed for there to be an involuntary conversion; therefore, the involuntary conversion exception (explained above) would also apply. 3. My house was destroyed and was in a federally declared disaster area. Does this mean that repayment of my credit will not be accelerated if I replace my house within four years? No. The involuntary conversion exception for acceleration of repayment of the homebuyer tax credit requires you to replace the property within two years. There currently is no provision to expand that replacement period when the property is within a federally declared disaster area. 4. My house was destroyed or damaged in 2011. Do I have to do anything special when I file my 2011 tax return? Yes. You must file Form 5405 with your tax return. On it, you will enter the date on which the damage or destruction occurred and indicate that your house was damaged or destroyed (rather than sold, converted to business or rental use, or abandoned). You will also need to indicate whether you currently intend to replace your property within two years. 5. If I say that I am not going to replace my house, does it mean that I will owe a lot more in taxes for 2011? No. You are indicating that you currently do not intend to replace the property. If you do not replace the property, the accelerated repayment of the tax credit will not be reported on your tax return until 2013. If you change your mind and do replace the property within two years, there would be no accelerated repayment requirement. 6. I purchased my house in 2008 and it was destroyed in 2011. I started repaying the credit on my 2010 tax return. What do I need to repay in 2011 and subsequent years? •    You will need to continue paying your scheduled repayment amount ($500 if the credit was $7,500) in 2011 and 2012. •    If you replace your home within two years after its destruction, your repayment will not be accelerated. You will continue repaying your scheduled repayment amount each year. •    If you do not replace your house within the two-year replacement period, you generally would need to repay the outstanding balance on your credit ($6,000 if originally $7,500), showing it on your 2013 tax return. However, that repayment may be reduced or eliminated depending on whether there was a gain from the involuntary conversion. •    If there was no gain, you would not have to repay any more of the credit. •    If the gain was less than the outstanding balance on the credit, your repayment would be the amount of the gain. •    For purposes of calculating this gain, you would be required to reduce your cost basis in the house by the original amount of the credit.

Taxpayers who purchased a principal residence in 2008-2010 (and in some cases, 2011) may have qualified for a tax credit under Section 36 of the Internal Revenue Code—the first-time homebuyer credit. This credit was amended several times with changes being made to the amount of the credit, the requirements for qualifying for the credit, and the requirements for repaying the credit. These details are available in CRS Report RL34664, The First-Time Homebuyer Tax Credit, by [author name scrubbed]. Generally, taxpayers claiming the credit based on a 2008 credit are required to repay the credit over a 15-year period beginning with the 2010 tax return. Taxpayers who purchased after 2008 generally are not required to repay the credit. However, repayment of the credit may be accelerated when the taxpayer no longer uses the property as the principal residence. For those who purchased property in 2008, acceleration means that any outstanding credit balance must be repaid with the tax return for the year in which the taxpayer ceased using the property as the principal residence. For those who purchased after 2008, the credit must be repaid in full if the taxpayer ceased using the property as the principal residence within the 36 months immediately following the date of purchase. There are several exceptions to the repayment requirements. This report focuses on the exception due to involuntary conversion and the limitation based on gain. The term "involuntary conversion" includes either the partial or complete destruction of the property due to a casualty such as a fire, flood, or tornado. Alternatively, the term may mean the loss of some or all of the property by theft or condemnation, which would include a sale under threat of condemnation. Generally, an involuntary conversion will not trigger acceleration of repayment in the tax year in which the involuntary conversion occurs. Under the exception for involuntary conversions, taxpayers who have received the homebuyer tax credit have two years from the date of the involuntary conversion to replace the property and, thereby, avoid acceleration of repayment. However, those who purchased in 2008 will need to continue repaying one-fifteenth of their credit annually in the interim. If a taxpayer does not replace the residence within the allowed two-year period, the outstanding credit balance generally would be included in the tax liability for the tax return for the year in which the two-year period expires. However, repayment of the credit could be limited by the gain realized on the involuntary conversion. If the taxpayer realized a loss on the involuntary conversion, there would be no obligation to repay the outstanding credit balance. If the taxpayer realized a gain, but the gain was less than the outstanding credit balance, the credit repayment would be limited to the amount of gain. That lower amount would be added to the taxpayer's tax liability for the year in which the two-year period expired. In either case, the taxpayer would have no obligation to repay any remaining credit balance in future years. This report includes an Appendix with questions that are representative of questions being raised by constituents in areas that have been affected recently by flooding and are applicable to other sorts of involuntary conversions.

Introduction The Magnuson Stevens Fishery Conservation and Management Act (MSFCMA, 16 U.S.C. §§1801 et seq.) governs the management and conservation of commercial and recreational fisheries in U.S. federal waters (3-200 nautical miles from shore). Although the MSFCMA has been amended a least 30 times since it was enacted in 1976, the act has retained many of its original elements. The act decentralized the federal management process by setting up regional fishery management councils and requiring extensive public comment during the development of fishery management plans. The MSFCMA also has evolved with changes to fishery resources, the U.S. fishing industry, recreational fishing, and seafood markets. Generally, the challenges of fisheries management have shifted from developing fisheries to addressing conservation of fish populations and the marine environment. The MSFCMA was last reauthorized and extensively amended in 2006 ( P.L. 109-479 ). Although the authorization of appropriations under the MSFCMA expired at the end of FY2013, the act's requirements continue in effect and Congress has continued to appropriate funds to administer the act. Historically, reauthorization has also provided the opportunity to introduce significant amendments to the act. As Congress considers reauthorization, it faces the ongoing challenge of balancing utilization and conservation of fish populations. Some of the main questions revolve around stopping overfishing and rebuilding fish stocks while maintaining the well-being of fishermen and fishing communities. Related management issues involve the quality of data and stock assessments used for managing fisheries and the amount of flexibility allowed in the management process. During the last three Congresses, a number of bills have been introduced to address these issues and other concerns related to fisheries management. House and Senate committees have been pursuing efforts to reauthorize the MSFCMA during the 113 th Congress. Oversight and reauthorization hearings have been held by the Senate Committee on Commerce, Science, and Transportation and the House Committee on Natural Resources. In December 2013, the Chairman of the House Committee on Natural Resources released a reauthorization discussion draft. The draft includes several sections that reflect topics covered by bills introduced in previous sessions of Congress. In early April 2014, the Senate Committee on Commerce, Science, and Transportation also released a draft to stakeholder groups. Issues for Congress An ongoing issue for managers, fishermen, and environmentalists is the balance between conservation and utilization of fish populations. Although there is general agreement that stocks should not be overfished and overfished stocks should be rebuilt, questions remain with regard to the timing of management actions, the choice of management objectives, how stock management objectives should be achieved, and the information needed to make these determinations. Several interrelated issues have emerged during the ongoing debate over requirements to use annual catch limits (ACLs) and to rebuild fish populations. General categories of issues include (1) providing for greater flexibility during stock rebuilding; (2) incorporating new data and uncertainty when using ACLs; (3) improving the decision-making process; (4) establishing limited access privileges; and (5) reducing bycatch. Meanwhile, managers must also contend with environmental factors over which they often have no control such as climate change and the loss and degradation of fish habitat. Decreasing environmental quality may be the greatest long-term threat to the productivity of many fish populations. Flexibility in Ending Overfishing and Rebuilding Overfished Fisheries Flexibility in rebuilding overfished fisheries has become one of the main issues of the current MSFCMA reauthorization debate. The MSFCMA was amended to require development and use of ACLs to end overfishing for all federally managed stocks in the 2010 fishing year. Overfished stocks are required to have rebuilding plans that adhere to a 10-year timeframe (with some exceptions). Previously, managers often delayed action or set indirect controls on fishing such as gear restrictions or closed areas, sometimes with disastrous results for the fishery. RFMCs and National Marine Fisheries Service (NMFS) are now required to set ACLs (quotas) within specific biologically determined levels. Fishery management plans (FMPs) must be consistent with the 10 national standards in Section 301(a) of the MSFCMA. Council members must address the national standards as they develop FMPs and, when considering approval, the Secretary of Commerce determines whether FMPs are consistent with these national standards. The national standards cover a broad range of basic fishery management objectives. The first National Standard Section 301(a)(1) states: "Conservation and management measures shall prevent overfishing while achieving, on a continuing basis, the optimum yield from each fishery for the United States fishing industry." Provisions of the MSFCMA enacted during the 1996 reauthorization and amended during the 2006 reauthorization added specific requirements to end overfishing and to rebuild overfished fish stocks. To implement these requirements, the MSFCMA directed the National Marine Fisheries Service of the National Oceanic and Atmospheric Administration to update National Standard 1 guidelines by 2008 to provide guidance for establishing annual catch limits (ACLs) and related biological benchmarks. On January 16, 2009, NMFS issued guidelines that describe fishery management approaches to meet the objectives of National Standard 1 with emphasis on new requirements to end overfishing and rebuild overfished stocks. While implementing ACL requirements, NMFS has identified a number of issues that may require additional revisions to the National Standard 1 guidelines. On May 3, 2012 NOAA published an advance notice of proposed rulemaking to request public comments on potential adjustments to the guidelines. No further action has been taken since the Summary of Comments on Advanced Rulemaking was published. The terms overfishing and overfished are often confused and assumed to occur together, but this is not necessarily the case. According to the National Standard Guidelines: overfishing occurs whenever a stock or stock complex is subjected to a rate or level of fishing mortality that jeopardizes the capacity of a stock or complex to produce Maximum Sustainable Yield (MSY) on a continuing basis. A stock or stock complex is considered overfished when its biomass has declined below a level that jeopardizes the capacity of the stock or stock complex to produce MSY on a continuing basis. Overfishing occurs when the rate of removals (catch or harvest) is high relative to the size of the fish stock; fish stocks are overfished when their biomass is relatively low. At certain points during rebuilding, removals may be low (no overfishing), but the stock is still overfished (its biomass is not yet rebuilt). Conversely, removals may be high and overfishing may be occurring, but the stock biomass has not declined to the point at which the stock is considered to be overfished. Issues Stock rebuilding has become controversial because rebuilding timeframes have required strict constraints on harvest levels. Some have questioned whether greater flexibility in determining the length of stock rebuilding periods could increase economic benefits from the fishery. Rebuilding plans with greater flexibility could also contribute to other fishery management goals such as needs of fishing communities (National Standard 8). Overfishing has been arrested in most U.S. fisheries and progress has been made in rebuilding many others. As of December 31, 2013, of the 300 stocks with a known overfishing status, 28 stocks were subject to overfishing and of the 230 stocks with a known overfished status, 40 stocks are classified as overfished. NOAA also reported that 34 fish stocks have been rebuilt since 2000. According to a recent National Research Council (NRC) study, "fishing mortality of stocks placed under rebuilding plans has generally been reduced and stock biomass has generally increased following reductions in fishing mortality." However, these improvements have sometimes come at a cost to commercial and recreational fishermen and associated fishing communities, and in some cases stocks have not responded to management actions as managers anticipated. The NRC study attributed some of the mixed performance of rebuilding plans to scientific uncertainty and a mismatch between policy makers' expectations for scientific precision and the inherent limits of science. The NRC study adds that mixed outcomes of rebuilding plans have "added to concerns with the significant social and economic costs associated with implementation of time-constrained rebuilding plans." Stakeholder Views Fishermen and fishing communities sometimes suffer from economic and social effects of harvest restrictions needed to satisfy MSFCMA overfishing and stock rebuilding requirements. Many question whether these requirements adequately address the complexities and uncertainties associated with managing fish stocks. Often fishermen express doubt over the efficacy of fish population assessments used for developing management measures because of data constraints and inadequate population models. Furthermore, they refer to studies showing that other factors, often outside the immediate control of fisheries managers, such as environmental conditions and the quality of fish habitat, also affect fish population abundance. Others, including environmentalists and fishery managers, counter that overfishing and previous management failures illustrate the need to maintain established fish stock rebuilding schedules. They emphasize that relatively short-term sacrifices today will result in long-term economic gains to recreational and commercial fishermen in the future. They point to stocks that have been rebuilt since 2000 and cite notable examples of fully rebuilt stocks such as Northeast scallop, Mid-Atlantic bluefish, and Pacific lingcod. Environmentalists also have asserted that many species could be rebuilt within 5 years and that the 10-year requirement is a balance between biology of most species and short-term concerns of some managers and fishermen. Exceptions have been provided for many species that have rebuilding timeframes greater than 10 years because of their life history. Others contend that the 10-year rebuilding timeframe is arbitrary and that the lack of flexibility prevents regulators from pursuing a more balanced approach. Economic Concerns Economists and social scientists have questioned whether rebuilding plans that ignore the unique characteristics of each fishery, such as social and economic considerations, may result in significant loss of social welfare. They contend that stock rebuilding targets should not be based solely on biological factors. Depending on the productivity of the stock, characteristics of the fishery, and the discount rate, extending the rebuilding timeframe may increase economic benefits. Moreover, economic and social analysis can be useful when developing management measures used to achieve management objectives. Recognition of economic factors can ensure that the least costly or least socially disruptive management alternatives have been considered. Some social scientists argue that economic and social analyses are often incorporated after biological objectives have been established. For these reasons some social scientists have stressed the need to integrate social and economic elements from the beginning of the process. Increasing management flexibility also might improve short-term economic returns and lessen immediate social impacts on commercial and recreational fishermen. When factors outside of the control of fisheries managers occur such as environmental changes, management flexibility also might lessen the severity of economic and social disruption to fishermen until conditions improve. It has been reported that most fish stocks experience productivity regime shifts related to natural environmental fluctuations. However, for some fisheries existing flexibility may be adequate and in these cases greater flexibility could delay or stop progress toward stock rebuilding and increase long-term social costs. Unfortunately, developing specific rules for all fisheries is difficult if not impossible because fisheries are diverse with regard to the biology of target species, technology of harvesting strategies, and socioeconomic elements of related communities. Others have expressed concerns that managers have lost sight of the original fisheries management goals related to employment, food supply, revenue, and recreational opportunities. According to recent congressional testimony by Dr. Ray Hilborn, a consequence of reducing overfishing is to underutilize other fish stocks. The testimony asserts that 77% of stocks are underfished and 30-48% of U.S. potential yield is lost by underfishing. At the same time 22% of stocks that are overfished only constitute 1-3% of potential yield because they contribute to relatively small fisheries. He postulates that that lack of fishing effort associated with underfishing occurs for a number of reasons such as the lack of markets, but one of the primary factors is because precautionary regulations have been imposed to prevent overfishing. However, economic profitability of commercial harvesting is maximized at fishing effort levels below those which produce MSY. Consideration of economic efficiency under national standard 5 is another management objective that could be met by decreasing fishing effort to maximize net benefits instead of maximizing production. Unfortunately, satisfying management objectives is often more complex because of other elements of the system that require consideration such as recreational fishing allocations and benefits, processing and marketing sectors, and the well-being of fishing communities. The requirements to stop overfishing and rebuild stocks by using ACLs may improve fishing in the long run, but they also affect the allocation of fishing opportunities, catch, and benefits among fishermen and related businesses. Questions arise with respect to when benefits will accrue to fishermen and who will ultimately benefit when stocks have been rebuilt. Distributional issues may exist among different commercial gear types, commercial and recreational fishermen, and ports or communities. The effects of stock rebuilding may vary across different segments of the fishing industry such as support services, harvesters, processors, wholesalers, and retailers. There is also a temporal dimension to allocation for many fisheries because of the potential decoupling of present costs and future benefits. Often there are few if any guarantees that those who endure the immediate costs of ACLs and rebuilding programs will benefit in the future because of the weak nature of property rights in many fisheries and the inability of some fishermen to remain in the fishing industry when economic returns decline. Specific segments of fishing fleets, especially small-scale or traditional fishermen, and fishing communities may be affected disproportionately by requirements to end overfishing and by stock rebuilding programs. Like many segments of the U.S. economy, the fishing industry is changing, in this case due to a mixture of factors related to technology, social views, and resource limits. The current emphasis of fisheries management on long-term sustainability has resulted in less flexibility for fishermen; fishermen often find regulations restrict their access to fisheries, especially in cases where strict stock rebuilding is required. In some cases smaller vessels and specific coastal communities have been affected disproportionately because of their scale. For example, requirements to carry observers are disproportionately costly for smaller businesses and alternatives such as more distant fishing grounds may not be accessible by smaller vessels. Multispecies Fisheries Multispecies fisheries are often difficult to manage because the fishery may consist of both healthy and overfished stocks. Harvesting one stock at its optimum yield may result in overfishing of another stock when the two stocks are caught together as part of one fishery or when one of the stocks is caught as bycatch in another fishery. Fishing on healthy stocks is sometimes constrained by restrictions to promote rebuilding of another stock(s) that have been identified as overfished. When the quota of the overfished stock is reached, the entire fishery may be closed or curtailed. For example, over 90 species of groundfish are managed by the Pacific Regional Fishery Management Council, but fishing regulations are driven by eight species that are under rebuilding plans. This has led to under-fishing of healthy stocks and lost yield from underfishing amounts to 30% of total sustainable yield. This infers that greater flexibility in rebuilding timelines would allow for greater profits in this fishery. Most observers would agree that a biological biomass threshold is necessary to avoid depletion of overfished populations or, in the worst case, to avoid extinction. However, some question whether there should be greater flexibility in setting the level of stock biomass thresholds for weaker stocks in multispecies fisheries. The NMFS Guidelines attempt to address this issue with the mixed stock exception. The purpose of the mixed stock exception is to provide managers with a means to achieve Optimum Yield (OY) for some species while allowing overfishing of other species. According to the 2009 guidelines, the mixed stock exception may allow overfishing, but not if the stock is overfished or if the stock would be decreased to levels which would require stock rebuilding. Generally, it appears that as currently specified in the guidelines the mixed stock exception could only be used in limited circumstances and not in cases where stock have already been overfished. Bills Introduced During the 112th Congress Several bills introduced during the 112 th Congress ( H.R. 1646 , H.R. 3061 , H.R. 6350 , and S. 632 ) would have added similar provisions to increase management flexibility. These bills would have amended Section 304(e)(4)(A)(i) of MSFCMA by changing the requirement from rebuild as soon as "possible" to a requirement to rebuild as soon as "practicable." The following exceptions also would have been added to the current 10-year rebuilding requirement. (II) the Secretary determines that such 10-year period should be extended because the cause of the fishery decline is outside the jurisdiction of the Council or the rebuilding program cannot be effective only by limiting fishing activities; (III) the Secretary determines that such 10-year period should be extended to provide for the sustained participation of fishing communities or to minimize the economic impacts on such communities, provided that there is evidence that the stock is on a positive rebuilding trajectory; (IV) the Secretary determines that such 10-year period should be extended for one or more stocks of a multi-species fishery, provided that there is evidence that those stocks are on a positive rebuilding trajectory; (V) the Secretary determines that such 10-year period should be extended because of a substantial change to the biomass rebuilding target for the stock of fish concerned after the rebuilding plan has taken effect; or (VI) the Secretary determines that such 10-year period should be extended because the biomass rebuilding target exceeds the highest abundance of the stock of fish during the 25-year period preceding the date the rebuilding plan has taken effect and there is evidence that the stock is on a positive rebuilding trend. The Secretary also would have been required to review factors other than commercial and recreational fishing that may contribute to the overfished status of a given stock of fish. Examples include environmental harm caused by commercial, residential, and industrial development, and agriculture in coastal areas, predator-prey relationships of target and related species, and other environmental and ecological changes to marine conditions. The rebuilding time period would be limited to the sum of the initial 10-year period, the time required to rebuild the stock without any fishing mortality, and the mean generation time of the stock. Uncertainty, Data, and Annual Catch Limits A provision added to the MSFCMA in 2006 requires fishery management plans to include a mechanism for specifying annual catch limits (ACLs) at a level where overfishing does not occur. The ACL requirements took effect in 2010 for fisheries subject to overfishing and in 2011 for all other fisheries. If ACLs are set at appropriate levels as required by MSFCMA, this action would end overfishing for all federally managed fish stocks. ACLs are defined in NMFS guidelines as the level of annual catch of a stock or stock complex that may not exceed allowable biological catch and serves as the basis for using accountability measures (AMs). AMs are actions taken to ensure that rebuilding will continue when adjustments are needed relative to the ACL. AMs include measures taken during the season to prevent the ACL from being exceeded or adjustments in the next fishing year to compensate for overages if the ACL was exceeded. Uncertainty The complexity of marine ecosystems and fisheries not only make it difficult to determine ACLs and target stock levels, but because of the system's dynamic nature, benchmarks and forecasts are constantly changing. The NOAA Guidelines identify two types of uncertainty – management uncertainty and scientific uncertainty. Management uncertainty occurs because of the lack of information on actual catch due to illegal activity, late reporting of catch, misreporting catch, or non-reporting of bycatch. Landings data are rarely complete, especially for those fisheries with significant discards or a large recreational component. In these cases, managers have insufficient information to know whether an ACL has been reached and to make related management decisions such as slowing fishing effort or closing the fishery. Scientific uncertainty is the uncertainty associated with the estimates of stock biomass and fishing mortality rates. Scientific uncertainty may occur for different reasons including limited biological data for many fisheries and inadequate stock assessment models. Furthermore, even for the most closely studied stocks, spawning success and future recruitment to the population are difficult to predict. The relationship between the abundance of spawning adults and recruitment (off-spring entering the populations) is confounded by biological and environmental factors. Assessments are also out of date by the time they are completed. First there is a lag between the time data are collected and the time taken to compile data and complete the assessment. Assessments are usually undertaken every three to five years because of funding constraints. Sometimes unpredictable and significant changes may occur before updates can be undertaken. In addition, factors affecting management uncertainty such as mischaracterization of catch may also increase scientific uncertainty. Some level of uncertainty is inevitable because of the nature of scientific information, the fishery resources, and the fisheries. Ecosystem Component Stocks The 2009 guidelines suggest classifying fish stocks into two groups—stocks in the fishery and ecosystem component species. Stocks classified as being in the fishery would include certain target species and sometimes non-target species that the councils and/or the Secretary believe require conservation and management. To encourage ecosystem management, NMFS created the ecosystem component species group. Stocks in the fishery require determinations of their condition, reference points and ACLs while ecosystem component species do not. The guidelines define ecosystem component species or stocks as nontarget species, species not subject to overfishing, species not likely to become subject to overfishing or being overfished, and species not generally retained for sale or personal use. Although not considered to be in the fishery, the guidelines encourage councils to consider measures to protect the role of ecosystem component species in the ecosystem by minimizing bycatch and bycatch mortality. Issues Disagreement about the use of ACLs is related in part to management and scientific uncertainties. Regardless of whether stock assessments are uncertain, ACLs are required for all fisheries and in some cases ACLs may impose strict constraints on the fishery. To ensure ACLs are not exceeded managers are now taking precautionary approaches when determining allowable catch. These concerns with uncertainties and the effect on fisheries have prompted proposals to improve stock assessments or to exclude certain stocks from ACL requirements. Some regions such as the North Pacific, which has a history of using catch limits, have adjusted to ACL requirements, while fisheries which used indirect controls on harvest in regions such as the Northeast have been subject to greater controversy and social and economic disruption. Approaches to reducing uncertainty usually focus on technical improvements such as collecting more and better data and improving assessment models. Often many recommend dedicating more resources for data collection and stock assessments. They reason that by reducing risk of overfishing associated with uncertainty, the need for precautionary measures could be lessened. However, data and modeling improvements are likely to be costly and would require further increases of federal appropriations. The benefits of a closer approximation of benchmark population levels such as Maximum Sustainable Yield (MSY) are limited. Thus the value of these improvements must conform to the rule of diminishing returns. As more resources are directed to this purpose the marginal benefits of lower uncertainty decrease. An unanswered question for many fisheries is whether the current management system is in need of greater investment or if it has already reached the level where costs of additional information are greater than the benefits derived from greater certainty. "Data-Poor" Stocks The causes of uncertainty vary by fishery and specific circumstances, but uncertainty plays a role in management decision-making for both data-poor and well-studied stocks. Data poor stocks are stocks for which there are inadequate data to complete a stock assessment to estimate biomass and fishing mortality reference points. In 2013, NMFS reviewed 478 individual stocks and stock complexes that are currently managed under 46 fishery management plans. Of the 478, there were 178 with an unknown overfishing status and 258 with an unknown overfished status. Many of the data-poor stocks are of relatively low value or minor components of fisheries. However, it should be noted that many believe these stocks provide biological diversity and ecological value to the system. One option open to managers is to use recent average catch as a basis for establishing ACLs. Another option is to group several stocks into a stock complex and use one or more indicator stocks within the complex. This option relies on the assumption that the stock complex can be managed and monitored using one or more stocks that can be assessed. Another option might involve moving stocks to the ecosystem components species category to exclude them from ACL requirements. Some have speculated that ACL requirements may work against conservation because it provides an incentive to designate stocks in the ecosystem category to avoid management. Well-Studied Stocks Even those stocks which are relatively well studied are subject to management and scientific uncertainty because of data constraints, ecological factors, and mis-specified models. In 2013, according to NOAA, of the 478 stock and stock complexes that are currently managed under fishery management plans, there were 300 with a known overfishing status and 230 with a known overfished status. The Gulf of Maine cod stock is a recent example of the difficulties fisheries scientists face in assessing fish populations, even when the stock is relatively well-studied. Gulf of Maine cod is one of the most valuable species of the Northeast multispecies fishery and the mainstay of many inshore fishermen. The stock assessment reviewed at the Groundfish Assessment Review Meeting (GARM III) in 2008 indicated that overfishing was still taking place in 2007, but the stock was no longer overfished (stock biomass had increased above the level that defines it as overfished). Instead of further progress, the 2011 stock assessment reviewed at the 53 rd Stock Assessment Workshop (53 rd SAW) showed that overfishing continued in 2010 and stock spawning biomass was one-third of the level estimated in 2007 indicating the stock was also overfished. Moreover, updated information and the new population model showed that in 2007, the stock was actually overfished. Recreational Data and Uncertainty Often a major source of management uncertainty is related to stocks that are taken in recreational fisheries. Recreational catch is difficult to quantify because landings are widely dispersed and taken by many different participants. When a significant percentage of catch is taken by recreational fishermen, it usually adds to uncertainties in developing stock assessments. Furthermore, recreational quotas are often difficult to manage on a real-time basis because of their nature. Overages may be common because catch is compiled using statistical models that may calculate totals months after the annual fishery is finished. These factors may lead to unpredictable recreational openings and closures and the use of accountability measures (AMs) in subsequent years that may limit quotas significantly. Replacement of the Marine Recreational Fisheries Statistics Survey with the new Marine Recreational Information Program is focused on improving recreational data, but it may take several years before this information can be fully incorporated into the management process. Regardless, there will continue to be substantial uncertainty related to recreational harvests, especially when using recreational information to account for landings during the fishing year. Bills Introduced During the 112th Congress During the 112 th Congress, H.R. 2304 , H.R. 6350 , and S. 1916 included provisions that would have excluded certain stocks from ACL requirements. These bills focused on the need for more timely stock assessments and would have stopped managers from establishing ACLs without periodic stock assessment updates. These bills also would have defined and applied the concept of an "ecosystem component stock" or "ecosystem component species" in statute and excluded them from ACL requirements. H.R. 3061 and H.R. 6350 would have amended Section 304 of the MSFCMA by adding a provision that would have allowed the Secretary to suspend ACLs. Suspension of ACLs would have been allowed if the Secretary determines that the fishery is not overfished or approaching a condition of being overfished, if any stock of fish in the fishery previously affected by overfishing is rebuilt, and if the Scientific and Statistical Committee (SSC) cannot ensure that the fishery management plan for the fishery is consistent with Section 301(a)(8). Section 301(a)(8) requires that conservation and management measures provide for the sustained participation of fishing communities and to the extent practicable, minimize adverse economic impacts on such communities. H.R. 3061 also included a section which would have required the Secretary to enter into an agreement with the National Research Council (NRC) to study current implementation of recreational survey methods. The study would have updated the assessment of recreational survey methods that NRC published in 2006. The study also would have evaluated the extent to which recommendations made in 2006 have been implemented and examine limitations of the Marine Recreational Information Program. Limited Access Privilege Programs (Catch Shares) Catch shares is the general term for fishery management systems which divide the total quota or harvest level of fish into individual shares or quotas. These shares may be allocated among different entities such as fishermen, cooperatives, or fishing communities. Other common terms for catch shares include individual transferable quotas (ITQs) and Individual Fishery Quotas (IFQs). The term limited access privilege (LAP) as defined in the MSFCMA is a specific type of catch share program which may be allocated to a person as opposed to a sector, cooperative, or fishing community. The term 'limited access privilege'— (A) means a Federal permit, issued as part of a limited access system under section 303A to harvest a quantity of fish expressed by a unit or units representing a portion of the total allowable catch of the fishery that may be received or held for exclusive use by a person; and (B) includes an individual fishing quota; but (C) does not include community development quotas as described in section 305(i). Catch share programs have been controversial since the first federal program was established for the Mid-Atlantic surf clam fishery in 1990. In the Sustainable Fisheries Act of 1996 ( P.L. 104-297 ) Congress responded to concerns related to the fairness of quota allocations, the potential for quota consolidation, and economic effects on the fishing industry and fishing communities by placing a moratorium on creating new ITQ programs. Congress later extended the moratorium to September of 2002 after which it was allowed to expire. Since the moratorium expired, ten new programs have been established bringing the total number of federal catch share programs to fifteen. Typically without catch shares, annual quotas or annual catch limits are established by fishery scientists and managers and made available to all fishermen who have permits to operate in the fishery. When the annual quota is reached, the fishery is usually closed to prevent overfishing of fish stocks. Management with a fishery-wide quota provides an incentive for fishermen to gain the greatest share of the total quota, often as quickly as possible, before the fishery is closed. This outcome has been characterized as "derby fishing" or the "race to fish." Academic research and evaluations of existing catch share programs have shown that catch shares can change incentives and improve economic efficiency. Allocating the total quota among permit holders changes incentives because entities such as individual fishermen or cooperatives possess a secure share of the quota. By providing fishermen with their own quota, investments in vessels, equipment, and crew to compete with others for a greater share of the total quota become unnecessary. Instead investments are likely to be more closely aligned with the individual fisherman's allocation. If quota shares are transferable, vessel owners may purchase or sell quota to match the needs of their business. Catch shares may also provide fishermen with greater flexibility to land fish when conditions such as markets and weather are most favorable. Markets often improve under catch share systems because landings can be spread out over a longer period instead of shortened seasons with high landings and lower prices. Generally, as fishermen gain greater control over the resources that are allocated to them, such as when to fish, their individual businesses and the harvesting sector become more profitable. Issues Catch shares have remained controversial because of potentially higher management costs, the perceived fairness of the initial allocation, concerns with consolidation of the fleet and associated loss of employment, and effects on fishing communities. There also appears to be a general perception among some in the fishing industry that catch share programs have been imposed on the industry. Catch shares may increase management costs because of administrative costs to set up and operate programs, and monitoring costs to ensure that individual quotas are not exceeded. Monitoring of catch at-sea by observers can be costly and burdensome, especially for smaller vessels. For some programs, costs are recovered by NMFS through fees and observers contracted by the fishing vessel or company. In other cases, the agency has implemented programs and shared management costs, but plans to phase out assistance. In these cases, especially where stock rebuilding is occurring, the share of costs between the fishing industry and government has become contentious. The initial allocation of catch is especially controversial because the basis for allocating harvest among fishermen (e.g., historical participation, auctions, or others) will favor some fishermen over others. In some cases, those fishermen who are allocated quota gain a onetime windfall equal to the discounted value of all future profits from the individual quota. Some perceive this outcome as unfair to others in the industry such as crew members or future fishermen. Some fishermen who are not allocated enough quota to be economically viable, may have to sell their share to those with more capital. For those who want to leave the fishery this could be an advantage, but not for those who do not wish to leave. Catch shares may shift landings and affect specific fishing ports disproportionately. For example, in the Alaska halibut catch share (IFQ) fishery, small remote fishing communities have lost fishing rights because residents have been more likely to sell than buy quota. A related concern is that disproportionate shares of quota could be controlled by a relatively small number of fishermen. Some fishermen are concerned that this will change the nature of fisheries and make small scale fishing unprofitable. If consolidation occurs, investments in gear and vessels may be utilized more efficiently, but the number of crew employed in the fishery may also decrease. A possible consequence of greater fleet profitability is that remaining jobs may become more stable and permanent. Some have concluded that consolidation is inevitable in cases where fisheries have been overcapitalized, but that the redistribution of fishing rights may have unintended consequences. Previous Bills Several similar bills were introduced in the 112 th ( H.R. 1646 , H.R. 2772 , H.R. 6350 , and S. 1678 ) and 113 th ( S. 221 ) Congresses to address concerns related to LAP fisheries. All five bills only would have applied to fisheries in the New England, Mid-Atlantic, South Atlantic, and Gulf of Mexico fishery management regions. In each case a petition requesting development of the LAP program would have been required and approval of the proposed LAP (catch share) program would have depended on a vote of eligible fishermen. H.R. 1646 would have terminated programs after five years unless two-thirds of eligible fishermen approved continuation of the program. S. 1678 , H.R. 2772 , and S. 221 would have terminated LAP programs if the Secretary determined that the number of eligible fishermen in the fishery decreased by 15% from the year before the program was established. S. 1678 , H.R. 2772 , and S. 221 would have required fees to recover all costs of LAP programs including observer costs. H.R. 6350 also would have added the definition of the term catch share to the MSFCMA. Management Process and Decision-Making Fisheries managers are challenged to take management actions which both minimize uncertainty and incorporate uncertainty in the decision making process. Some have questioned whether NOAA has the data and science to properly manage fisheries under current overfishing and stock rebuilding requirements. Management actions such as conservative harvest limits and fishery closures have been questioned when data are limited and stock assessments are perceived by many to be uncertain. In addition to improving data and requiring more timely stock assessments, some have proposed taking risk neutral approaches when estimating ACLs, broadening peer-review requirements, and constraining management decisions perceived by fishing interests to be extreme. Issues According to NOAA guidelines, scientific and management uncertainty should be incorporated by setting ACLs according to precautionary or risk-averse approaches. Many fishermen are concerned with a risk-averse approach because they believe fisheries are often constrained unnecessarily. They assert that management should be risk neutral and management actions that would constrain the fishery should not impose abrupt and severe measures. Conversely, environmentalists have advocated for precautionary approaches because of historic tendencies of managers to take risks by using optimistic assumptions to set quotas. They also contend that uncertainty should not be used to undermine the best available scientific information or as an excuse for inaction. Some are concerned that the interests of NMFS scientists sometime diverge from those of the fishing industry. They have advocated for more external peer review of stock assessments to ensure impartiality and to more fully consider different views. These changes also would be likely to convince some fishermen that the process is more fair and balanced. On the other hand, some would argue that the current process provides adequate peer review and that the best available science is currently used in the management process. They claim that further reviews would not add significantly to current assessments and that costs limit the amount of data and complexity of fishery models that might be used. Concerns have been expressed by many in the fishing industry that the management process needs greater scrutiny when management measures harm fishing businesses. Management actions such as closures have been especially controversial in Gulf of Mexico and South Atlantic recreational fisheries. They assert the abrupt management actions harm businesses and make planning difficult. Fishermen also have claimed that these management actions are often based on uncertain and dated assessments. They surmise that the process needs to ensure that decisions are based on current conditions and the process is more open and accessible to those being regulated. Often fishermen cannot attend FMC meetings because they are at-sea fishing, especially when fishing or market conditions are favorable. Bills Introduced During the 112th Congress Several bills would have changed RFMC management processes and decision making. H.R. 1646 , would have directed RFMC scientific and statistical committees to provide "risk neutral" scientific advice to the FMCs and limit SSC recommendations to change ACLs unless the basis of these recommendations are peer reviewed by non-governmental entities. H.R. 1646 also would have limited closures by requiring certain conditions are met before a fishery could be closed and require review of the effects of the closures on small businesses and jobs in coastal communities. H.R. 1646 and H.R. 6350 also would have required the Secretary to report to Congress on the effects and characteristics of fishery closures established during the previous five years. Often fishermen are unable to attend RFMC meetings because they are at sea. H.R. 2753 and H.R. 6350 would have required each RFMC to make live broadcasts of RFMC, Scientific and Statistical Committee, and the Council Coordination Committee meetings available on the Internet to allow for greater levels of public participation. RFMCs also would have been required to provide complete audio, complete video, and transcripts of certain meetings depending on the circumstances. H.R. 3061 included a section related to reports of the SSCs. The SSCs would have been required to provide an annual report on the process and information used in providing scientific advice to its Council. Each Council also would have been required to submit to the Secretary and make available to the public any reports or other information provided by the SSC. Ecosystem Management Many advocates, managers, and scientists support managing fisheries at the ecosystem level because of its potential to include factors often not included in fishery assessments. Most fishery management actions still depend on single species stock assessments. Current stock assessments focus on the relationship between fishing mortality and fish stocks, but fish populations are also affected by other elements of the ecosystem such as predators and prey, competition, environmental conditions, and other factors. Supporters of ecosystem-based management stress that when making management decisions ecosystem-based data and models are needed to incorporate the true complexity of the marine environment. Despite general agreement on the relevance of ecosystem management, questions remain with regard to its implementation and cost. In 1996, Section 406 of the MSFCMA required the Secretary of Commerce to establish an advisory panel and for the panel to report with recommendations to expand the application of ecosystem principles in fisheries management. In 1998, the panel completed its report which assessed the extent to which ecosystem principles were applied in fishery research and management and how to further integrate ecosystem principles into future fishery management and research. The panel noted that a comprehensive ecosystem-based fishery management approach would require managers to consider all interactions that a target fish stock has with predators, competitors, and prey species; the effects of weather and climate on fishery biology and ecology; the complex interactions between fishes and their habitat; and the effects of fishing on fish stocks and their habitat. In their report, the panel described the difficult task of managing at the ecosystem level and recognized that, in most cases, available data were insufficient. However, it stressed that there are practical ways to use the information that is available and recommended the use of fishery ecosystem plans (FEPs) to further incorporate ecosystem principles into FMPs. The FEP would document the structure and function of the ecosystem in which fishing activities occur as well as provide information to managers about the effects of their decisions on other components of the ecosystem and the effects of other ecosystem components on fisheries. The panel concluded that if fishery management is to further incorporate ecosystem principles, Congress must provide a specific mandate to NMFS and the regional councils to do so and must fund the scientific infrastructure required to support the decision-making process. Requiring regional councils to prepare FEPs provides a mechanism to focus and inform fishery management, to measure progress toward implementation of ecosystem-based fishery management, to identify research needs and ultimately to insure healthy and productive ecosystems . In 2006, Section 406 of the reauthorized MSFCMA required NMFS to undertake a study of the state of the science for advancing the concepts and integration of ecosystem considerations in federal fisheries management. Section 406 specified four objectives including the following: (1) form recommendations for scientific data, information, and technology requirements for understanding ecosystem processes and methods for integrating this information from federal, state, and regional sources; (2) form recommendations for processes for incorporating broad stakeholder participation; (3) form recommendations for processes to account for effects of environmental variation on fish stocks and fisheries; and (4) describe existing and developing RFMC efforts to implement ecosystem approaches. The report recommended maintaining and expanding current fishery-dependent and fishery-independent surveys, and collection of data for long-term studies. It also supported research to improve ecological models that are needed to improve understanding of dynamic ecosystem processes. Investigation of the effects of environmental variation on fish stocks, especially climate change, was emphasized by the report. Generally the report acknowledged that there are still critical gaps in the data and modelling of marine ecosystems. Issues Despite progress, data requirements of ecosystem-based management are extensive and assessments and implementation would be extremely complex. According the 2009 NOAA report: The ecosystem approach to management (EAM) is a more complex and information intensive than traditional fisheries management approaches and will require dedicated resources to implement effectively. At present, Councils cannot undertake EAM as a dedicated programmatic task and NMFS is unable to provide the required environmental and fisheries data and associated predictive analyses. The report stated that the present ability of existing stock assessments to account for environmental effects is minimal, current multispecies models have very limited predictive accuracy, and ecosystem shifts can generally be recognized only after they have occurred. Most current surveys do not provide enough information to manage all stocks or to provide sufficient understanding of the relationship among habitat, benthic organisms and fish species. Moreover, management of many ecosystems components which affect the productivity and abundance of fish populations such as water quality or wetlands are outside the authority of fishery managers. The eight RFMCs have taken different paths and have exhibited different amounts of progress toward incorporating ecosystem principles into fisheries management. Generally there is a lack of agreement among RFCMs of how to implement ecosystem approaches to fisheries management. For example, some RFMCs have developed FEPs while others have not. Unresolved questions include the levels of investment needed to achieve specific ecosystem management objectives and whether specific statutory changes are needed to implement ecosystem management. At a recent forum, three inter-related ecosystem topics were introduced to bring greater focus to implementing ecosystem-based management. Some reason that it may be more practical to take an incremental approach by concentrating on more specific and immediate concerns. Focus areas included the following: adapting to climate change; managing forage fish; and integrating habitat considerations. Climate Change Climate change is likely to cause shifts of ecosystems and affect the composition and productivity of related fish stocks. Some have questioned how fisheries managers can prepare and mitigate for these shifts and changes in productivity. As fish distributions shift it is likely management will require greater coordination among national (adjacent RFMCs) and international jurisdictions. As systems are modified by climate change managers may need to take approaches that are more proactive and precautionary. For example, very little is known about Arctic fish stocks that are becoming more accessible to fisheries. The Pacific RFMC adopted and the Secretary of Commerce approved the Arctic FMP which closed U.S. federal waters of the Arctic Ocean to commercial fishing until sufficient data has been collected to guide management and exploitation. Forage Fish Forage fish such as herring and anchovies play an important role in marine ecosystems. They comprise a significant portion of total ecosystem biomass and they are consumed by predators throughout their life span. Forage fish provide an important link between primary production (phytoplankton) and higher tropic levels (predators such as tuna). Commercial fishermen harvest forage fish for both direct consumption and indirect uses such as bait, fishmeal, and fish oil. Some recreational and environmental groups argue that greater protection for forage fish is needed because of their role in the ecosystem. They question whether the characteristics of forage fish warrant unique management approaches and if so, they ask whether the RFMCs have the flexibility to address these concerns under current law and regulations. Essential Fish Habitat The 1996 reauthorization established requirements to identify, describe, conserve, and enhance essential fish habitat (EFH). The MSFCMA defines EFH as "those waters and substrate necessary to fish for spawning, breeding, feeding or growth to maturity." EFH is now identified and described for species under each FMP and in some cases specific areas have been closed to fishing because of the impacts of fishing gear on bottom habitat. The distinction between essential and non-essential habitat, however, is problematic because in some cases regional councils have not distinguished between essential and non-essential parts of a range of habitat, choosing instead to define all habitat as essential. Prioritizing among habitats is needed if managers are to achieve measurable progress and focus is critical in this age of shrinking budgets. In most cases, current understanding of the linkages between habitat and fish productivity and the extent of harm to habitat caused by fishing and non-fishing activities is either insufficient or unavailable. Nonfishing impacts on habitat fall outside the authority of fishery managers although many estuaries and other nearshore fish habitats are threatened by nonfishing activities. The MSFCMA requires federal agencies to consult with the Secretary of Commerce when their actions may adversely affect essential fish habitat. Some question how consultation on nonfishing habitat degradation can be improved and whether legislative action is needed to minimize nonfishing impacts. Bycatch The selectivity of commercial fishing gear depends on its characteristics and the nature of the species that it targets. Sometimes fishermen cannot control for the size of fish or species that are caught in the course of fishing. National standard 9 of the MSFCMA requires conservation and management measures to minimize bycatch and bycatch mortality. Bycatch is defined in the act as fish harvested in a fishery, but not sold or kept for personal use, and includes economic discards and regulatory discards. Economic discards are fish that are targeted by the fishery, but are not retained because they are of an undesirable species, poor quality, or for other economic reasons. Regulatory discards are fish harvested in a fishery that fishermen are required by regulation to discard whenever caught, or to retain but not sell. The MSFCMA's definition of bycatch explicitly excludes fish released alive under a recreational catch-and-release fishery management program. The MSFCMA definition does not include incidentally caught sea turtles, sea birds, and other non-fish organisms. For its national strategy, NOAA defines bycatch more broadly as discarded catch of any living marine resource, plus unobserved mortality due to a direct encounter with fishing gear. The MSFCMA also includes several sections that focus on reducing bycatch. Section 303(a)(11) requires FMPs to establish a standardized reporting methodology to assess the amount and type of bycatch occurring in the fishery, and include conservation and management measures that, to the extent practicable and in the following priority— (A) minimize bycatch; and (B) minimize the mortality of bycatch which cannot be avoided; The act also includes a section concerning North Pacific Fisheries Conservation that focuses on bycatch reduction incentives and a section which established a bycatch reduction engineering program. Since most bycatch is discarded at sea, for many fisheries it has been difficult to quantify its extent and composition. In 2011, NOAA released a national bycatch report that provided bycatch estimates for federal commercial fisheries and recommendations for improvements to bycatch data collection and estimation. Bycatch data are provided by onboard observers, self-reported vessel logbooks or trip reports, commercial dealer landings reports, and protected species reports. The report developed the following tier system to rate the 152 fisheries included in the report. Tier 0 - 24% of fisheries reviewed. No estimates exist for these fisheries because of the lack of data. Tier 1 – 16% of fisheries reviewed. Bycatch data were available but generally unreliable or data had not been analyzed. Tier 2 – 15% of fisheries reviewed. Bycatch estimates were generally available but would have benefited from improvement in data or analytical methods. Tier 3 – 41% of fisheries reviewed. Bycatch estimates were generally available and data were of higher quality than Tier 2. Tier 4 – 4% of fisheries reviewed. Bycatch estimates were available and based on the highest quality data and analytical methods. The report estimated that in 2005 national bycatch totaled 1.221 billion pounds while landings of these fisheries totaled 6.068 billion pounds. NMFS intends to use this first national compilation of bycatch as a baseline for subsequent updates. The report notes that data were from 2005 and that it is likely that the quality of data and estimates have improved since then, and that further bycatch reductions have been made in some fisheries. Issues Despite efforts to improve bycatch data collection and to address the need to reduce bycatch, these issues are still of concern to the public, environmental organizations, recreational anglers, and commercial fishermen. Bycatch can harm marine ecosystems, deplete protected species (endangered species and marine mammals), and reduce marine biodiversity. Economic losses also occur when undersized fish are discarded after dying in fishing gear (regulatory discards) and valuable fish are caught in a fishery that is not allowed to retain them (salmon caught in the Alaska pollock fishery). RFMC and fishing industry efforts have decreased bycatch in many fisheries. For example, an innovative industry program in the North Pacific avoids bycatch "hotspots" by closing areas of the pollock fishing grounds when Chinook salmon bycatch rates are high in those areas. The North Pacific RFMC has also established bycatch limits, closed areas, and gear requirements for trawl fisheries operating in the region. However, according to Oceana, an environmental group, only 20 percent of existing FMPs include incentives to minimize bycatch. Many, especially environmental groups, support efforts to further establish bycatch reduction incentives, set bycatch caps, and develop more selective fishing gear. Adequate knowledge of the quantity of organisms discarded is needed to measure fishing mortality and to develop reliable stock assessments. For example, accounting for by-catch during development of ACLs is required, but often managers are hampered by the paucity of bycatch data. According to some environmental groups, bycatch information is unreliable and inconsistent because of insufficient at-sea coverage by observers or electronic monitoring. Although observers are stationed on fishing boats, the level of coverage is often below levels needed to accurately quantify bycatch. Observer coverage is costly and in some cases observers are difficult to accommodate on small vessels. Electronic monitoring systems are currently under development in several regions. In some cases these systems may supplement direct observations and offer a less costly alternative. Other Issues Fishery Disaster Assistance Disaster relief may be provided by the federal government to assist the fishing industry when it is affected by a commercial fishery failure. A commercial fishery failure can be declared when fishermen endure economic hardships resulting from fish population declines or other disruptions to the fishery. The Department of Commerce can provide disaster assistance under Sections 308(b) and 308(d) of the Interjurisdictional Fisheries Act (IFA; 16 U.S.C. §4107), as amended, and Sections 312(a) and 315 of the MSFCMA (16 U.S.C §1861). NMFS determines whether a commercial fishery failure has occurred and in allocating federal funds to states and affected fishing communities. Congress plays a pivotal role by appropriating funds and providing oversight of the process. States also play a central role by initiating requests, providing information, planning for the use of funds, and often disbursing funds. Critics contend that disaster assistance programs often fall short of expectations because sometimes funds are not disbursed in a timely manner. There is no permanent relief fund to draw from when fishery failures occur and funds are seldom appropriated in anticipation of disasters. Given the timing of appropriations bills and congressional schedules, it can be difficult to appropriate funding in a timely manner. Furthermore, in several cases it has taken over a year for the Secretary of Commerce to make a determination. During the 112 th Congress two bills ( H.R. 1646 and H.R. 6350 ) included provisions which would have required the Secretary to make a determination within 60 days of the date on which the Secretary received the request. Two provisions were included in the Agriculture Reform, Food, and Jobs Act of 2013 ( S. 954 ) which passed the Senate. The first would have required the Federal Crop Insurance Corporation (FCIC) to develop a feasibility study to determine the best method of insuring harvesters. The FCIC would be required to submit a report with the results of the study to the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry. The second provision would have added commercial fishermen to the list of eligible borrowers for emergency loans. The USDA's Farm Service Agency provides emergency loans due to drought, flooding, other natural disasters or quarantine. The House bill did not include similar provisions and neither of the Senate provisions was included in the final bill ( P.L. 113-79 ). Data Collection and Confidentiality The need to monitor compliance and collect data, especially from vessels at-sea has increased the use of at-sea observers and hastened the development of electronic monitoring systems. Observers are often required on commercial fishing boats to monitor compliance, document take of protected species, and record biological data. The expense of observers and need for observation on small boats with limited space has encouraged the use of electronic monitoring. Electronic monitoring utilizes cameras and other electronic monitoring equipment to carry out some of the same monitoring tasks as observers. With the increase in at-sea monitoring new concerns with confidentiality and use of data have emerged. Information collection is essential for developing stock assessments, developing regulations, and managing fisheries. Currently, information submitted to the Secretary, state agency, or fishery commission by any person in compliance with the MSFCMA is confidential and cannot be disclosed. Under the MSFCMA and current confidentiality rules, when data are used for management purposes, it may only be disclosed when it is aggregated as a summary. Summary formats are used so that information of a specific business is not directly or indirectly disclosed. On May 23, 2012, NMFS released a proposed rule to implement the MSFCMA confidentiality provisions and to formalize current data confidentiality practices. Subsistence Subsistence fishing is a significant activity for many who live in coastal areas and a source of resources for some communities, but it is not explicitly addressed in the MSFCMA. Subsistence fishing can satisfy diverse needs such as personal consumption and community traditions. Although subsistence fishermen benefit from management that sustains stocks, they can also be affected by allocation decisions and other management measures. Their needs, motivations, and use of fishery resources are likely to differ from those of most recreational and commercial fishermen. Subsistence fishing is not defined in the MSFCMA, but an example of a definition for subsistence uses in Department of the Interior regulations is the customary and traditional uses by rural Alaska residents of wild, renewable resources for direct personal or family consumption as food, shelter, fuel, clothing, tools, or transportation; for the making and selling of handicraft articles out of nonedible byproducts of fish and wildlife resources taken for personal or family consumption; for barter, or sharing for personal or family consumption; and for customary trade. Some groups are concerned that fisheries regulations do not necessarily account for traditional values and cultural beliefs. Some have questioned whether subsistence fishing could benefit by being explicitly included in the management process for decisions related to allocation of resources and disaster relief. For example, the halibut IFQ program appears to have led to the loss of fisheries participation in some small Alaska indigenous communities. International Agreements and Port State Measures Coordinated management of fish stocks that travel among national zones of jurisdiction and the high seas is accomplished by international agreements which may establish regional fisheries management organizations (RFMOs). Each nation is expected to develop domestic laws and regulations that are consistent with each agreement. In many cases this requires implementing legislation and regulations to meet commitments to RFMOs and international fisheries agreements. Often legislation concerning RFMOs and other international fisheries issues is passed as part of MSFCMA reauthorizations. The following are two examples of legislation related to international fisheries management that have been introduced during the 113 th Congress. Illegal, Unreported and Unregulated Fishing and Other Fisheries Agreements The Magnuson Stevens Fishery Conservation and Management Reauthorization Act of 2006 ( P.L. 109-479 ) amended the High Seas Driftnet Fishing Moratorium Protection Act ( P.L. 104-43 ) to address illegal, unreported, and unregulated (IUU) fishing. The Moratorium Protection Act requires the NMFS to identify nations engaged in IUU fishing; to consult with identified nations; and to determine whether the nation has taken actions to address IUU activity. If the nation in question does not take actions to stop its IUU activities, U.S. imports of fisheries products from that nation may be prohibited. During the 113 th Congress, two similar bills have been introduced in the House ( H.R. 69 ) and the Senate ( S. 269 ) to harmonize and strengthen the enforcement provisions that implement international fishery agreements to which the United States is a party. Provisions of these bills focus on reducing IUU fishing activities. Both bills also would implement the Convention for the Strengthening of the Inter-American Tropical Tuna Commission established by the 1949 Convention between the United States of America and the Republic of Costa Rica (Antigua Convention). On November 18, 2005, the Senate ratified the Antigua Convention. On December 17, 2013, S. 269 was reported by the Committee on Commerce, Science, and Transportation, but no further action has been taken on either bill. Agreement on Port State Measures The Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing was approved by the United Nations Food and Agriculture Organization (FAO) Conference at its Thirty-sixth Session on November 22, 2009, through Resolution No. 12/2009, under Article XIV, paragraph 1 of the FAO Constitution. This Agreement, comprised of 37 Articles and 5 Annexes, aims to prevent illegally caught fish from entering international markets through ports. Under the terms of the treaty, foreign vessels will provide advance notice and request permission for port entry, countries will conduct regular inspections in accordance with universal minimum standards, offending vessels will be denied use of port or certain port services, and information sharing networks will be created. The United States signed the Agreement on November 22, 2009, the President transmitted it to the Senate on November 14, 2010, and on April 3, 2014, the Senate ratified the treaty. In the 113 th Congress, on February 11, 2012, the Pirate Fishing Elimination Act ( S. 267 ) was introduced. S. 267 would implement the agreement on port state measures and apply to vessels seeking entry to ports subject to the jurisdiction of the United States. The bill includes provisions related to duties of the Secretary, procedures for vessels entering U.S. ports, denial of port services, inspections, prohibited acts, and enforcement. On January 8, 2014, S. 267 was reported by the Senate Committee on Commerce Science and Transportation, but no further action has been taken. State-Federal Relationship Prior to 1976, states had management authority over all fisheries in waters adjacent to their coastlines, and there was little or no federal jurisdiction over living marine resources in these waters. With enactment of the Fishery Conservation and Management Act in 1976, marine fishery resources within 3 to 200 nautical miles of shore came under federal jurisdiction, while states retained jurisdiction of marine fishery resources from their coastline out to three nautical miles offshore. In Section 306, the MSFCMA states that the act neither extends nor diminishes the authority or jurisdiction of any state within its boundaries. The MSFCMA attempts to balance state interests with federal conservation and management goals, through the composition of RFMCs, support of regional commissions, and coordination with state fishery management. Many species managed by the RFMCs are found and fished in both state and federal waters. Some recreational and commercial fishermen are in favor of shifting greater management responsibility to state or regional levels because they believe local individuals are more knowledgeable about specific environmental conditions and economic needs of the state. These changes are likely to require more state resources to collect data, assess stocks, and develop management measures. In contrast, while recognizing the need for local expertise, some interests would oppose further decentralization of federal fisheries. Decentralized management, in their opinion, might put short-term local economic needs above long-term stock rebuilding and productivity. The red snapper fisheries of the Gulf of Mexico are among the most controversial fisheries under federal management and some would like to see greater state involvement in its management. The Gulf of Mexico stock was fished to low levels during the 1990s, and the Gulf of Mexico RFMC developed several FMP amendments to rebuild the fishery. Quotas have been kept at low levels and although the stock is overfished (low biomass), overfishing is no longer occurring. As rebuilding has proceeded and stock biomass has increased, associated fishery quotas, catch rates, and the average size of fish have also increased. However, seasons have become shorter because these increases have allowed recreation fishermen to reach the red snapper quota more quickly. Fishermen question whether stock assessments accurately reflect red snapper abundance when they are observing high catch rates. Recently, the fishery has become further complicated by inconsistent seasons in state and federal waters. Some have advocated for a greater state role in management such as determining seasons and extending state jurisdiction over red snapper. During the 113 th Congress six bills ( H.R. 1430 , H.R. 3099 , H.R. 3197 , S. 681 , S. 747 , and S. 1161 ) have been introduced to transfer management authority over red snapper from federal to State or regional control. H.R. 1430 , S. 681 , and S. 747 would grant management authority to the coastal States in the region. The authority would be contingent on agreement by the Governors on a red snapper fishery management plan. If the Governors fail to reach an agreement, management authority would revert back to the Secretary of Commerce. H.R. 3099 , H.R. 3197 , and S. 1161 would transfer authority over red snapper to the Gulf States Marine Fisheries Commission. The Commission would develop a fishery management plan that would take the place of the current Gulf of Mexico RFMC FMP. H.R. 3099 and H.R. 3197 would also require review and certification by the Secretary of Commerce that the plan is compatible with Section 301 of the MSFCMA and would ensure the long-term sustainability of the Gulf of Mexico red snapper population. Use of Funding from Enforcement Penalties NOAA's Asset Forfeiture Fund (AFF) is funded from fines collected from fishermen who violate marine resource laws. The MSFCMA provides the National Marine Fisheries Service (NMFS) Office of Law Enforcement (OLE) and NOAA's Office of General Counsel for Enforcement and Litigation (GCEL) authority to use funds for supporting fisheries enforcement activities. In 2010, NOAA was the subject of an investigation into the potential misuse of the AFF. The audit commissioned by the U.S. Department of Commerce, Office of Inspector General and conducted by an outside accounting firm found that OLE's and GCEL's management processes and internal controls were nonexistent or weak. These problems were reflected in OLE's procurement and management of vehicles and vessels, OLE's and GCEL's use of the AFF for international travel, and OLE's administration of its Special Operations Fund for covert and undercover operations. In 2010, NOAA began implementing reforms to policies and procedures in response to the Inspector General's report. In response to concerns related to the use of funds and needs for funding of fisheries research and monitoring, five bills were introduced during the 112 th Congress that addressed concerns with NOAA enforcement funds. Four of these bills ( H.R. 1013 , H.R. 2610 , H.R. 6350 , and S. 1312 ) proposed to use fines, penalties, and forfeitures of property for fisheries management needs such as monitoring and data collection. For certain fisheries enforcement cases, three bills, H.R. 2610 , S. 1304 , and S. 1312 would have used funds to reimburse fishermen for legal fees and costs incurred from fisheries enforcement penalties. Aquaculture Development of commercial aquaculture facilities in federal waters is hampered by an unclear regulatory process in the EEZ, and technical uncertainties related to working in offshore areas. Regulatory uncertainty has been identified by the Administration as the main barrier to developing open ocean aquaculture. Uncertainties often translate into barriers to commercial investment. Controversy related to potential environmental and economic impacts have also contributed to slowing expansion. Legislation was introduced during the last several Congresses to establish a regulatory system for offshore aquaculture in the U.S. EEZ. Bills have also been introduced to prohibit aquaculture in the EEZ unless a law is passed to authorize such actions. Nonetheless, on January 28, 2009, the Gulf of Mexico RFMC voted to approve a plan to issue aquaculture permits and regulate aquaculture in federal waters of the Gulf of Mexico. On September 3, 2009, the plan took effect because the Secretary of Commerce declined to oppose it within the required statutory period. Draft regulations to implement the plan are still under review at NOAA and according to NOAA could be completed sometime in 2014. Some environmental groups have questioned whether NOAA has the authority to regulate aquaculture under the MSFCMA. NOAA's position is explained in a memorandum concerning its authority to regulate aquaculture with the following passage. The Magnuson-Stevens Act does not expressly address whether aquaculture falls within the purview of the Act. However, the Magnuson-Stevens Act's assertion of exclusive fishery management authority over all fish within the EEZ, its direction to fishery management councils to prepare fishery management plans for any "fishery" needing conservation and management, together with the statutory definitions of "fishery" and "fishing," provide a sound basis for interpreting the Act as providing authority to regulate aquaculture in the EEZ. It is likely that the controversy concerning aquaculture development and regulation in federal waters will continue. It remains an open question as to whether aquaculture can or should be regulated under the MSFCMA and whether legislation that addresses aquaculture development and management is warranted. Seafood Certification Ecolabels and seafood guides are among the most well-known programs that inform the choices of consumers and seafood buyers. The main goal of most seafood programs is to promote conservation and management by identifying seafood produced by sustainable fisheries. Groups that provide or support ecolabels and seafood guides contend that consumers will choose seafood certified as produced by sustainable methods over seafood that is not certified. Producers of seafood may also obtain a price premium if consumers are willing to pay extra for an environmentally friendly product. If consumers are willing to pay the price premium, the ecolabel could provide an economic incentive for fisheries to adopt sustainable fishing practices. Ecolabeled seafood is recognized by a seal that is placed on the product's packaging to certify that it has met specific criteria related to its production. Criteria are developed by a standard setting organization such as the Marine Stewardship Council (MSC). These criteria are used to evaluate the fishery and determine whether it can be certified as sustainable. Certification of the chain of custody is also needed to ensure that seafood from the certified fishery is kept separate from uncertified seafood. Finally, wholesalers, processors, and retailers who sell certified seafood are required to follow certain standards regarding use of the ecolabel. Another way to convey information related to seafood sustainability is through published guides. Seafood guides range from pocket guides used by consumers in restaurants and grocery stores to more comprehensive online guides. Guides consist of seafood product lists that are ranked by categories such as best choice, good alternative, and avoid. Some lists identify general categories such as species or the common name of a seafood product, while others also identify specific fishing gear used to catch the product or harvest locations of the fishery. However, information available in supermarkets or restaurants is usually too limited to allow consumers to determine the specific fishery or capture method of a given product. Some have questioned who should certify seafood products and which criteria are appropriate. According to some nongovernmental organizations independent seafood certification programs are needed because governments have failed to adequately manage and conserve fisheries resources. Seafood certification is regarded as an alternative to relying solely on government action and the absence of a U.S. government label for seafood has left a gap which private companies and non-governmental organizations are trying to fill. Some have countered that in the United States federal and state governments have been successful in arresting the decline of fishery resources. They question the need to certify fisheries that are already subject to some of the strictest regulatory requirements in the world. Some contend that when implemented and enforced, the 10 MSFCMA national standards may be sufficient to ensure sustainability. It is often difficult to find agreement on the definition of sustainable fisheries and on standards that should be used to measure sustainability. Seafood eco-labels and guides may also focus on a variety of different concerns such as ecosystem impacts, aquaculture methods, and health issues. Differences in evaluation criteria have resulted in discrepancies among recommendations promoted by different groups. Some observers have recommended that some degree of government participation in ecolabeling programs could ensure the veracity of labels and provide a recognizable standard for consumers. Safety at Sea Commercial fishing is one of the most dangerous occupations in the United States. From 2000-2010, on average 46 fatalities occurred each year on fishing vessels, a rate of 124 deaths per 100,000 workers. The average rate over the same time period for all U.S. workers was 4 deaths per 100,000 workers. Under the Commercial Fishing Safety Act of 1988, the U.S. Coast Guard is responsible for developing regulations for safety equipment and vessel operating procedures. The National Institute for Occupational Safety and Health collects data related to fatal injuries, establishes why fatalities occur, and designs and implements interventions. These efforts have reduced fatalities from an average of over 100 deaths per year prior to 1988. Some commercial fishermen contend that it is imperative for fishery managers to explicitly consider whether or not fishery management regulations will compel fishing captains and crew to work under unsafe conditions. National standard 10 (16 U.S.C. 1851(a)(10)) of the MSFCMA requires that conservation and management measures promote the safety of human life at sea. However, some question whether this standard should be revised to make safety considerations a priority when developing plans to manage fisheries. They recommend that RFMCs should be required to address whether safety of fishermen is affected by management measures that encourage vessels to stay out in poor weather, work farther offshore, limit crew or vessel size, or make other changes that could increase risk. The MSFCMA reauthorization in 2006 added Section 303(a)(9)(C) which states that fishery impact statements shall access the effects of conservation and management measures on the safety of human life at sea, including whether and to what extent such measures may affect the safety of participants in the fishery. NOAA has been developing an update to guidelines published in 1998 to address this provision. On April 21, 2011 a proposed rule was published in the Federal Register , but no further action has been taken. Relationship to Other Selected Laws National Environmental Policy Act When the MSFCMA was reauthorized in 2006, Section 304(i) required NMFS to revise and update procedures to comply with the National Environmental Policy Act (NEPA; 42 U.S. C. 4231 et seq.) for actions related to fisheries management. Issues were related to mismatches in the timing of NEPA and MSFCMA processes and roles and responsibilities of NMFS and RFMCs. In response to the MSFCMA requirement, NMFS consulted with the Council on Environmental Quality (CEQ) and RFMCs, and sponsored public meetings. It then proposed a rule to better align RFMC and NEPA analytical and procedural requirements. The final draft rule was submitted by NMFS to the Office of Management and Budget (OMB) and at OMB's request withdrawn. Instead NMFS developed an Interim Policy Directive that focuses on roles and responsibilities, coordination of NEPA and MSA procedures such as timing, issues pertaining to NEPA documentation, and partnerships and efficiencies. According to NMFS, the policy directive satisfies the requirements of the NEPA provision. However, the RFMCs questioned whether the policy directive satisfies the intent of the MSFCMA to provide a more timely alignment of MSA and NEPA processes and a more streamlined environmental review process. Furthermore, the RFMCs claimed that consultation during development of the policy directive was inadequate. Marine Mammal Protection Act The Marine Mammal Protection Act (MMPA, 16 U.S.C. §§1361 et seq.) established a moratorium on the taking of marine mammals in U.S. waters or on the high seas. Some types of fishing gear can accidentally take marine mammals during commercial fishing operations. Exceptions to the moratorium are provided through permits to take marine mammals during the course of commercial fishing and other activities. Under the MMPA the Secretary of Commerce acting through NOAA Fisheries is responsible for the conservation and management of whales, dolphins, porpoises, seals, and sea lions while the Secretary of the Interior acting through the Fish and Wildlife Service is responsible for walruses, sea otters, polar bears, manatees, and dugongs. Ongoing issues are often related to the lack of data and associated uncertainties in assessing human-caused mortality and the status of marine mammal stocks. Another issue involves the concern that the some marine mammal populations consume a growing proportion of potential fisheries yield. National Marine Sanctuaries Act and Antiquities Act The National Marine Sanctuaries Act (NMSA; 16 U.S.C. §§1431, et seq.) authorizes NOAA to designate specific sites for comprehensive and coordinated management and conservation. The broad NMSA mandate allows NOAA to designate areas to preserve or restore conservation, ecological, aesthetic, or recreational values of the designated areas. It requires the development and implementation of management plans, which serve as the basis for prohibiting or limiting incompatible activities. NOAA has designated 13 sanctuaries, ranging in size from less than a square nautical mile to more than 100,000 square miles. Each site was designated for a specific reason, ranging from protecting cultural artifacts to protecting entire ecosystems. Since the management plans and regulations have been developed individually for each sanctuary and each sanctuary was established for a specified reason, they vary widely in how uses are managed and what uses are permitted. Fisheries are not regulated in most sanctuaries and fisheries conservation is not the primary objective of any of the 13 national marine sanctuaries. In considering whether to regulate fishing, the NMSA provides the appropriate RFMC the opportunity to determine whether sanctuary fishing regulations are needed and to draft fishing regulations. The Secretary of Commerce must accept the Council's proposals or determinations unless they fail to fulfill the purpose of the Sanctuary's designation. In this case NOAA could prepare regulations under either the MSA or the NMSA. The Antiquities Act of 1906 (16 U.S.C. §§431-443) allows the President to proclaim locations of scientific or historical interest as national monuments and has been used for several marine areas. Some have asserted that when the 1906 Antiquities Act was passed, Congress did not envision it use for vast marine areas. They question whether recent presidential proclamations to establish marine national monuments are an abuse of executive power. Use of the Antiquities Act has raised objections that proclamations do not provide the opportunity for public input and debate. Others counter that the act should be used to designate protected areas in the marine environment because it can be used expeditiously. Regardless, applying the Antiquities Act to marine areas will still require "negotiation, education, and consensus-building" including congressional funding commitments and involvement of local committees representing interested and affected parties. Endangered Species Act The Endangered Species Act (ESA; P.L. 93-205 , 16 U.S.C. §§1531-1543) provides for protection, and recovery of species of animals and plants that are threatened with extinction. Under the ESA, species can be listed as endangered or threatened according to assessments of their risk of extinction. Once a species is listed, legal tools are available to aid its recovery and protect its habitat. These tools may restrict activities that affect the listed species. Fishing may interact with protected marine species and in some cases fishing activities may be constrained to minimize harm to listed species. House and Senate Committee Proposals The House Committee on Natural Resources and the Senate Committee on Commerce, Science, and Transportation have been pursuing efforts to reauthorize the MSFCMA during the 113 th Congress by holding hearings and by releasing discussion drafts composed of potential amendments to the act. The House draft has been posted on the Natural Resources Committee website to gather public input on proposed changes. Proposals include topics related to flexibility in rebuilding fish stocks and setting ACLs, standards and procedures for developing catch share programs, relationships to other laws, data confidentiality, and red snapper management. The Senate Committee draft has been distributed to different stakeholders and has been posted on several websites. The draft addresses topics such as subsistence uses, forage fish, use of capital funds, rebuilding timeframes, and review of allocation among sectors. Both Committees intend to release refined proposals and continue progress on reauthorization issues during 2014. Conclusions Although science is often looked to for answers, societal values also play an important role when developing national policies. Often the fishing industry faces hardships associated with the natural variability of marine fish populations and management efforts to sustain populations above specific levels. These hardships are compounded when stock rebuilding becomes necessary. A critical fisheries policy question is whether it is in the national interest to provide greater management flexibility, increase resources for management and research, and generally expand support for commercial fishing and associated communities. Seafood is the last major food source that depends on harvest of wild populations from the natural environment. When fisheries were being developed fishermen often had flexibility to target different species or move to different areas if resource abundance decreased. As limits to natural production were reached and most fish stocks become fully or overexploited, regulations become more rigid and complex. Fishery managers and fishermen have little or no control over natural production except to change fishing effort and associated fishing mortality. These regulatory efforts can increase fish population abundance and production in some fisheries, but with timing and outcomes that are often uncertain. In the agricultural sector, programs have been developed to help farmers manage financial risks caused by variations in the natural environment such as drought, floods, or disease. To some degree the well-being of producers, communities, lending institutions, and other input sectors are protected by programs such as crop insurance and other types of disaster relief. Some have questioned whether similar programs are needed for the fishing industry, albeit with refinements that consider the unique nature of fisheries. Many agree that more resources for data collection and stock assessments are needed to improve the understanding of marine ecosystems and marine populations. They reason that through more precise information and by reducing the risk of overfishing, the need for precautionary measures could be lessened and fishing could be increased while remaining within biological limits. However, the benefits associated with marginal improvements in information will decrease with increasing investments in this area. At some point the costs associated with collecting more information become greater than the associated benefits. Regardless of how much data, assessments, and management are improved, constraints to fishing associated with limits to natural production and unpredictable variations in the natural environment will still occur. Managers must also contend with environmental factors over which they have no control such as climate change and the loss and degradation of fish habitat. Environmental degradation reduces the resiliency of marine and coastal ecosystems and the productivity of marine resources. It also decreases or shifts the geographic range and size of marine populations such as fish and protected species (marine mammals and endangered species). Managers are challenged to find ways to maintain the productivity and health of marine systems and associated populations while minimizing constraints on a variety of economic activities. This may require greater reliance on developing management systems that recognize linkages across government agencies, scientific disciplines, and different oceans activities. Some would question whether current management institutions can incorporate resource constraints and variability while minimizing disruption of livelihoods and the nature of coastal communities. Some have advocated for catch share programs because of the flexibility they can provide to fishermen. However, many fishermen are skeptical of catch share programs because of issues related to allocation and unanticipated outcomes. Further progress in this area will require integration of social and cultural concerns as well as bioeconomic analysis. Cooperative research and greater industry input during data collection and analysis have also been considered as management costs have increased and information collection requirements have expanded. As marine fisheries evolve many will continue to question the respective roles and investments of public (federal, regional, and state), and private institutions. Appendix A. MSFCMA Background Federal Fisheries Management History Historically, coastal states managed marine sport and commercial fisheries in nearshore state waters, where most seafood was caught. On September 28, 1945, President Truman issued two proclamations addressing U.S. rights to marine resources beyond the U.S. 3-mile territorial sea. The proclamations expressed the need to conserve and manage living resources and to establish conservation zones in areas of the high seas adjacent to the coasts of the United States. However, the rights proclaimed for fishing did not provide for exclusive jurisdiction over fisheries resources. As fishing technology advanced and market demand increased, fishermen built up fishing capacity, increased catches, and fished more intensively in offshore areas. In the 1950s and 1960s, increasing numbers of foreign fishing vessels began operating in waters adjacent to the United States. Since the United States only claimed a 3-mile jurisdiction, foreign vessels could fish many of the same stocks caught by U.S. fishermen. U.S. fishermen deplored this "foreign encroachment" and alleged that overfishing was causing stress on, or outright depletion of, fish stocks. United Nations Law of the Sea Treaty negotiations in the early and mid-1970s as well as actions by other coastal nations provided impetus for unilateral U.S. action to declare jurisdiction over fisheries resources within 200 miles of the coastline. When the United States enacted the Fishery Conservation and Management Act (FCMA, P.L. 94-265 ), later renamed the Magnuson Fishery Conservation and Management Act (MFCMA, P.L. 97-191 ) and more recently the Magnuson-Stevens Fishery Conservation and Management Act (MSFCMA, 109-479), it created a new system of federal fishery management. After several years of debate the FCMA was signed into law on April 13, 1976. On March 1, 1977, marine fishery resources within 200 miles of all U.S. coasts, but outside state waters, came under federal jurisdiction. Initially a substantial portion of the fish caught from federal offshore waters was allocated to foreign fishing fleets. However, the 1980 American Fisheries Promotion Act (Title II of P.L. 96-561 ) and other FCMA amendments provided incentives to expand domestic fishing and processing industries and decrease foreign catch allocations. On March 10, 1983, the 200-mile fishery conservation zone was superseded by a 200-mile exclusive economic zone (EEZ), proclaimed by President Reagan (Presidential Proclamation 5030). Management Under the MSFCMA With the enactment of the FCMA in 1977, an entirely new, regional management system was established to regulate fisheries with priority given to domestic fishermen. Primary federal management authority was vested in the National Marine Fisheries Service (NMFS, also popularly referred to as NOAA Fisheries) within the National Oceanic and Atmospheric Administration (NOAA) of the U.S. Department of Commerce. The FCMA established eight Regional Fishery Management Councils, which include New England, Mid-Atlantic, South Atlantic, Gulf of Mexico, Caribbean, Pacific (West Coast), Alaska, and Western Pacific. Each council is comprised of marine fishery management agency representatives from each state in the region, the NMFS regional director, and members appointed by the Secretary of Commerce. Appointments are made from lists of candidates knowledgeable about fishery resources that are submitted by state governors. Councils receive input from a variety of advisory committees, species committees, and ad hoc committees. Each council has a Scientific and Statistical Committee (SSC) and, depending on the council, various subcommittees for specific species. The SSC provides the council with scientific advice by developing, collecting, evaluating, and reviewing information during development of fishery management plans and amendments. Members of SSCs include individuals knowledgeable in fisheries from state and federal agencies, universities, and the public. Fishery management plans (FMPs) are prepared by each council for those fisheries occurring primarily in federal waters and which require active federal management. FMPs consist of management measures and related actions needed to manage stocks such as catch limits, minimum sizes, seasons, closed areas, vessel permitting, and other measures. Public input is a major element of the council process where the public, including fishermen and environmentalists, provides information and comments during the FMP development process. Most data collection and scientific assessments that support development of FMPs are undertaken by NMFS. Most information is collected and analyzed at NMFS regional science centers and associated laboratories while management functions are conducted from NMFS regional headquarters. After review of the recommendations of appropriate council committees and approval by the council, a proposed action is then submitted to NMFS for review. The review is governed by a strict process that includes additional opportunity for public comment and subsequent approval, partial approval, or disapproval by the Secretary of Commerce. Approved plans are implemented through regulations drafted by NMFS regional management offices and published in the Federal Register. These regulations are enforced by NMFS, the Coast Guard, and state fishery enforcement agencies. Plans are amended periodically to account for changes in the fishery and the need for new management approaches. Together these councils and NMFS have developed and implemented 46 FMPs for various fish and shellfish resources, with additional FMPs and FMP amendments in various stages of development. Some plans are created for an individual species or a few related ones (e.g., FMPs for red drum by the South Atlantic Council and for species of shrimp by the Gulf of Mexico Council). Others are developed for larger species assemblages inhabiting similar habitats (e.g., FMPs for Gulf of Alaska groundfish by the North Pacific Council and for reef fish by the Gulf of Mexico Council). NMFS manages wide-ranging Atlantic highly migratory species such as tunas, sharks, swordfish and billfish. Many of the implemented plans have been amended (some more than 30 times), and some plans have been developed and implemented jointly by two or more councils. Fisheries Statistics The United States has the largest EEZ in the world which includes areas in three oceans (Pacific, Atlantic, and Arctic) with a total area of 3.4 million square nautical miles. These areas also contain some of the most productive fisheries in the world. After passage of the FCMA, foreign catch from the U.S. FCZ declined from about 3.8 billion pounds in 1977 to zero since 1992. Accompanying the decline of foreign catch, domestic offshore catch in federal waters increased dramatically, from about 1.6 billion pounds (1977) to more than 6.3 billion pounds in 1986-1988. After this peak, annual landings from federal waters have generally ranged from 5 to around 6.5 billion pounds. ( Figure A-1 .) In 2012, U.S. fishermen landed 10.2 billion pounds of unprocessed fish and shellfish from state, federal, and outside U.S. waters (high seas areas and EEZs of other countries) with a value of $5.63 billion at the dock. Total domestic (state and federal) landings totaled 9.63 billion pounds of which 3.19 billion pounds were from state waters and 6.43 billion pounds were from federal waters. Landings for human food from both state and federal waters totaled 7.48 billion pounds while 2.16 billion pounds were landed for industrial purposes such as animal feeds. The top five species ranked by volume were pollock (2.9 billion pounds), menhaden (1.8 billion pounds), cod (728 million pounds), flatfish (702 million pounds) and salmon (635 million pounds). The value of domestically produced edible products was $9.5 billion while the value of industrial products was $747 million. The top five species by value were crabs ($680 million), scallops ($561 million), shrimp ($490 million), salmon ($489 million), and lobster ($465 million). In 2012, U.S. per capita consumption of seafood was 14.4 pounds, down 0.8 pounds from 2011. Approximately 91% of the seafood consumed in the United States is imported from other countries. In 2012, imports of edible fishery products were 5.4 billion pounds with a value of $16.7 billion. Exports were 3.3 billion pounds valued at $5.5 billion. Imports are generally composed of relatively high valued species such as shrimp and salmon, and products that have been processed to some degree. U.S. consumers spent an estimated $82.6 billion on edible seafood in 2012 of which $55.2 billion was spent in restaurants and other food service establishments. In 2012, nearly 9.4 million anglers made approximately 70 million marine recreational fishing trips in the United States. Marine recreational anglers caught an estimated 380 million fish in 2012. Recreational catch that was retained totaled approximately 140 million fish and weighed about 203 million pounds. Most fishing trips were taken on the Atlantic coast (38 million), followed by the Gulf coast (24 million), and the Pacific coast (5.7 million). In 2011, a nationwide survey, conducted every five years, estimated that saltwater recreational anglers spent more than $10.3 billion on their fishing trips and equipment. Constituencies A variety of groups are involved in managing and utilizing marine fisheries. Although they often share general goals related to maintaining productivity and healthy ecosystems, they often disagree on how to achieve these goals. The following characterizations are general and may vary considerably depending on region and fishery. As Congress considers reauthorization of the MSFCMA, these diverse groups are likely to advocate for a wide range of policies. Advocates of most categories of groups also include national, regional, and local representation as well as individuals or informal groups. Recreational Recreational interests include a broad variety of users with different approaches and motivations to fishing. In contrast to commercial fishing, most recreational activities are closely related to the satisfaction that individuals derive from the experience of fishing or observing fish. Generally, activities include a range of often overlapping categories such as non-extractive sports such as snorkeling and scuba diving where utility is gained from observing the marine environment; catch and release fishing where the experience of catching fish is the main objective; and extractive recreational fishing where anglers catch fish for consumption. Different modes of recreational angling include fishing from shore, boats, and charters or party boats. Charters and party boats are commercial operations which provide fishing opportunities to sport anglers for a fee. Recreational interests are often concerned about decisions affecting access to fisheries and allocation of fishing quotas among different interests. Issues and types of recreational interests also vary by region, species targeted, and mode of fishing. Commercial Commercial fishing is composed of diverse interests, but it generally involves the harvest of fish for commercial sale. However, in many cases the commercial fishing participants also gain satisfaction from maintaining their livelihood and independence. Commercial fishing can be divided according to target species, scale, and region. For example, even within a specific fishery, commercial users may have different views depending on fishing gear (e.g., trawl, gillnet, pots, or longline), port, or fishing grounds (e.g., inshore or offshore). There are also many fishing dependent businesses that supply fishermen (e.g., ice, nets, vessel maintenance) and businesses that use the harvest such as processors, wholesalers, and others. During the last two decades increasing emphasis has been placed on the inter-dependence between fishing dependent business and maintaining fishing communities. Although national issues often emerge during reauthorizations, regional issues are sometimes reflected in specific provisions of the act. Most fishing associations and representatives are regional in nature and offer regional perspectives. Environmental During the last several decades, national and regional environmental groups have gained greater influence in the fishery management process. Initially environmental advocacy focused on indirect harm from the take in fishing gear of marine mammals, sea turtles, and sea birds. Environmental groups expanded their concerns to include overfishing, bycatch, habitat, and marine biodiversity. Interests of environmentalists and fishermen sometimes conflict when fishing may be constrained by greater regulation or coincide for issues such as degradation of habitat from activities other than fishing. Native American Many Native American groups are concerned with marine fishing because of their cultural, traditional, and subsistence links to marine resources. In some cases the federal government is required to protect and maintain the treaty rights of some tribes that guarantee access to certain fishery resources. The long-term goals of tribes and indigenous peoples generally include safeguarding cultural traditions, promoting economic stability, and encouraging resource sustainability. Fishery Scientists and Managers Fishery scientists and mangers are generally concerned with conserving and managing fishery resources to ensure future benefits. Scientists from academia, the private sector, and state and federal agencies analyze biological, social, cultural, and economic effects of federal fisheries management policy. One of their primary concerns is the availability of adequate funding for data collection, stock assessments, and other analyses necessary to inform fishery managers. Fishery managers develop fishery policies and implement the MSFCMA management measures. Management measures are developed by RFMC members and staff, and NOAA personnel. NOAA personnel also implement management measures by drafting, implementing and enforcing fishery regulations. Consumers Consumers are concerned with the availability, quality, and safety of seafood products. There is also growing public concern with making choices that promote sustainable fisheries. A number of non-governmental organizations have developed ecolabels and seafood guides to inform the choices of consumers and seafood buyers. Another growing concern is fraudulent seafood sales and marketing—an act of defrauding buyers of seafood for economic gain, such as mislabeling products or substituting a low valued species for high valued species. Seafood safety and seafood fraud are regulated under the Federal Food, Drug, and Cosmetic Act of 1938 (FFDCA; 21 U.S.C. §§301 et seq.), which is administered by the Food and Drug Administration (FDA). Appendix B. Magnuson-Stevens Act Reauthorization in 109 th Congress On January 12, 2007, the President signed the Magnuson-Stevens Fishery Conservation and Management Reauthorization Act of 2006 (MSFCMA) ( P.L. 109-479 , 16 U.S.C. §§1801, et seq.). Major Congressional goals of the 2006 reauthorization included ending overfishing, developing guidelines for catch shares, improving science and the use of science in federal policy decision-making, modifying fishery management council procedures, and enhancing international cooperation. The following summaries focus on amendments that many consider to be most significant. Conservation and Management Overfishing and Annual Catch Limits Section 104 of the MSFCMA mandated the use of annual catch levels (ACLs) to prevent overfishing and to maintain sustainable harvests. Councils are now required to set fishing limits within the range of scientific recommendations. Major changes included the following: mandating every fishery management plan establish ACLs at levels such that overfishing does not occur in the fishery; requiring ACLs by 2010 for fisheries already subject to overfishing and by 2011 for all other fisheries; and requiring councils to develop and implement a rebuilding plan within two years of a stock being declared overfished. Regional Fishery Management Councils Section 103 of the legislation increased the role of science in decision-making through a number of provisions focused on the RFMCs' Scientific and Statistical Committees (SSCs) by: specifying that the SSCs are to provide their councils with scientific advice needed for management decisions; requiring the regional councils to develop five-year research priorities for fisheries, fisheries interactions, habitats, and other areas of research necessary for management; modifying regional council fishery management plan procedures, including a requirement to improve coordination of the MSFCMA regulatory process and environmental review under the National Environmental Policy Act (NEPA; 42 U.S.C. §§4321, et seq.) (§107); requiring the SSCs to advise the councils on a variety of issues, including stock status and health, acceptable biological catch, overfishing, bycatch, rebuilding targets, habitat status, social and economic impacts, and sustainability of fishing practices; and requiring the SSC appointees be federal, state, academic, or independent experts with strong scientific or technical credentials and experience. Section 103 of the MSFCMA amendments also modified requirements for appointing and training RFMC members. Activities by RFMCs and panels were also modified to enhance transparency of the management process. Provisions of this section sought to inform and strengthen RFMCs by: establishing a RFMC training program on the fishery management process for existing council members and new council members; and clarifying conflict-of-interest and recusal requirements by ensuring that RFMC members and Scientific and Statistical Committees (SSCs) disclose any financial arrangements that might involve conflict of interest. Limited Access Privilege Programs Section 106 of the legislation authorized national guidelines for Limited Access Privilege Programs (LAPPs) commonly known as catch shares, individual transferable quotas (ITQs), or individual fishing quotas (IFQs). LAPPs are federal management systems that divide the total allowable catch of a fishery among fishery participants for their exclusive use. Use of LAPPs is intended to avoid "derby" fishing where many vessels are competing for limited resources. Features of LAPPs, as provided in the act, include the following: allows for allocation of harvesting privileges to individuals, corporations, fishing communities, or regional fishery associations; allows only fisheries that have been operating under a limited access system to be eligible for management under a LAPP system; directs the National Oceanic and Atmospheric Administration (NOAA) to develop criteria for eligibility by considering several factors, such as traditional fishing practices, the cultural and social elements of the fishery, and the severity of projected economic and social impacts of LAPPs; allows processors to hold LAPPs and participate in the normal allocation process (but not by allocation of a separate processor quota); and requires a formal and detailed review five years after implementation of each program, and thereafter review within every seven years. Information and Research Recreational Fisheries Section 201 required improvements in data collection from recreational fisheries. Programs and priorities included the following: establishing a national program to create eight regional registry programs for marine recreational fishermen; directing the Secretary to exempt individuals from the regional registry where state programs meet defined criteria; and improving the Marine Recreational Fishery Statistics Survey. Cooperative Research Section 204 of the MSFCMA amendments directed the Secretary to establish a cooperative research and management program. Requirements of this program include identifying projects to be competitively funded by the Secretary, with priority given to collecting data to improve stock assessments, assessing bycatch and mortality, designing technology to reduce bycatch, identifying important habitat, and collecting social and economic data; directing the Secretary of Commerce to establish guidelines to ensure that participation does not result in the loss of a participant's catch history or unexpended days-at-sea as part of a limited entry system; and requiring the Secretary of Commerce to issue regulations for expediting regionally based experimental fishery permits. Regional Ecosystem Research Section 210 of the 2006 amendments focused on developing information to implement pilot projects by: requiring the Secretary of Commerce, in consultation with the councils, to study the state of the science for advancing the concepts and integration of ecosystem considerations in regional fishery management; including recommendations in the study for scientific data, information, and technology requirements for understanding ecosystem processes, and methods for integrating information from different sources; incorporating broad stakeholder participation, recommendations to account for environmental variation, and a description of existing and new efforts to implement ecosystem approaches; and providing technical advice and assistance to councils for developing and designing regional pilot programs. Other Research Other research efforts include establishing a deep sea coral research and technology program (§211); and researching and promoting new gear technologies to further reduce bycatch (§116); International Conservation and Management Illegal, Unreported, and Unregulated Fishing Sections 401-403 of the MSFCMA amendments included provisions to strengthen the ability of international fishery management organizations and the United States to appropriately enforce conservation and management measures for high seas fisheries. Provisions included undertaking activities to improve international compliance and monitoring of high seas fisheries, and report to Congress on progress in reducing illegal, unreported, and unregulated fishing (IUU) (§401); strengthening the ability of fishery management organizations to stop IUU fishing (§403); requiring the Secretary of Commerce to define IUU, and specifying that the definition must include violations of quotas or other rules established by international agreement (§403); and allowing for the use of measures authorized under the High Seas Driftnet Act to force compliance in cases where regional or international fishery management organizations are unable to stop IUU fishing (§403). Western and Central Pacific Fisheries Convention (WCPFC) Title V (§§501-511) implements provisions of the WCPFC by: providing for U.S. participation in the Western and Central Pacific Fisheries Commission such as appointment of commissioners, and other administrative matters; defining the authorities of the Secretary of State and Secretary of Commerce; and making conservation and management measures adopted by the WCPF Commission legally binding upon nations and vessels subject to U.S. jurisdiction. Other Provisions Additional provisions included the following: authorizing appropriations of $338.8 million in FY2007 with a $9.84 million annual increase for implementing activities through FY2013 (§7); establishing marine education and training programs for Western and North Pacific communities to improve communication, education, and training on marine resource issues and increase scientific education opportunities for marine-related professions among coastal community residents (§109); establishing regional economic transition programs to provide disaster relief at the request of Governors of affected states (§113); and implementing the Pacific Whiting Act of 2006 between the United States and Canada (§§601-611). NMFS has summarized various activities associated with implementing P.L. 109-479 in a table that lists tasks. Examples of implementation activities include (1) a report by NMFS to Congress on implementing new provisions relating to reduce illegal, unreported, and unregulated (IUU) fishing activities and (2) final guidance amending National Standard 1, designed to end overfishing through new requirements for annual catch limits and other accountability measures. In addition, NMFS released a new national policy on the use of catch shares in fishery management plans. Appendix C. Acronyms ACLs – Annual Catch Limits AFF – Asset Forfeiture Fund AMs – Accountability Measures EEZ – Exclusive Economic Zone ESA – Endangered Species Act FMP – Fishery Management Plan IFQs – Individual Fishing Quotas ITQs – Individual Transferable Quotas IUU – Illegal, Unreported, and Unregulated LAPPs – Limited Access Privilege Programs MSY – Maximum Sustainable Yield NEPA – National Environmental Policy Act NRC – National Research Council OY – Optimum Yield RFMC – Fishery Management Council RFMO – Regional Fishery Management Organization SSC – Scientific and Statistical Committee

The 113th Congress is actively considering reauthorization of the Magnuson-Stevens Fishery Conservation and Management Act (MSFCMA). The MSFCMA governs the management and conservation of commercial and recreational fisheries in U.S. federal waters (3-200 nautical miles from shore). The MSFCMA was last reauthorized and extensively amended in 2006 (P.L. 109-479). Although the authorization of appropriations under the MSFCMA expired at the end of FY2013, the act's requirements continue in effect and Congress has continued to appropriate funds to administer the act. Historically, reauthorization has also provided the opportunity to introduce significant amendments to the act. During the first decade after the act was passed in 1976, fishery policy focused on controlling and replacing foreign fishing and developing U.S. fisheries in the newly declared 200-mile Fishery Conservation Zone. After that time, new issues emerged, including recognition of the need to sustain fish populations and respond to overfishing while attempting to satisfy the economic and social needs of recreational and commercial fishermen and fishing communities. Achieving this balance is closely related to allocating federal fishery resources among different users, developing and supporting existing management institutions, and investing in management and research. This report covers issues that have been identified during congressional hearings and in legislation introduced during the last three Congresses. Although most issues are not new, they have evolved with changes to the statute, regulations, and fishery management plans. Major issues include (1) flexibility in rebuilding overfished fisheries, (2) annual catch limits, (3) uncertainty and data needs; (4) catch shares (limited access privilege programs), (5) management process and decision making, (6) bycatch, and (7) environmental quality. A variety of other issues are also covered in this report. Most of these issues are part of a system of linked elements including ecosystems (fish populations and biophysical elements of the environment), fishing (commercial and recreational fishermen, processors, and other related fishing businesses), management (managers, scientists, and the regulatory system), fishing communities (other related businesses and coastal residents), and markets (wholesale, retail, restaurants, and consumers). Often a change in one element affects other elements. For example, requirements to stop overfishing that use restrictive catch limits may rebuild fish populations, but may also result in short-run harm to fishing businesses and coastal communities. During the last three Congresses, over 30 different bills have been introduced to amend portions of the MSFCMA. These bills have covered a wide variety of topics, ranging from proposals to change management for specific fisheries or regions, to general changes to the management process such as requirements of fishery management plans. Oversight hearings concerning MSFCMA reauthorization have been held by the House Committee on Natural Resources and by the Senate Committee on Commerce, Science, and Transportation. On December 18, 2013, the chairman of the House Committee on Natural Resources released a draft that included many elements of previously introduced bills. In early April 2014, the Senate Committee on Commerce, Science, and Transportation also released a reauthorization draft.

Introduction This report tracks and provides an overview of actions taken by the Administration and Congress to provide FY2015 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts. It also provides an overview of enacted FY2014 appropriations for agencies and bureaus funded as a part of the annual appropriation for CJS. The amounts in this report reflect only new appropriations. Therefore, the amounts do not include any rescissions of unobligated or de-obligated balances that may be counted as offsets to newly enacted appropriations, nor do they include any scorekeeping adjustments, such as the balance on the Crime Victims Fund. The FY2014-enacted amounts were taken from the joint explanatory statement to accompany P.L. 113-76 , printed in the January 15, 2014, Congressional Record (pp. H507-H532). The FY2015 requested amounts were taken from the report to accompany H.R. 4660 ( H.Rept. 113-448 ). The FY2015 House-passed amounts were taken from the text of H.R. 4660 and H.Rept. 113-448 . The amounts reported by the Senate Committee on Appropriations were taken from the report to accompany S. 2473 ( S.Rept. 113-181 ). The FY2015-enacted amounts were taken from the joint explanatory statement to accompany P.L. 113-235 , printed in the December 11, 2014, Congressional Record . Overview of CJS The annual CJS appropriations act provides funding for the Departments of Commerce and Justice, the science agencies, and several related agencies. Appropriations for the Department of Commerce include funding for agencies such as Census Bureau; the U.S. Patent and Trademark Office; the National Oceanic and Atmospheric Administration; and the National Institute of Standards and Technology. Appropriations for the Department of Justice provide funding for agencies such as the Federal Bureau of Investigation; the Bureau of Prisons; the U.S. Marshals; the Drug Enforcement Administration; the Bureau of Alcohol, Tobacco, Firearms, and Explosives; along with funding for a variety of grant programs for state, local, and tribal governments. The vast majority of funding for the science agencies goes to the National Aeronautics and Space Administration and the National Science Foundation. The annual appropriation for the related agencies includes funding for agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission. The mission of the Department of Commerce is to promote "job creation, economic growth, sustainable development and improved standards of living ... by working in partnership with businesses, universities, communities and ... workers." The department has wide-ranging responsibilities including trade, economic development, technology, entrepreneurship and business development, monitoring the environment, and statistical research and analysis. The Department of Commerce affects trade and economic development by working to open new markets for U.S. goods and services and promoting pro-growth business policies. The department also invests in research in development to foster innovation. The Department of Commerce, through the National Oceanic and Atmospheric Administration, manages and monitors the nation's natural resources and assets to support both environmental and economic health. The department, through the Census Bureau, conducts the constitutionally mandated decennial census. Finally, the Department of Commerce operates the national patent system. The mission of the Department of Justice (DOJ) is to "enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans." The DOJ provides legal advice and opinions, upon request, to the President and executive branch department heads. The DOJ prosecutes individuals accused of violating federal laws and it represents the U.S. Government in court. The department enforces federal criminal and civil laws, including antitrust, civil rights, environmental, and tax laws. The department, through agencies such as the Federal Bureau of Investigation, the Drug Enforcement Administration, and the Bureau of Alcohol, Tobacco, Firearms and Explosives, investigates organized and violent crime, illegal drugs, and gun and explosives violations. The DOJ, through the U.S. Marshals Service, protects the federal judiciary, apprehends fugitives, and detains individuals who are not granted pretrial release. It incarcerates individuals convicted of violating federal laws. The DOJ also provides grants and training to state, local, and tribal law enforcement agencies. The National Aeronautics and Space Administration (NASA) was created by the National Aeronautics and Space Act of 1958 (P.L. 85-568) to conduct civilian space and aeronautics activities. It has four mission directorates. The Human Exploration and Operations Mission Directorate is responsible for human spaceflight activities, including the International Space Station and development efforts for future crewed spacecraft. The Science Mission Directorate manages robotic science missions, such as the Hubble Space Telescope, the Mars rover Curiosity, and satellites for Earth science research. The Space Technology Mission Directorate develops new technologies for use in future space missions, such as advanced propulsion and laser communications. The Aeronautics Research Mission Directorate conducts research and development on aircraft and aviation systems. In addition to the mission directorates, the Office of Education manages formal and informal education programs for school children, college and university students, and the general public. The National Science Foundation (NSF) supports basic research and education in the non-medical sciences and engineering. Congress established the foundation as an independent federal agency in 1950 and directed it to "promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes." The NSF is a primary source of federal support for U.S. university research. It is also responsible for significant shares of the federal science, technology, engineering, and mathematics (STEM) education program portfolio and federal STEM student aid and support. Figure 1 shows the total appropriation, in both nominal and inflation-adjusted dollars, for the CJS act for FY2005-FY2014. The data show that nominal appropriations for CJS increased starting with FY2005, peaked in FY2010, and have generally declined since. After adjusting for inflation, FY2013 and FY2014 appropriations for CJS were generally at the same level they were at in FY2005. The data also show that the nominal increases in appropriations for CJS between FY2005 and FY2008 were generally in-line with inflation. Figure 2 shows total appropriations for CJS for FY2005-FY2014 by major component (i.e., the Departments of Commerce and Justice, the National Aeronautics and Space Administration, and the National Science Foundation). The data show that the increase in CJS appropriations in FY2009, FY2010, and FY2011 was the result of Congress appropriating more funding for the Department of Commerce in support of the 2010 decennial census. Since FY2010, total appropriations for CJS have been around $60 billion, with the exception of FY2013 when sequestration cut nearly $4 billion out of the total amount Congress appropriated for CJS for FY2013. While decreased appropriations for the Department of Commerce mostly explain the overall decrease in CJS appropriations since FY2010, there have also been cuts in funding for DOJ and NASA. The DOJ's FY2014 appropriation is 1.9% below its FY2010 appropriation, and NASA's FY2014 appropriation is 5.8% below its FY2010 appropriation. Recent reductions to NASA's appropriation has brought it more in-line with what the agency received in FY2005. However, even with recent cuts to DOJ's appropriation, Congress still appropriated $6.883 billion more for DOJ in FY2014 than it did in FY2005. Appropriations for DOJ increased because Congress appropriated a growing amount for federal law enforcement and counter-terrorism efforts (e.g., the Federal Bureau of Investigation), and Congress appropriated increasing amounts for the Office of the Federal Detention Trustee and the Bureau of Prisons to cover expenses associated with a rising number of federal detainees and prisoners. FY2014 and FY2015 Appropriations for CJS For FY2015, the Administration requested a total of $62.397 billion for the agencies and bureaus funded as a part of the annual CJS bill. The Administration's request was 1.3%, or $774.4 million, more than the FY2014-enacted appropriation of $61.623 billion. The Administration's request included $8.746 billion for the Department of Commerce, $27.974 billion for the Department of Justice, $24.721 billion for the science agencies, and $956.1 million for the related agencies. On January 17, 2014, President Obama signed into law the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). The act provided a total of $61.623 billion for CJS, of which $8.181 billion was for the Department of Commerce, $27.737 billion was for the Department of Justice, $24.824 billion was for the science agencies, and $881.8 million was for the related agencies. On May 15, 2014, the House Committee on Appropriations reported the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2015 ( H.R. 4660 ). The bill was passed by the House on May 30, 2014. The bill would have provided $62.559 billion for CJS, an amount that would have been 1.5% greater than the FY2014 appropriation and 0.3% more than the Administration's request. The House-passed bill included $8.231 billion for the Department of Commerce, $28.162 billion for the Department of Justice, $25.296 billion for the science agencies, and $870.9 million for the related agencies. On June 5, 2014, the Senate Committee on Appropriations reported its version of the FY2015 CJS appropriations bill ( S. 2437 ). The bill reported by the Senate Committee on Appropriations would have provided a total of $62.636 billion for CJS, an amount that would have been 1.6% more than the FY2014 appropriation, 0.4% more than the Administration's request, and 0.1% more than the House-passed CJS appropriations bill. The bill included $8.556 billion for the Department of Commerce, $27.997 billion for the Department of Justice, $25.161 billion for the science agencies, and $923.0 million for the related agencies. On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). The act provides a total of $61.753 billion for the agencies and bureaus funded by the annual CJS appropriations act. The FY2015 appropriation for CJS is 0.2% greater than the FY2014 appropriation, but it is 1.0% less than the Administration's request, 1.3% less than the House-passed amount, and 1.4% less than the amount recommended by the Senate Committee on Appropriations. The act provides $8.467 billion for the Department of Commerce, $27.030 billion for the Department of Justice, $25.360 billion for the science agencies, and $895.9 million for the related agencies. Table 1 shows the FY2014-enacted appropriations, the Administration's FY2015 request, the amounts recommended by the House and the Senate Committee on Appropriations, and the FY2015-enacted appropriation for the Departments of Commerce and Justice, the science agencies, and the related agencies. Table 14 shows enacted appropriations for these agencies, in detail, for FY2005 through FY2014 (the FY2013 amounts shown in Table 14 reflect sequestration). Survey of Selected Issues Some of the issues Congress considered while debating the FY2015 funding levels for the departments and agencies funded as a part of the CJS appropriations bill are as follows: Department of Commerce Whether it should have renamed the International Trade Administration (ITA) the International Trade and Investment Administration, as proposed by the President, to emphasize the agency's role in the complementary missions of export and business investment promotion, using both international advocacy and support for U.S. businesses at home. Whether it should have doubled funding for the Interagency Trade Enforcement Center (ITEC) to $15.0 million, as requested in the ITA budget proposal, for the purpose of accelerating the operations of the ITEC. Whether it should have reduced funding for the Economic Development Administration's most highly funded program, public works grants, from $96.0 million in FY2014 to $85.0 million in FY2015, and increase funding to support regional innovation clusters and science parks from $10.0 million in FY2014 to $25.0 million in FY2015. Whether the Census Bureau would have received the funds requested to complete the research and testing necessary for a cost-effective 2020 census design, and to restore 12-month interviewing and the full American Community Survey sample size after a one-month break in data collection caused by the October 2013 federal government shutdown. Whether it should have funded the National Institute of Standards and Technology (NIST) core laboratory and construction accounts at a level consistent with the goal of doubling funding for these and other targeted accounts, as proposed previously by President Obama and adopted implicitly in the America COMPETES Act ( P.L. 110-69 ) and the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ). Whether it should have provided $2.400 billion in funding to NIST for the President's proposed National Network for Manufacturing Innovation (NNMI), included in the President's Opportunity, Growth, and Security Initiative, to support the establishment of up to 45 centers to help accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications, and to support manufacturing technology commercialization by bridging the gap between the laboratory and the market. Whether the National Oceanic and Atmospheric Administration would have received, in addition to the funding requested for the FY2015 budget, $180.0 million from the Administration's Opportunity, Growth, and Security Initiative and $75.0 million from the Climate Resilience Fund. Department of Justice Whether it should have funded the Administration's request for $22.6 million under the Administrative Review and Appeals account to assist the Executive Office of Immigration Review with managing its increasing caseload. Whether it should have provided the $147.0 million in gun- and school violence-related grant funding under the State and Local Law Enforcement Assistance the Administration requests as a part of its "Now is the Time" initiative, which is the Administration's effort to combat gun violence. Whether Congress should have provided the funding the Administration requested for DOJ for Mutual Legal Assistance Treaty process reform. Whether the U.S. Marshals Service, in light of an increasing number of responsibilities, has the resources it needs to properly carry-out its mission. Whether the Bureau of Prisons has adequate resources to properly manage the growing number of inmates held in federal prisons. Whether it should have eliminated funding for the State Criminal Alien Assistance Program (SCAAP), as proposed by the Administration. Whether it should have adopted the Administration's proposal to consolidate funding for the drug, mental health, and veterans treatment courts programs into a "problem solving courts" program. Whether it should have funded the Administration's request for $35.0 million for Community Teams to Reduce the Sexual Assault Evidence Kit Backlog and Improve Sexual Assault Investigations. Whether Congress should, as requested by the Administration, have reinstated funding for the Juvenile Accountability Block Grant program, a program Congress defunded last fiscal year. Whether it should have accepted the Administration's proposed $65.0 million increase in the obligation cap for the Crime Victims Fund for (1) enhancing formula-based awards to states to support victims' programs and provide additional funding for national scope training and technical assistance and demonstration programs; (2) enhancing services for domestic victims of human trafficking; and (3) supporting the implementation strategies outlined in the Vision 21: Transforming Victim Services report. Science Agencies Whether the current direction for the U.S. human spaceflight program, established in October 2010 by the National Aeronautics and Space Administration Authorization Act of 2010 ( P.L. 111-267 ), can be implemented successfully in a period of increased budgetary constraint, as well as the potential impact of human spaceflight's funding needs on the availability of funding for other National Aeronautics and Space Administration (NASA) programs, such as science, aeronautics, and education. Whether and how to prioritize research initiatives at the National Science Foundation (NSF). Whether it should continue efforts to double funding at NSF and other targeted accounts as previously proposed by the Administration and authorized by Congress, and if so, at what pace. Whether it should have adopted the Administration's proposed government-wide science, technology, engineering, and mathematics (STEM) education program reorganization and consolidation, including proposed changes at NSF, NASA, and the Department of Commerce. Whether to continue to restrict the Office of Science and Technology Policy (OSTP) from engaging in certain activities with China or any Chinese-owned company by prohibiting, with limited exceptions, the use of appropriated funds for such activities. Related Agencies Whether Congress should, per the Administration's proposal, have eliminated the restriction that prevents the Legal Services Corporation's funding from being used for class action suits. Whether the Equal Employment Opportunity Commission has the resources it needs to carry out its mission in light of increased workloads for investigators that resulted from furloughs and a hiring freeze in FY2013. Whether Congress should have adopted the Administration's proposal to focus the Equal Employment Opportunity Commission's funding on technical innovation and hiring of new staff to help reduce backlogs for pending discrimination cases. Department of Commerce9 The Department of Commerce (Commerce Department) originated in 1903 with the establishment of the Department of Commerce and Labor. The separate Commerce Department was established on March 4, 1913. The department's responsibilities are numerous and quite varied; its activities center on five basic missions: (1) promoting the development of U.S. business and increasing foreign trade; (2) improving the nation's technological competitiveness; (3) encouraging economic development; (4) fostering environmental stewardship and assessment; and (5) compiling, analyzing, and disseminating statistical information on the U.S. economy and population. The following agencies within the Commerce Department carry out these missions: International Trade Administration (ITA) seeks to develop the export potential of U.S. firms and improve the trade performance of U.S. industry; Bureau of Industry and Security (BIS) enforces U.S. export laws consistent with national security, foreign policy, and short-supply objectives; Economic Development Administration (EDA) provides grants for economic development projects in economically distressed communities and regions; Minority Business Development Agency (MBDA) seeks to promote private- and public-sector investment in minority businesses; Economics and Statistics Administration (ESA) , excluding the Census Bureau, provides (1) information on the state of the economy through preparation, development, and interpretation of economic data and (2) analytical support to department officials in meeting their policy responsibilities; Census Bureau , a component of ESA, collects, compiles, and publishes a broad range of economic, demographic, and social data; National Telecommunications and Information Administration (NTIA) advises the President on domestic and international communications policy, manages the federal government's use of the radio frequency spectrum, and performs research in telecommunications sciences; United States Patent and Trademark Office (USPTO) examines and approves applications for patents for claimed inventions and registration of trademarks; National Institute of Standards and Technology (NIST) assists industry in developing technology to improve product quality, modernize manufacturing processes, ensure product reliability, and facilitate rapid commercialization of products on the basis of new scientific discoveries; and National Oceanic and Atmospheric Administration (NOAA) provides scientific, technical, and management expertise to (1) promote safe and efficient marine and air navigation; (2) assess the health of coastal and marine resources; (3) monitor and predict the coastal, ocean, and global environments (including weather forecasting); and (4) protect and manage the nation's coastal resources. FY2014 and FY2015 Appropriations Table 2 presents the following funding information for the Department of Commerce as a whole and for each of its agencies or bureaus: the amounts provided under the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), the Administration's request for FY2015, the amount recommended by the House and the Senate Committee on Appropriations, and the FY2015-enacted amount. For FY2015, the Administration requested a total of $8.746 billion for the Department of Commerce, a proposed 6.9% increase over the FY2014-enacted appropriation of $8.181 billion. The House recommended a total of $8.231 billion for the Department of Commerce. The House's proposal was 0.6% greater than the FY2014 appropriation, but it was 5.9% less than the Administration's request. The Senate Committee on Appropriations recommended $8.556 billion for the Department of Commerce. The amount recommended by the committee was 4.6% greater than the FY2014 appropriation and 4.0% greater than the House recommended amount, but it was 2.2% less than the Administration's request. For FY2015 Congress appropriated $8.467 billion for the Department of Commerce. This amount is 3.5% greater than the FY2014 appropriation, 3.2% less than the Administration's request, 2.9% greater than the House-passed amount, and 1.0% less than the amount recommended by the Senate Committee on Appropriations. International Trade Administration (ITA)12 The International Trade Administration (ITA) provides export promotion services, works to ensure compliance with trade agreements, administers trade remedies such as antidumping and countervailing duties, and provides analytical support for ongoing trade negotiations. ITA's mission is to improve U.S. prosperity by strengthening the competitiveness of U.S. industry, promoting trade and investment, and ensuring compliance with trade laws and agreements. It strives to accomplish this through several organizational units. ITA went through a major organizational change in October 2013 in which it consolidated four organizational units into three more functionally aligned units. The new organizational units consist of the following: (1) the Industry and Analysis unit, which brings together ITA's industry, trade, and economic experts to advance the competitiveness of U.S. industries through the development and execution of international trade and investment policies and export promotion strategies; (2) the Enforcement and Compliance unit, which is responsible for safeguarding and enhancing the competitiveness of U.S. industries against unfair trade practices through the enforcement of U.S. trade laws and for ensuring compliance with U.S. free trade agreements; and (3) the Global Markets unit, which assists and advocates for U.S. businesses in international markets to help foster U.S. economic prosperity. ITA's fourth organizational unit, the Executive and Administrative Directorate, is responsible for providing policy leadership, information technology support, and administration services for all of ITA. To emphasize the agency's role in the complementary missions of export and business investment promotion, using both international advocacy and support for U.S. businesses at home, the Administration's FY2015 budget proposed to rename the agency the International Trade and Investment Administration (ITIA). ITA received $460.6 million in direct appropriations for FY2014. The Consolidated Appropriations Act, 2014, anticipated the collection of $9.4 million in user fees, which would have resulted in $470.0 million in total resources for ITA programs in FY2014. The Administration's FY2015 request for ITA in direct appropriations was $497.3 million, a proposed increase of 8.0%. The request proposed to double funding for the Interagency Trade Enforcement Center (ITEC) to $15.0 million, for the purpose of accelerating ITEC operations. The Administration anticipated the collection of $9.4 million in user fees, which would have raised total available funds for ITA to $506.7 million. The House recommended $460.0 million in direct appropriations for ITA, an amount 7.5% less than the Administration's request and 0.1% less than the enacted amount for FY2014. The House anticipated the collection of $10.0 million in user fees, which would have raised total available funds to $470.0 million. The amount recommended by the Senate Committee on Appropriations in direct appropriations was $470.0 million. The Consolidated and Further Continuing Appropriations Act, 2015, provides $462.0 million in direct appropriations for ITA, an amount 7.1% less than the Administration's request and 0.3% more than the enacted amount for FY2014. The act anticipates the collection of $10.0 million in user fees, which would result in $472.0 million in total resources for ITA programs in FY2015, with up to $9.0 million for ITEC operations and $10.0 million for the SelectUSA program. Bureau of Industry and Security (BIS)13 The Bureau of Industry and Security (BIS) administers export controls on dual-use goods and technology through its licensing and enforcement functions. It cooperates with other nations on export control policy and provides assistance to the U.S. business community to comply with U.S. and multilateral export controls. BIS also administers U.S. anti-boycott statutes and is charged with monitoring the U.S. defense industrial base. Authorization for the activities of BIS, the Export Administration Act (50 U.S.C. App. 2401, et seq .), last expired in August 2001. On August 17, 2001, President George W. Bush invoked the authorities granted by the International Economic Emergency Powers Act (50 U.S.C. 1703(b)) to continue in effect the system of controls contained in the act and in the Export Administration Regulations (15 C.F.R., Parts 730-799), and these authorities have been renewed yearly. BIS received $101.5 million for FY2014. The Administration's request for FY2015 was $110.5 million, a proposed 9.0% increase. The House recommended $103.5 million, including $56.5 million for export administration, $41.5 million for export enforcement, and $5.5 million for policy coordination. The recommendation included funding for the placement of additional control officers in Germany, Turkey, and the United Arab Emirates. The Senate Committee on Appropriations recommended $105.5 million. P.L. 113-235 appropriated $102.5 million, a 1.0% increase from FY2014, but 7.3% less than the President requested. Economic Development Administration (EDA)14 The Economic Development Administration (EDA) was created pursuant to the enactment of the Public Works and Economic Development Act of 1965, with the objective of fostering growth in economically distressed areas characterized by high levels of unemployment and low per-capita income levels. Federally designated disaster areas and areas affected by military base realignment or closure (BRAC) are also eligible for EDA assistance. EDA provides grants for public works, economic adjustment in case of natural disasters or mass layoffs, technical assistance, planning, and research. EDA received $246.5 million for FY2014, including $209.5 million for EDA programs and activities and $37.0 million for salaries and expenses. The Administration's FY2015 budget request for FY2015 was $248.2 million, including $210.0 million for EDA program and activities and $38.2 million for salaries and expenses. The President's budget request would have shifted funding priorities among program activities, while leaving total EDA funding relatively unchanged. The proposed budget would have reduced what is EDA's most highly funded program, public works grants, from $96.0 million in FY2014 to $85.0 million in FY2015. It would have also reduced funding for Trade Adjustment Assistance from $15.0 million in FY2014 to $10.0 million in FY2015. The proposed budget for FY2015 would have placed greater emphasis on projects intended to support job creation through regional innovation clusters and economic adjustment assistance. For FY2015, the Administration proposed a $15.0 million increase in funding for the Regional Innovation Strategies and Science Parks Loan Guarantees Program, from $10.0 million in FY2014 to $25.0 million in FY2015. The Administration also requested a $5.5 million increase in funding for Economic Adjustment Assistance grants, from $42.0 million in FY2014 to $47.5 million in FY2015. The specific programs and their requested funding levels for FY2015, as well as the enacted FY2014 and FY2015 amounts, are shown in Table 3 . The House-passed version of H.R. 4660 recommended $247.5 million in total FY2015 funding for EDA. This total would have included a marginal increase in funding for EDA programs and activities, specifically, $1.0 million more than the $209.5 million appropriated for FY2014, and $0.5 million more than the $210.0 million requested by the Administration. The bill did not recommend funding for the Regional Innovation Program (RIP), which received an appropriation of $10.0 million in FY2014, although the Administration requested $25.0 million for FY2015 for RIP activities. Consistent with the amount appropriated in FY2014, the bill recommended $37.0 million for salaries and expenses, $1.2 million less than requested by the Administration. In addition, the report ( H.Rept. 113-448 ) accompanying H.R. 4660 included language that would have directed EDA to address documentation deficiencies in the award selection process identified in a 2014 Government Accountability Office (GAO) report; included $10.0 million for EDA to develop a comprehensive strategy designed to assist coal mining communities that had experienced significant job losses since 2011; directed EDA to use $5.0 million in Economic Adjustment Assistance to continue encouraging U.S. firms to relocate manufacturing and services jobs back to the United States; provided $5.0 million to fund Innovative Manufacturing loan guarantees; and encouraged EDA to support global competitiveness of small and medium-sized manufacturers through improved access to information technology, education, and training. The FY2015 CJS appropriations bill, S. 2437 , reported by the Senate Committee on Appropriations recommended $232.0 million in funding for EDA programs and salaries and expenses. This was $14.5 million less than approved for FY2014, $16.2 million less than requested by the President, and $15.5 million less than approved in the House-passed bill. S. 2437 , as reported, recommended $5.0 million more in funding for Trade Adjustment Assistance than was requested by the Administration or recommended by the House. It also recommended significantly higher funding for public works activities than the amount appropriated in FY2014 or requested by the Administration or recommended by the House for FY2015. In addition, the report ( S.Rept. 113-181 ) accompanying the bill included language that would have provided access to an additional $40.0 million in prior-year recoveries and unobligated balances; directed EDA to address documentation deficiencies in the award selection process identified in a 2014 GAO report, consistent with language included in the report accompanying the House-passed bill; included $5.0 million to support loan guarantees used to finance science park infrastructure projects and directed EDA to submit status reports on the creation and implementation of loan guarantee programs to the House and Senate Committees on Appropriations committees every 180 days; directed EDA to help identify and develop best practices to aid communities facing nuclear power plant closures; provided no additional funds for FY2015 in support of the Investing in Manufacturing Communities Partnership Program; directed EDA to use $5.0 million in Economic Adjustment Assistance to continue encouraging U.S. firms to relocate manufacturing and services jobs back to the United States; provided $5.0 million to fund Innovative Manufacturing loan guarantees; and encouraged EDA to support global competitiveness of small and medium-sized manufacturers through improved access to information technology, education, and training. P.L. 113-235 provides a higher funding level ($250.0 million) for EDA program activities and related salaries and expenses than the amount appropriated in FY2014 ($246.5 million), requested by the President for FY2015 ($248.2 million), approved by the House ($247.5 million), or recommended by the Senate Committee on Appropriations ($232.0 million). Although P.L. 113-235 increases total funding for EDA programs and activities by $3.5 million more than the $209.5 million appropriated in FY2014, it leaves the level of funding for salaries and expenses unchanged from the $37.0 million appropriated in FY2014. P.L. 113-235 shifts funding among EDA programs, including lower funding for Economic Adjustment Assistance activities than appropriated in FY2014, requested by the Administration for FY2015, approved by the House, or recommended by the Senate committee. The explanatory statement accompanying the act, published in the December 11, 2014, Congressional Record , directs EDA to use up to $5.0 million to fund Regional Innovation Program planning grants for science park infrastructure; $5.0 million for projects to facilitate the relocation, to the United States, of sources of employment located outside the United States; $4.0 million for Innovative Manufacturing loan guarantees; and $10.0 million for Regional Innovation Program grants. Minority Business Development Agency (MBDA)19 The Minority Business Development Agency (MBDA), established by Executive Order 11625 on October 13, 1971, is charged with the lead role in coordinating all of the federal government's minority business programs. As part of its strategic plan, MBDA seeks to develop an industry-focused, data-driven, technical assistance approach to give minority business owners the tools essential for becoming first- or second-tier suppliers to private corporations and the federal government in the new procurement environment. Progress is measured in increased gross receipts, number of employees, and size and scale of firms associated with minority business enterprise. The Consolidated Appropriations Act, 2014, provided $28.0 million for the MBDA account. For FY2015, the Administration requested $28.3 million, a 1.0% increase, in MBDA funding. According to the budget justification document, this proposed funding level would have assisted in the creation of 7,500 new jobs and $3.000 billion in contracts and financing. The House-passed bill recommended $30.0 million for MBDA activities. This was $2.0 million more than appropriated for FY2014, and $1.7 million more than requested by the Administration. The bill reported by the Senate Committee on Appropriations would have provided $28.3 million for MBDA activities and would have directed the agency to continue to work with the International Trade Administration to support efforts to increase export opportunities and export-related jobs for minority-owned businesses. P.L. 113-235 provides $30.0 million for MBDA activities. Economics and Statistics Administration (ESA)21 The Economics and Statistics Administration (ESA) provides economic data, analysis, and forecasts to government agencies and, when appropriate, to the public. ESA includes the Census Bureau (discussed separately) and the Bureau of Economic Analysis (BEA). ESA has three core missions: to maintain a system of economic data, to interpret and communicate information about the forces at work in the economy, and to support the information and analytical needs of the executive branch. Funding for ESA includes two primary accounts: ESA headquarters and BEA. ESA headquarters staff provide economic research and policy analysis in support of the Secretary of Commerce, as well as oversight of the Census Bureau and BEA. The BEA account funds BEA activities, among which are producing estimates of national gross domestic product and related measures. ESA received $99.0 million in FY2014. The Administration's FY2015 request for ESA was $111.0 million, a proposed $12.0 million (12.2%) increase over the FY2014-enacted amount. As passed by the House, H.R. 4660 would have provided $99.0 million for ESA, an amount identical to that enacted for FY2014 and 10.8% less than requested for FY2015. The Senate Committee on Appropriations' FY2015 recommendation for ESA was $106.0 million, 7.1% more than enacted for FY2014, 4.5% below the FY2015 request, and 7.1% more than the House approved. P.L. 113-235 provides $100.0 million for ESA, 1.0% more than it received in FY2014, 9.9% less than the FY2015 request, and 1.0% above the House-passed amount. Census Bureau22 The U.S. Constitution requires a population census every 10 years, to serve as the basis for apportioning seats in the House of Representatives. Decennial census data also are used for within-state redistricting and in certain formulas that determine the annual distribution of more than $450 billion in federal funds to states and localities. The Census Bureau, established as a permanent office on March 6, 1902, conducts the decennial census under Title 13 of the U.S. Code , which also authorizes the bureau to collect and compile a wide variety of other demographic, economic, housing, and governmental data. The Census Bureau's enacted FY2014 appropriation was $945.0 million, divided between the bureau's two major accounts: $252.0 million for salaries and expenses, and $693.0 million for periodic censuses and programs. The Administration's FY2015 requested appropriation for the bureau was $1.211 billion, including $248.0 million under salaries and expenses, and $963.4 million under periodic censuses and programs. Although the total request was 28.2% greater than the FY2014-enacted amount, the request for salaries and expenses was 1.6% less than this account received in FY2014, largely due to expected administrative savings. Periodic censuses and programs would have received 39.0% more than in FY2014, but $1.6 million of the appropriation for this account would have been transferred to the Office of Inspector General for activities related to audits and investigations of the bureau. Under periodic censuses and programs, the 2020 decennial census program would have received $689.0 million, with $443.2 million for the 2020 census itself and $245.8 million for the American Community Survey (ACS). In FY2015, the bureau expects to complete the research and testing necessary to contain the cost of the next census. The ACS request included "funding to restore field data collection costs associated with a one-month break in data collection at the beginning of ... FY2014, as well as ... to conduct research on content, quality, efficiency, and reducing respondent burden and intrusiveness." Also funded under the periodic censuses and programs account are the economic census and the census of governments, which would have received $119.3 million and $9.1 million, respectively. In FY2015, the bureau expects to analyze and release products from the 2012 economic census, and begin planning for the 2017 economic census and census of governments. The House approved $973.5 million in FY2015 funding for the Census Bureau under H.R. 4660 . Of this total, salaries and expenses would have received the requested $248.0 million, 1.6% less than enacted for FY2014. Periodic censuses and programs would have received $725.5 million, 4.7% more than in FY2014. House action on H.R. 4660 , however, including the adoption of five amendments that would have transferred funds from periodic censuses and programs to accounts outside the Census Bureau, would have left periodic programs with 24.7% less than requested. H.R. 4660 passed the House with an additional amendment ( H.Amdt. 752 , Poe) that would have prohibited the use of funds to enforce Title 13, U.S. Code , Section 221, with respect to the ACS. Currently, anyone who, for example, refused to answer ACS questions could face a possible penalty under this section. In reporting S. 2437 , the Senate Committee on Appropriations recommended $1.149 billion for the bureau in FY2015. The $252.2 million recommended for salaries and expenses exceeded the FY2014-enacted amount by 0.1%, the FY2015 request by 1.7%, and the House-passed amount by 1.7%. At the committee's direction, the increase in this account was to have been used to expand the sample for the Current Population Survey's (CPS's) annual social and economic supplement, to permit comparisons with 2010 and 2013 baseline data. The committee recommended $896.7 million for periodic censuses and programs, 29.4% more than enacted for FY2014, 6.9% less than the FY2015 request, and 23.6% more than the House approved. The recommendation would have provided $1.6 million for oversight and audits of periodic censuses by the Office of Inspector General. Under P.L. 113-235 , the Census Bureau's FY2015 funding is $1.088 billion, 15.1% more than in FY2014, 10.2% less than requested for FY2015, 11.8% above the House-passed amount, and 5.3% less than recommended by the Senate Committee on Appropriations. P.L. 113-235 provides $248.0 million for salaries and expenses, which is 1.6% below the FY2014-enacted amount, matches the FY2015 request and the House-passed amount, and is 1.7% less than the Senate committee recommended. The law directs the bureau, in the annual CPS social and economic supplement, to use the same health insurance questions used in previous years, as well as the revised questions first used in February 2014, and adopts by reference the Senate language about comparisons with 2010 and 2013 baseline data. The periodic censuses and programs account is funded at $840.0 million, 21.2% above the FY2014-enacted amount, 12.8% below the FY2015 request, 15.8% more than the House approved, and 6.3% less than the Senate committee recommended. P.L. 113-235 does not include the Poe amendment to H.R. 4660 , Section 545 of the House-passed bill. National Telecommunications and Information Administration (NTIA)28 The National Telecommunications and Information Administration (NTIA) is the executive branch's principal advisory office on domestic and international telecommunications and information policies. Its mandate is to provide greater access for all Americans to telecommunications services; support U.S. efforts to open foreign markets; advise on international telecommunications negotiations; and fund research for new technologies and their applications. It is also responsible for managing spectrum use by federal agencies and, as part of this responsibility, identifying federal radio frequency spectrum that can be transferred to commercial use through the auction of spectrum licenses, conducted by the Federal Communications Commission. The NTIA plays a central role in representing U.S. interests in the Internet internationally, including an active role in the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN is an international entity that develops policies to support the Internet worldwide. The NTIA actively participates in ICANN as a member of the Governmental Advisory Committee, which provides advice to ICANN. The NTIA also currently contracts with ICANN to manage the Internet Assigned Numbers Authority (IANA) and to perform other duties. In March 2014, the NTIA announced its intention to relinquish its authority over ICANN to a multi-stakeholder community when its current contract expires in September 2015. Title VI of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) gives the NTIA responsibilities for improving public safety communications. It is required to assist the development of the First Responder Network Authority (FirstNet), created by Congress to deploy a nationwide public safety broadband network. It is also required to assist in planning for Next Generation 9-1-1 (NG9-1-1) services, which refers to the transition to digital, Internet-based systems to replace existing analog systems. For FY2015, Congress appropriated $38.2 million for NTIA salaries and expenses. The Administration had proposed $51.0 million. This would have been an increase of $5.0 million (10.9%) over the enacted FY2014 budget amount of $46.0 million. The NTIA attributed the requested increase to an increased focus on policy oversight in two key areas: formulating domestic and international policies, and expanding the availability of broadband communications. The Senate Committee on Appropriations proposed $48.5 million for the NTIA in FY2015, $2.5 million, or 4.9%, below the Administration's request; the House proposed $36.7 million, $14.3 million, or 28.0%, less than what the Administration requested. The enacted budget of $38.2 million for FY2015 is $7.8 million, or 17.0%, less than enacted for FY2014. The FY2015 budget amount eliminates $12.3 million associated with the conclusion of the Broadband Technology Opportunities Program grant awards but includes up to $3.0 million to provide broadband technical assistance to communities. The NTIA is required to provide at least 45 days' notice to the appropriate congressional committees regarding actions taken related to its role in ICANN or IANA, among other reporting requirements, and places constraints on spending. U.S. Patent and Trademark Office (USPTO)31 The U.S. Patent and Trademark Office (USPTO) examines and approves applications for patents on claimed inventions and administers the registration of trademarks. It also helps other federal departments and agencies protect U.S. intellectual property in the global marketplace. The USPTO has a somewhat unique funding mechanism—it is funded by user fees paid by customers that are designated as "offsetting collections" and subject to spending limits set by Congress. For FY2015, the Administration requested the authority to spend fee collections of $3.458 billion, to fund daily operations of $3.220 billion, and deposit the remainder into the USPTO's operating reserve. The $3.458 billion was to be a 14.4% increase from the enacted USPTO budget of $3.024 billion in fee collections for FY2014. The USPTO contended that the increase in fee authority would reduce patent pendency and backlog, increase efficiencies in examination capacity, and enhance patent and trademark quality of measurement, as well as yield other benefits. The final FY2015 appropriation for the USPTO ( P.L. 113-235 ) matches the Administration's request, and the amount recommended by the House and the Senate Committee on Appropriations, and provides $3.458 billion in budget authority for USPTO for the current fiscal year. National Institute of Standards and Technology (NIST)32 The National Institute of Standards and Technology (NIST) is a laboratory of the Department of Commerce with a mandate to increase the competitiveness of U.S. companies through appropriate support for industrial development of pre-competitive, generic technologies and the diffusion of government-developed technological advances to users in all segments of the American economy. NIST research also provides the measurement, calibration, and quality assurance techniques that underpin U.S. commerce, technological progress, improved product reliability, manufacturing processes, and public safety. P.L. 113-235 provides total appropriations of $863.9 million for NIST in FY2015, $13.9 million (1.6%) above its FY2014 funding level, $36.1 million less than the President's request, $8.1 million more than the House-passed bill, and $36.1 million less than the Senate committee-recommended amount. Funding for NIST is generally provided through three accounts: Scientific and Technical Research and Services (STRS), Industrial Technology Services (ITS), and Construction of Research Facilities (CRF). For the STRS account, P.L. 113-235 provides $675.5 million for FY2015, $24.5 million (3.8%) more than in FY2014, $4.5 million less than the request, $9.5 million less than the Senate committee-recommended amount, and $5.0 million more than the House-passed bill. The act provides $138.1 million for the ITS account in support of two activities: the Manufacturing Extension Partnership (MEP) program and the Advanced Manufacturing Technology Consortia (AMTech). The act provides $130.0 million for MEP in FY2015, $2.0 million (1.6%) more than in FY2014, $11.0 million below the request and the Senate committee-recommended level, and the same as the House-passed level. The act provides $8.1 million for AMTech in FY2015, $6.9 million (46.0%) below the FY2014 level, request, and Senate committee-recommended level, and $8.1 million more than the House-passed amount. The act provides $50.3 million for the CRF account, $5.7 million (10.2%) below the FY2014 level, $8.7 million less than the request and the Senate committee-recommended level, and $5.0 million less than the House-passed amount. The Senate committee-recommended funding level for NIST for FY2015 was $900.0 million, $50.0 million (5.9%) more than in FY2014, an amount equal to the request, and $44.2 million more than the House-passed level. The Senate committee-recommended funding level for FY2015 for STRS was $685.0 million, $34.0 million more than in FY2014, $5.0 million more than the request, and $14.5 million more than the House-passed level; MEP was $141.0 million, $13.0 million more than the FY2014 level, the same as the request, and $11.0 million more than the House-passed level; AMTech was $15.0 million, an amount equal to the FY2014 level and the request, and $15.0 million more than the House-passed level; and CRF was $59.0 million, $3.0 million more than the FY2014 level, equal to the request, and $3.7 million more than the House-passed amount. Total funding for NIST in the House-passed bill was $855.8 million, $5.8 million (0.7%) more than in FY2014 and $44.2 million less than the request. The House-passed bill funding level for STRS was $670.5 million, $19.5 million more than the FY2014 level and $9.5 million below the request; MEP was $130.0 million, $2.0 million more than in FY2014 and $11.0 million below the request; and CRF was $55.3 million, $0.7 million less than the FY2014 level and $3.7 million less than the request. The House-passed bill included no funding for AMTech or coordination of manufacturing innovation institutes. Total funding in the President's request for NIST was $900.0 million, $50.0 million (5.9%) more than the FY2014 level. The requested funding level for STRS was $680.0 million, an increase of $29.0 million above the FY2014 level. The requested amount included an increase of $3.5 million for measurement science standards for forensic science infrastructure, $7.5 million for cyber-physical systems, $5.0 million for advanced materials, $7.0 million for synthetic biology, and $6.0 million for a lab-to-market initiative focused broadly on mechanisms to improve federal technology transfer. The requested funding for: MEP was $141.0 million, $13.0 million more than in FY2014; AMTech was $15.0 million, equal to its FY2014 funding level; and CRF was $59.0 million, $3.0 million more than in FY2014. The President also requested $5.0 million in funding for the coordination of manufacturing innovation institutes, which had received no funding in FY2014. The NIST STRS and construction accounts had been targeted for doubling in recent years by President George W. Bush and President Obama, and implicitly in authorization levels established in the America COMPETES Act ( P.L. 110-69 ) and the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ). Funding for coordination of manufacturing innovation institutes was intended to support sharing of best practices, reduction of redundant start-up operations, and strengthening of cross-institute collaborations. Though the President's proposed National Network for Manufacturing Innovation (NNMI) program has not been authorized or funded, several NNMI-like institutes have been awarded funding. These centers are led by the Department of Defense and the Department of Energy, with additional funding and/or support being provided by NIST, the National Aeronautics and Space Administration, the National Science Foundation, and other agencies. In addition to the appropriations requested in the base budget, the Administration had proposed an Opportunity, Growth, and Security Initiative (OGSI), which it described as a "fully paid ... roadmap for how and where additional investments should be made in both domestic priorities and national security." The $56.000 billion proposal included $2.400 billion in NIST funding for the President's proposed NNMI to establish up to 45 manufacturing innovation institutes. In his FY2013 and FY2014 budgets, the President proposed $1.000 billion in mandatory funding for the NNMI to establish up to 15 institutes. The OGSI also sought an additional $115.0 million in funding for NIST research and development capabilities and facilities. Under the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), NIST is authorized $300.0 million from the proceeds of spectrum auctions devoted to the Wireless Innovation (WIN) Fund. These funds are to be used to conduct public safety wireless communications research and development. According to NIST, the laboratory would receive the first $100.0 million after successful spectrum auctions of $7.200 billion or more, and would receive an additional $200.0 million if spectrum auctions net more than $27.600 billion. P.L. 113-76 appropriated $850.0 million in FY2014 funding for NIST. This amount included $651.0 million for the STRS account, $128.0 million for MEP, $15.0 million for AMTech, and $56.0 for the CRF account. National Oceanic and Atmospheric Administration (NOAA)38 The National Oceanic and Atmospheric Administration (NOAA) conducts scientific research in areas such as ecosystems, climate, global climate change, weather, and oceans; supplies information on the oceans and atmosphere; and manages coastal and marine resources. NOAA was created in 1970 by Reorganization Plan No. 4. The reorganization plan was designed to unify a number of the nation's environmental activities and to provide a systematic approach for monitoring, analyzing, and protecting the environment. NOAA's current administrative structure has evolved into five line offices, which include the National Environmental Satellite, Data, and Information Service (NESDIS); the National Marine Fisheries Service (NMFS); the National Ocean Service (NOS); the National Weather Service (NWS); and the Office of Oceanic and Atmospheric Research (OAR). In addition to NOAA's five line offices, Program Support (PS), a cross-cutting budget activity, includes the NOAA Education Program, Corporate Services, Facilities, and the Office of Marine and Aviation Operations (OMAO). The Consolidated Appropriations Act, 2014, provided $5.315 billion for NOAA. The Administration's FY2015 request would have funded NOAA at $5.489 billion, which would have been a 3.3% increase over the FY2014 appropriation. The House-passed bill would have provided $5.337 billion for NOAA, an amount which would have been 0.4% more than the FY2014 appropriation, but 2.8% less than the Administration's FY2015 request. The amount recommended by the Senate Committee on Appropriations was $5.420 billion, which would have been 2.0% more than the FY2014 appropriation level, 1.3% less than the Administration's FY2015 request, and 1.6% more than the amount in the House-passed bill. P.L. 113-235 funds NOAA at $5.441 billion, which is 2.4% more than the FY2014 appropriation, 0.9% less than the FY2015 request, 1.9% more than the amount in the House-passed bill, and 0.4% more than the funding level recommended by the Senate Committee on Appropriations. The NOAA budget is divided into two main accounts: Procurement, Acquisition, and Construction (PAC); and Operations, Research, and Facilities (ORF). For FY2015, the Administration requested $3.361 billion for the ORF account, which would have been 2.7% more than the FY2014 appropriation of $3.272 billion. The House-passed bill would have provided $3.217 billion for the ORF account, which was 1.7% less than the FY2014 appropriation and 4.3% less than the Administration's FY2015 request. The Senate Committee on Appropriations recommended $3.345 billion for the ORF account, which was 2.2% more than the FY2014 appropriation, 0.5% less than the Administration's request, and 4.0% more than the House-passed bill. The FY2015 CJS appropriations act funds ORF at $3.318 billion, which is 1.4% more than the FY2014 appropriation,1.3% less than the FY2015 request, 3.1% more than the House-passed bill, and 0.8% less than the funding level recommended by the Senate Committee on Appropriations. For FY2015, the Administration requested $2.206 billion for the PAC account, which would have been 9.1% more than the FY2014 appropriation of $2.023 billion. The House-passed bill would have provided $2.176 billion for the PAC account, which was 7.6% more than the FY2014 appropriation, but 1.4% less than the Administration's request. The Senate Committee on Appropriations recommended $2.132 billion for the PAC account, which would have been 5.4% more than the FY2014 appropriation, 3.4% less than the Administration's request, and 2.0% less than the House approved. The FY2015 CJS appropriations act funds PAC at $2.179 billion, which is 7.7% more than the FY2014 appropriation,1.2% less than the FY2015 request, 0.1% more than the amount in the House-passed bill, and 2.2% more than the funding level recommended by the Senate Committee on Appropriations. The Administration also requested $50.4 million to fund Other Fisheries Activities and -$6.0 million for the Fisheries Finance Program Account. The FY2015 CJS appropriations act funds Other Fisheries Activities at $65.4 million and the Fisheries Finance Program Account at -$6.0 million. These amounts are the same as the funding levels included in the House-passed bill and recommended by the Senate Committee on Appropriations. The FY2015 appropriation for Other Fisheries Activities includes $65.0 million for the Pacific Coastal Salmon Recovery Fund and $350,000 for the Fishermen's Contingency Fund. The Administration's FY2015 request for NESDIS satellite systems acquisition and construction was $2.057 billion, which would have been 8.5% more than the FY2014 appropriation of $1.896 billion. The House-passed bill would have provided $2.032 billion for satellite systems, which was 7.2% more than the FY2014 appropriation, but 1.2% less than Administration's request. The Senate Committee on Appropriations recommended funding satellite systems at $1.987 billion, which would have been 4.8% more than the FY2014 appropriation, 3.4% less than the Administration's request, and 2.2% less than the House approved. The FY2015 CJS appropriations act funds satellite systems acquisition and construction at $2.036 billion, which is 7.4% more than the FY2014 appropriation,1.0% less than the FY2015 request, 0.2% more than the amount in the House-passed bill, and 2.4% more than the funding level recommended by the Senate Committee on Appropriations. FY2015 funding for NESDIS satellite systems acquisition and construction is 93.4% of PAC account funding and 37.4% of the total NOAA appropriation. Most satellite funding is provided for the Geostationary Operation Environmental Satellite (GOES-R) program ($980.8 million) and the Joint Polar Satellite System (JPSS) ($916.3 million). The appropriations agreement reiterates House and Senate Committees on Appropriations language that directs NOAA to provide quarterly updates regarding the satellite portfolio and steps being taken to address any potential gaps in weather satellite coverage. In addition to the funding requested for the FY2015 budget, NOAA would have received funding from the Administration's Opportunity, Growth, and Security Initiative and the Climate Resilience Fund (CRF). The initiative would have provided $180.0 million for expanded weather, climate, and oceans observations and research. The CRF would have provided $25.0 million for oceanic and atmospheric research grants to improve understanding of the effects of climate change on various sectors, and $50.0 million to improve coastal resilience by awarding competitive grants to state, local, and tribal governments and nonprofit organizations. It is possible that some activities related to these areas have been funded in FY2015, but it is not possible to determine specific programs or funding levels solely attributable to these initiatives. Department of Justice (DOJ)45 Established by an act of 1870 with the Attorney General at its head, DOJ provides counsel for the government in federal cases and protects citizens through law enforcement. It represents the federal government in all proceedings, civil and criminal, before the Supreme Court. In legal matters, generally, the department provides legal advice and opinions, upon request, to the President and executive branch department heads. The major functions of DOJ agencies and offices are described below. United States Attorneys prosecute criminal offenses against the United States; represent the federal government in civil actions; and initiate proceedings for the collection of fines, penalties, and forfeitures owed to the United States. United States Marshals Service (USMS) provides security for the federal judiciary, protects witnesses, executes warrants and court orders, manages seized assets, detains and transports unsentenced prisoners, and apprehends fugitives. Federal Bureau of Investigation (FBI) investigates violations of federal criminal law; helps protect the United States against terrorism and hostile intelligence efforts; provides assistance to other federal, state, and local law enforcement agencies; and shares jurisdiction with Drug Enforcement Administration over federal drug violations. Drug Enforcement Administration (DEA) investigates federal drug law violations; coordinates its efforts with state, local, and other federal law enforcement agencies; develops and maintains drug intelligence systems; regulates legitimate controlled substances activities; and conducts joint intelligence-gathering activities with foreign governments. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) enforces federal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. It was transferred from the Department of the Treasury to DOJ by the Homeland Security Act of 2002 ( P.L. 107-296 ). Federal Prison System ( Bureau of Prisons, BOP ) provides for the custody and care of the federal prison population, the maintenance of prison-related facilities, and the boarding of sentenced federal prisoners incarcerated in state and local institutions. Office on Violence Against Women (OVW) coordinates legislative and other initiatives relating to violence against women and administers grant programs to help prevent, detect, and stop violence against women, including domestic violence, sexual assault, and stalking. Office of Justice Programs (OJP) manages and coordinates the activities of the Bureau of Justice Assistance, Bureau of Justice Statistics, National Institute of Justice, Office of Juvenile Justice and Delinquency Prevention, and the Office of Victims of Crime. Community Oriented Policing Services (COPS) advances the practice of community policing by awarding grants to law enforcement agencies to hire and train community policing professionals, acquire and deploy crime-fighting technologies, and develop and test innovative policing strategies. Most crime control has traditionally been a state and local responsibility. With the passage of the Crime Control Act of 1968 (P.L. 90-351), however, the federal role in the administration of criminal justice has increased incrementally. Since 1984, Congress has approved five major omnibus crime control bills, designating new federal crimes, penalties, and additional law enforcement assistance programs for state and local governments. FY2014 and FY2015 Appropriations The FY2014-enacted appropriation for DOJ was $27.737 billion. The Administration requested a total of $27.974 billion for DOJ for FY2015 (see Table 4 ), which was a proposed 0.9%, or $237.0 million, increase over the FY2014-enacted appropriation. The Administration noted that DOJ would have received additional funding, though it did not specify what amount, under the proposed OGSI for the following purposes: investments in state and local justice assistance grants, including additional resources for the Comprehensive School Safety program and a new youth investment initiative; activating newly constructed or purchased prisons; and investigating and prosecuting financial fraud. The House-passed bill would have provided a total of $28.162 billion for the DOJ, an amount that would have been 1.5% greater than the FY2014 appropriation and 0.7% greater than the Administration's request. The Senate Committee on Appropriations recommended a total of $27.997 billion for the DOJ, an amount that was 0.9% greater than the FY2014 appropriation, 0.1% more than the Administration's request, but 0.6% less than the amount recommended by the House. The FY2015 appropriation for the DOJ is $27.030 billion, which is 2.5% below the FY2014 appropriation, 3.4% less than the Administration's request, 4.0% less than the House-passed amount, and 3.5% below the amount recommended by the Senate Committee on Appropriations. General Administration The General Administration account provides funds for salaries and expenses for the Attorney General's office, the Inspector General's office, and other programs designed to ensure that the collaborative efforts of DOJ agencies are coordinated to help represent the government and fight crime as efficiently as possible. The FY2014-enacted appropriation for the General Administration Account was $533.2 million. The Administration's FY2015 request included $590.3 million for General Administration, 10.7% more than the FY2014 appropriation. The House-passed bill would have provided $536.6 million for General Administration, 0.6% more than the FY2014 enacted amount but 9.1% less than the Administration's request. The Senate Committee on Appropriations recommended $576.5 for General Administration, 2.3% less than the Administration's request, but 8.1% more than the FY2014 appropriation and 7.4% more than the House-passed amount. The FY2015 appropriation for the General Administration account is $573.0 million. This amount is 2.9% less than the Administration requested and 0.6% less than the Senate Committee recommended, but it is 7.5% more than the FY2014 enacted appropriation and 6.8% more than the House-passed amount. General Administration The General Administration account includes funding for Salaries and Expenses for DOJ administration as well as for Justice Information Sharing Technology. Prior to the National Drug Intelligence Center's (NDIC's) closure, it was funded through the General Administration account. In addition, this account previously funded Law Enforcement Wireless Communications before funding for related activities was shifted to the FBI. The FY2014 appropriation for Salaries and Expenses for DOJ administration and for Justice Information Sharing Technology was $135.8 million. The Administration's FY2015 request included nearly $154.7 million for these activities, 13.9% more than the FY2014 appropriation. The House-passed bill would have provided $116.6 million for this account, 14.1% less than the FY2014 enacted amount and 24.6% below the Administration's requested level. The Senate Committee on Appropriations recommended $140.8 million for this account, 3.7% more than the FY2014 enacted amount, 9.0% less than that recommended by the Senate Committee, and 20.7% more than the House-passed amount. The FY2015 appropriation for DOJ administration Salaries and Expenses and for Justice Information Sharing Technology is $137.3. This amount is 11.2% less than the Administration requested and 2.5% less than the Senate Committee recommended, but it is 1.1% more than the FY2014 enacted appropriation and 17.7% more than the House-passed amount. Administrative Review and Appeals (ARA) Administrative Review and Appeals (ARA) includes the Executive Office of Immigration Review (EOIR) and the Office of the Pardon Attorney (OPA). The Attorney General is responsible for the review and adjudication of immigration cases in coordination with the Department of Homeland Security's (DHS's) efforts to secure the nation's borders. The EOIR handles these matters, and the OPA receives and reviews petitions for executive clemency. The Consolidated Appropriations Act, 2014 provided $311.0 million for ARA. The Administration's FY2015 request included $347.0 million for these activities, a proposed increase of 11.6% over the FY2014 appropriation. The Administration's request included an increase of $22.6 million to help the EOIR adjudicate an increasing immigration court caseload. The DOJ reported that the number of matters pending adjudication rose 57% from the end of FY2009 to the end of FY2013. Also, there were 249 EOIR immigration judges at the end of January 2014, down from a high of 272 in mid-December, 2010. In addition, DOJ reported that about one-third of immigration judges will be eligible to retire in FY2014. The proposed increase included $17.0 million to support an additional 35 Immigration Judge Teams and 15 Board of Immigration Appeals attorneys to help adjudicate rising immigration court caseloads; $2.8 million to expand EOIR's Legal Orientation Program (LOP), which improves immigration court proceedings by educating detained alien's about their rights and the overall process; and another $2.8 million to allow EOIR to continue the development and expansion of its pilot program that provides counsel to vulnerable populations, such as unaccompanied alien children. The House-passed bill would have provided $332.0 million for ARA, 6.8% greater than the FY2014 appropriation, but 4.3% less than the Administration's request. The Senate committee-reported bill would have provided $347.1 million for ARA, an amount equal to the Administration's request, but 4.5% less than the House-passed amount. The FY2015 appropriation for ARA is $347.1 million, equal to the Administration's request. The joint explanatory statement to accompany P.L. 113-235 notes that the appropriated amount includes funding for 35 additional Immigration Judge Teams. Office of the Inspector General (OIG) The Office of the Inspector General (OIG) is responsible for detecting and deterring waste, fraud, and abuse involving DOJ programs and personnel; promoting economy and efficiency in DOJ operations; and investigating allegations of departmental misconduct. The FY2014 enacted appropriation for the OIG was $86.4 million. The Administration's FY2015 request included nearly $88.6 million for the OIG, 2.5% more than the amount provided through the FY2014 appropriation. The House-passed bill would have provided $88.0 million for the OIG, 1.9% more than the FY2014 enacted amount but 0.7% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $88.6 million for the OIG, 2.5% more than the FY2014 enacted appropriation, the same amount as the Administration's request, and 0.7% more than the amount in the House-passed bill. The FY2015 appropriation for the OIG is nearly $88.6 million, equal to the Administration's request and to the amount recommended by the Senate Committee, though 2.5% more than the FY2014 enacted amount and 0.7% more than the House-passed amount. U.S. Parole Commission The U.S. Parole Commission adjudicates parole requests for prisoners who are serving felony sentences under federal and District of Columbia code violations. The commission received $12.6 million for FY2014. The Administration's request for the commission for FY2015 was $13.3 million, a proposed increase of 5.6%. The House-passed bill included $13.3 million for the commission, which was equal to the Administration's request and 5.6% greater than the FY2014 appropriation. The Senate Committee on Appropriations recommended $13.3 million for the commission, the same as the amount recommended by the House. Congress appropriated $13.3 million for the commission for FY2015, an amount that is equal to the Administration's request and the amount recommended by the House and the Senate Committee on Appropriations. Legal Activities The Legal Activities account includes several subaccounts: general legal activities, U.S. Attorneys, and other legal activities. The FY2014 enacted appropriation provided nearly $3.181 billion for Legal Activities. The Administration's FY2015 request included almost $3.267 billion for this account, 2.7% more than the FY2014 appropriation. The House-passed bill would have provided $3.230 billion for Legal Activities, 1.5% more than the FY2014 enacted amount but 1.1% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $3.241 billion for Legal Activities for FY2015, 1.9% more than the FY2014 enacted amount, 0.8% less than the Administration's request, and 0.3% more than the House-passed amount. The FY2015 enacted amount for Legal Activities is $3.220 billion, 1.2% more than the FY2014 enacted amount, though 1.4% less than the Administration's request, 0.3% less than the House-passed amount, and 0.6% less than the Senate Committee-recommended amount. General Legal Activities The General Legal Activities account funds the Solicitor General's supervision of the department's conduct in proceedings before the Supreme Court. It also funds several departmental divisions (tax, criminal, civil, environment and natural resources, legal counsel, civil rights, INTERPOL, and dispute resolution). The FY2014 appropriation provided $867.0 million for General Legal Activities. The Administration's FY2015 request included nearly $935.9 million for this account, 7.9% over the FY2014 appropriation. The House-passed bill would have provided $884.1 million for General Legal Activities, 2.0% more than the FY2014 enacted amount but 5.5% below the Administration's requested level. The Senate Committee on Appropriations recommended $915.0 million for this account, 5.5% more than the FY2014 enacted amount, 2.2% below the Administration's requested amount, and 3.5% more than the House-passed amount. The FY2015 enacted amount for the General Legal Activities account is $885.0 million, 2.1% more than the FY2014 enacted amount and 0.1% more than the House-passed amount, though 5.4% below the Administration's requested amount and 3.3% below the Senate Committee recommended level. As a part of its FY2015 budget request for this account, the Administration proposed a $2.6 million increase for the criminal division for 25 new positions to help the division combat cybercrime. According to the Administration, the additional funding would have increased the criminal division's capabilities in four areas: "cybercrime investigations and prosecutions; advice and advocating legal tools and authorities; international cooperation and outreach; and forensic support." The Administration also requested a $19.6 million increase for the criminal division as a part of the Administration's Mutual Legal Assistance Treaty (MLAT) reform efforts. MLAT requests are the way in which countries request assistance in obtaining evidence located in a foreign country for criminal investigations and proceedings located in another country, and, according to the Administration, difficulties in obtaining evidence through the MLAT process is starting to frustrate many of the United States' foreign law enforcement partners. The Administration is concerned that continued delays with processing MLAT requests could have adverse consequences for U.S. law enforcement, including, but not limited to, foreign countries reducing their compliance with MLAT requests and their cooperation with U.S. law enforcement agencies. The requested funding for the criminal division would be used to centralize the handling of MLAT requests, primarily through the division's Office of International Affairs (OIA); eliminating the backlog of pending cases; and enhancing the technological resources supporting the MLAT process and OIA's core functions. The FY2015 enacted amount does not include additional funding for these activities. Office of the U.S. Attorneys The U.S. Attorneys enforce federal laws through prosecution of criminal cases and represent the federal government in civil actions in all of the 94 federal judicial districts. For FY2015, the President's budget request included $1.955 billion for the U.S. Attorneys, a proposed increase of 0.6% over the Office's FY2014 appropriation ($1.944 billion). Under the Administration's "Smart on Crime Initiative," the FY2015 budget request included $15.0 million in reallocated resources to leverage efforts to lower recidivism through reentry courts, drug or other specialized courts, diversion programs, and prevention outreach. The request also included $1.3 million for MLAT reform. The objective of this reform is to strengthen law enforcement and administration of justice partnerships with foreign government, especially with regard to cyber security threats. The House-passed bill would have provided the U.S. Attorneys with $1.971 billion for FY2015. This amount was 1.4% more than the FY2014 enacted appropriation and 0.8% more than the Administration's FY2015 request. The Senate-committee reported bill included $1.950 billion for the U.S. Attorneys, an amount that was 0.3% greater than the FY2014 appropriation, but 0.3% less than the Administration's request and 1.1% below the House-passed amount. The FY2015 appropriation for the U.S. Attorneys is $1.960 billion, which is 0.8% more than the FY2014 appropriation, 0.2% greater than the Administration's request, 0.5% more than the Senate-committee reported about, but 0.6% less than the House-recommended amount. In the joint explanatory statement to accompany P.L. 113-235 , the appropriators note that Congress provided funding for the U.S. Attorneys to enhance its MLAT processing and backlog reduction. Other Legal Activities Other Legal Activities includes the Antitrust Division, the Vaccine Injury Compensation Trust Fund, the U.S. Trustee System Fund (which is responsible for maintaining the integrity of the U.S. bankruptcy system by, among other things, prosecuting criminal bankruptcy violations), the Foreign Claims Settlement Commission, the Fees and Expenses of Witnesses, the Community Relations Service, and the Assets Forfeiture Fund. The FY2014 enacted appropriation included $369.8 million for the Other Legal Activities account. The Administration's FY2015 request included nearly $375.9 million for this account, 1.6% more than the FY2014 appropriation. The House-passed bill would have provided $374.9 million for Other Legal Activities, 1.4% more than the FY2014 enacted amount, but 0.3% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $375.9 million for this account, the same amount as requested by the Administration. The FY2015 enacted amount is almost $375.2 for Other Legal Activities, 0.2% less than the amount requested by the Administration and recommended by the Senate Committee, but 1.4% more than the FY2014 enacted amount and 0.1% more than the House-passed amount. U.S. Marshals Service (USMS) The U.S. Marshals Service (USMS) is responsible for the protection of the federal judicial process, including protecting judges, attorneys, witnesses, and jurors. In addition, the USMS provides physical security in courthouses, safeguards witnesses, transports prisoners from court proceedings, apprehends fugitives, executes warrants and court orders, and seizes forfeited property. The USMS received a total of $2.728 billion under the Consolidated Appropriations Act, 2014, of which $1.185 billon was for the Salaries and Expenses (S&E) account and $1.533 billion was for the Federal Prisoner Detention account. For FY2015, the Administration requested a total of $2.790 billion for the USMS, which was 2.3% greater than the FY2014-enacted appropriation. The entire proposed increase for the USMS was the result of the Administration requesting $1.595 billion for the Federal Prisoner Detention account. The proposed increase in funding for the Federal Prisoner Detention account reflected the increased cost of the federal detention population. The Administration requested additional funding to help ensure that the USMS can pay for housing, medical, and transportation costs for the USMS detainee population. The USMS noted that expansion of illegal immigration enforcement activities along the southwest border has increased the service's workload in the region. The House-passed bill would have provided a total of $2.804 billion for the USMS, an amount that was 2.8% greater than the FY2014 appropriation and 0.5% greater than the Administration's request. The House recommended $1.199 billion for the USMS's S&E account (1.2% greater than the Administration's request) and $1.595 billion for the Federal Prisoner Detention account, which was equal to the Administration's request. The Senate committee-reported bill included $2.790 billion for the USMS, an amount that was 2.3% greater than the FY2014 appropriation, equal to the Administration's request, and 0.5% below the amount in the House-passed bill. The amount recommended by the Senate Committee on Appropriations included $1.185 billion for the S&E account and $1.595 billion for the Federal Prisoner Detention account. The FY2015 appropriation for the USMS is $1.700 billion, which includes $1.195 billion for the S&E account and $495.3 million for the Federal Prisoner Detention Account. The FY2015 appropriation is 37.7% less than the FY2014 appropriation, 39.1% less than the Administration's request, 39.4% below the amount recommended by the House, and 39.1% below the Senate Committee on Appropriation's mark. However, P.L. 113-235 directs $1.100 billion in unobligated balances from the DOJ's Assets Forfeiture account to be transferred to the Federal Prisoner Detention account, which means the total budgetary resources available to the USMS for FY2015 is $2.800 billion. One issue Congress considered while it debated FY2015 funding for the USMS is whether it has the resources it needs in light of its expanded mission. As discussed previously, for FY2015 the Administration did not request an increase in funding for the number of positions funded by the USMS's Salaries and Expenses account. In addition to the increased workload along the Southwest border, the USMS reported that since 2000, it has been required to assist state and local law enforcement agencies with apprehending dangerous fugitives; has faced increasing demand for high-level security related to more federal terrorism-related prosecutions; and has been required to assist with the location and apprehension of individuals who fail to register as sex offenders. Congress did provide a 0.8% increase in the USMS's S&E account compared to the FY2014 appropriation. The joint explanatory statement to accompany P.L. 113-235 states that Congress wants the USMS to continue to carry out activities to implement the Adam Walsh Child Protection and Safety Act of 2006 ( P.L. 109-248 ) at no less than the FY2014 level. National Security Division (NSD) The National Security Division (NSD) coordinates DOJ's national security and terrorism missions through law enforcement investigations and prosecutions. The NSD was established in DOJ in response to the recommendations of the Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction (WMD Commission), and authorized by Congress on March 9, 2006, in the USA PATRIOT Improvement and Reauthorization Act of 2005 ( P.L. 109-177 ). Under the NSD, DOJ resources of the Office of Intelligence Policy and Review and the Criminal Division's Counterterrorism and Counterespionage Sections were consolidated to coordinate all intelligence-related resources and to ensure that criminal intelligence information is shared, as appropriate. For FY2015, the President's budget request included $91.8 million for the NSD, the same amount as appropriated by Congress for FY2014. The House-passed bill would have provided the NSD with $94.8 million for FY2015. This amount was 3.3% more than either the FY2014 enacted appropriation or the Administration's FY2015 request. The Senate committee-reported bill included $91.8 million for the NSD, an amount equal to the Administration's request and 3.2% below the House-passed amount. The FY2015 appropriation for the NSD is $93.0 million, which is 1.3% greater than the FY2014 appropriation and the Administration's request, but 1.9% below the House-passed amount. Interagency Law Enforcement The Interagency Law Enforcement account reimburses departmental agencies for their participation in the Organized Crime Drug Enforcement Task Force (OCDETF) program. Organized into nine regional task forces, this program combines the expertise of federal agencies with the efforts of state and local law enforcement to disrupt and dismantle major narcotics-trafficking and money-laundering organizations. From DOJ, the federal agencies that participate in OCDETF are the DEA; the FBI; the ATF; the USMS; the Tax and Criminal Divisions of DOJ; and the U.S. Attorneys. From the Department of Homeland Security, Immigration and Customs Enforcement and the U.S. Coast Guard participate in OCDETF. In addition, from the Department of the Treasury, the Internal Revenue Service and Treasury Office of Enforcement also participate in OCDETF. Moreover, state and local law enforcement agencies participate in approximately 90% of all OCDETF investigations. The FY2014 enacted amount for the Interagency Law Enforcement account was $514.0 million. For FY2015, the Administration requested $505.0 million for this account, 1.8% less than the FY2014 appropriation. The House-passed bill would have provided $519.0 million for this account, 1.0% greater than the FY2014 enacted level and 2.8% greater than the Administration's requested amount. The Senate Committee on Appropriations recommended $505.0 million for the Interagency Law Enforcement account, the same amount as requested by the Administration. The FY2015 enacted amount is nearly $507.2 million for this account, 1.3% less than the FY2014 enacted amount and 2.3% less than the House-passed amount, but 0.4% more than the Administration's request and Senate Committee recommended amount. Federal Bureau of Investigation (FBI) The FBI is the lead federal investigative agency charged with defending the country against foreign terrorist and intelligence threats; enforcing federal laws; and providing leadership and criminal justice services to federal, state, municipal, tribal, and territorial law enforcement agencies and partners. Since the September 11, 2001 (9/11), terrorist attacks, the FBI has reorganized and reprioritized its efforts to focus on preventing terrorism and related criminal activities. From FY2001 to FY2015, Congress has nearly tripled direct appropriations for the FBI from $3.32 billion to $8.44 billion, or a 154% increase. The House-passed bill would have provided the FBI with $8.468 billion for FY2015. This amount was 1.5% more than the amount Congress appropriated for the FBI for FY2014, and it was 1.4% more than the Administration's FY2015 request. The Senate Appropriations Committee recommended $8.385 billion for the FBI for FY2015. This amount was 0.5% more than both the FY2014 enacted amount and the Administration's FY2015 request. P.L. 113-235 provides 8.437 billion for the FBI, an amount 1.1% greater than both the FY2014 enacted amount and the President's FY2015 request. P.L. 113-235 includes $1.0 million to complete an ongoing review of the FBI's implementation of the 9/11 Commission recommendations. In addition, Congress specifies $8.5 million for the Nation Gang Intelligence Center (NGIC), and states that NGIC will coordinate intelligence on human trafficking. In addition, Congress states that NGIC "shall include a National Sex Trafficking Threat Assessment reflecting detailed analysis of the trafficking carried out by gang organizations" and directs NGIC to provide a briefing to appropriations committees not later than 180 days after enactment of P.L. 113-235 . The Administration's request included an increase of $15 million to fund operations and maintenance of the new Terrorist Explosive Device Analytical Center (TEDAC) facility in Alabama. While not providing this requested increase, in the language of P.L. 113-235 , Congress outlines the duties of TEDAC and directs DOJ to "designate a single entity to lead the Counter IED [Improvised Explosive Devices] effort" and requires DOJ to report to Congress within 30 days of enactment of P.L. 113-235 on the status of this designation. Congress also requested that DOJ describe its efforts to prevent duplicative actions in this area and ensure coordination and colaboration. In addition to these directives, Congress directs the FBI to prioritize sustaining financial and mortgage fraud investigations at not less than the FY2014 level. Drug Enforcement Administration (DEA) The Drug Enforcement Administration (DEA) is the only single-mission federal agency tasked with enforcing the nation's controlled substance laws in order to reduce the availability and abuse of illicit drugs and the diversion of licit drugs for illicit purposes. DEA's enforcement efforts include the disruption and dismantling of drug trafficking and money laundering organizations through drug interdiction and seizures of illicit revenues and assets derived from these organizations. DEA continues to face evolving challenges in limiting the supply of illicit drugs as well as reducing drug trafficking from Mexico across the Southwest border into the United States. DEA plays a key role in the Administration's Southwest Border Initiative to counter drug-related border violence, focusing on the convergent threats of illegal drugs, drug-related violence, and terrorism in the region. DEA also has an active role in the Administration's Prescription Drug Abuse Prevention Plan, targeting improper prescribing practices and promoting proper disposal of unused prescription drugs. The DEA received $2.018 billion for FY2014. The Administration's FY2015 budget request for the DEA proposed to maintain FY2014 appropriation levels at $2.018 billion. The House recommended $2.048 billion for the DEA, a proposed 1.5% increase over both the FY2014 enacted amount and the Administration's FY2015 requested amount. The Senate Appropriations Committee recommended $2.018 billion for the DEA for FY2015. This amount was equal to both the FY2014 enacted amount and the Administration's FY2015 request. The FY2015 enacted amount for the DEA is 2.033 billion, an amount 0.8% higher than both the FY2014 enacted amount and the Administration's FY2015 request. Of note, while the DEA highlights the recent rise in heroin abuse in the United States in their FY2015 Congressional budget submission, the Administration did not request additional funding to address this issue. The DEA combats the nation's supply of heroin through international and domestic enforcement and state and local assistance. In the report to accompany H.R. 4660 , the House Committee on Appropriations had expressed concern over the increase in prescription drug and heroin abuse, and directed the DEA to report on ways to address prescription drug and heroin abuse and provide more data on the numbers of heroin investigations. In an effort to curtail federal interference with state medical marijuana laws, Congress enacted as part of the FY2015 Appropriations Act language that prohibits DOJ from using funds provided in the act to "prevent" 32 states and the District of Columbia from "implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana." While media outlets and others have characterized this language as preventing DEA and other DOJ agencies from enforcing federal marijuana laws in states listed in the appropriations law, it remains unclear whether this language will stop DOJ from prosecuting individuals who are in compliance with state law but violating federal law (the Controlled Substances Act). The FY2015 appropriations act included another change that may possibly affect the DEA's operations. P.L. 113-235 prohibits the use of funds "in contravention of section 7606 ("Legitimacy of Industrial Hemp Research") of the Agricultural Act of 2014 ( P.L. 113-79 ) by the Department of Justice or the Drug Enforcement Administration." Under the CSA, hemp is considered a Schedule I controlled substance, and there are strict controls on its production and the security conditions under which it may be grown; it is illegal to grow without a DEA permit. The Agricultural Act of 2014 included a provision allowing certain research institutions and also state departments of agriculture to grow industrial hemp, if allowed under state laws where the institution or state department of agriculture is located. Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) The ATF enforces federal criminal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. ATF works independently and through partnerships with industry groups; international, state, and local governments; and other federal agencies to investigate and reduce crime involving firearms and explosives, acts of arson, and illegal trafficking of alcohol and tobacco products. From FY2001 through FY2014, Congress has increased the direct appropriation for ATF, from $771.0 million to $1.179 billion, a 52.9% increase. For FY2015, Congress has appropriated ATF $1.201 billion, an increase of 1.9% over the amount appropriated by Congress for FY2014 ($1.179 billion), and nearly the same amount as requested by the Administration (less $4,000). According to DOJ, this increase ($22.0 million) is intended to allow ATF to improve its firearms enforcement and regulatory efforts. According to the Attorney General, DOJ was "taking a hard look" at federal laws and enforcement priorities to ensure that everything possible is being done to prevent drug traffickers and other criminals from acquiring firearms. The House-passed bill would have provided ATF with $1.114 billion for FY2015. This amount was 5.5% less than the amount appropriated by Congress for FY2014, and was 7.2% less than the Administration's FY2015 request. Report language indicated that the House Committee on Appropriations had yet to receive a briefing and a report that are required as part of ATF's FY2014 appropriation. The briefing was to be on appropriations allocated by ATF for gun law enforcement in the following areas: 1. violent crime enforcement, 2. firearms regulatory efforts, 3. firearms tracing, and 4. ballistic imaging. The report was to be on ATF's tobacco law enforcement posture and related appropriations allocations. Finally, the Committee voiced concern about increasing processing times (backlogs) for applications submitted under the National Firearms Act of 1934 (NFA), and applications for dealer, manufacturer, and importer licenses submitted under the Gun Control Act of 1968 (GCA). The Senate-reported bill would have appropriated ATF nearly the same amount as in the FY2015 request. Senate-report language indicated that the Committee on Appropriations supports ATF efforts to enforce existing firearms laws and combat weapons trafficking on the Southwest border. Senate report language also calls on the agency to report back to the Committee on its to efforts to see that federal law enforcement agencies submit ballistics evidence recovered at crime scenes to the ATF-administered National Integrated Ballistics Information Network (NIBIN). Finally, Senate report language directed ATF to allocate $4.0 million in existing resources to advance the mission the National Center for Explosives Training and Research (NCETR) and to restart advanced training courses for arson investigators and bomb technicians. The FY2015 budget request collapsed the ATF budget decision units from three to two. For example, the ATF Congressional Budget Submission showed the FY2012 appropriation included $1.113 billion, which was allocated as follows: 1. Firearms ($876.7 million); 2. Arson & Explosives ($224.4 million); and 3. Alcohol & Tobacco ($12.0 million). By comparison the FY2014 appropriation ($1.179 billion) and FY2015 request ($1.201 billion) were shown allocated as follows: 1. Law Enforcement Operations ($1.019 billion for FY2014, and $1.039 billion for FY2015); and 2. Investigative Support Services ($159.5 million for FY2014, and $162.5 million for FY2015). Arguably, this new budget decision unit alignment could make it much more difficult for Congress to determine ATF's budget priorities for regulating the industries under its purview. In addition, the House-passed bill included several domestic gun control provisions directly related to ATF operations. These provisions included the following: Section 215 would have prohibited any federal agent from facilitating the transfer of an operable firearm to any individual associated with a drug cartel, unless that firearm were to be continuously monitored or under the federal agent's control at all times; Section 517 would have addressed the export of certain firearms parts and accessories to Canada; Section 518 would have addressed the importation of "curios or relics" firearms, parts, or ammunition; Section 533 would have prevented ATF from levying new restrictions on the importation of shotguns; and Section 539 would have prohibited the Attorney General from collecting multiple rifle and shotgun sales reports. With the exception of section 539, the Senate-reported bill included parallel provisions. Like last year, however, the House-passed bill included "futurity" language ("in the current fiscal year and any fiscal year thereafter") in sections 517 and 518, which appeared to be intended to make them permanent law. This "futurity" language was not included in last year's Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), the Senate-reported bill for FY2015, nor the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). Section 539 of the House bill was not included in P.L. 113-235 , either. It is noteworthy that on July 31, 2013, the Senate confirmed B. Todd Jones, the former U.S. Attorney for Minnesota, as ATF's Director. This confirmation ended a seven-year period, during which ATF was headed by five acting directors. In the area of firearms enforcement, ATF was the subject of congressional and departmental oversight for a Southwest border gun trafficking operation known as Fast and Furious and, more recently, several storefront undercover operations. The DOJ Office of Inspector General issued reports on these matters. Federal Prison System (Bureau of Prisons, BOP) The Bureau of Prisons (BOP) was established in 1930 to house federal inmates, to professionalize the prison service, and to ensure consistent and centralized administration of the federal prison system. The mission of the BOP is to protect society by confining offenders in prisons and community-based facilities that are safe, humane, cost-efficient, and appropriately secure, and that provide work and other self-improvement opportunities for inmates so that they can become productive citizens after they are released. The BOP currently operates 119 correctional facilities across the country. The BOP also contracts with Residential Re-entry Centers (RRCs) (i.e., halfway houses) to provide assistance to inmates nearing release. RRCs provide inmates with a structured and supervised environment along with employment counseling, job placement services, financial management assistance, and other programs and services. Congress funds the BOP's operations through two accounts under the Federal Prison System heading: Salaries and Expenses (S&E) and Buildings and Facilities (B&F). The S&E account (i.e., the operating budget) provides for the custody and care of federal inmates and for the daily maintenance and operations of correctional facilities, regional offices, and BOP's central office in Washington, DC. It also provides funding for the incarceration of federal inmates in state, local, and private facilities. The B&F account (i.e., the capital budget) provides funding for the construction of new facilities and the modernization, repair, and expansion of existing facilities. In addition to appropriations for the S&E and B&F accounts, Congress usually places a cap on the amount of revenue generated by the Federal Prison Industries (FPI) that can be used for administrative expenses in the annual CJS appropriations bill. Although Congress does not appropriate funding for the administrative expenses of FPI, the administrative expenses cap is scored as enacted budget authority. The BOP received a total of $6.862 billion for FY2014, the vast majority of which was for the S&E account ($6.769 billion). For FY2015, the Administration requested $6.897 billion, a proposed increase of 0.5%. All of the proposed increase in the BOP's funding was the result of the Administration requesting more for the BOP's S&E account ($6.804 billion). The Administration was requesting a $193.0 million base adjustment for the S&E account, of which $158.0 million would have been offset by "proposed miscellaneous program and administrative reductions." The proposed increase in the S&E account was to pay for the increased costs associated with managing a growing federal prison population (e.g., increased pay and benefits for the current BOP workforce, higher rents, and increasing costs associated with providing for the care and management of inmates). The BOP did not request any additional full-time equivalents (FTEs) for FY2015. The House-passed bill would have provided a total of $6.973 billion for the BOP. The amount recommended by the House was 1.6% greater than the FY2014 appropriation and 1.1% greater than the Administration's request. The House-passed bill included $6.863 billion for the BOP's S&E account (0.9% more than the Administration's request) and $107.3 million for the B&F account. The Senate Committee on Appropriations recommended $6.912 billion for the BOP, of which, $6.804 billion was for the S&E account. The amount recommended by the committee would have been 0.7% greater than the FY2014 appropriation, 0.2% above the Administration's request, but 0.9% less than the House-passed amount. The FY2015 appropriation for the BOP is $6.924 billion, which includes $6.815 billion for the S&E account. The FY2015 appropriation is 0.9% greater than the FY2014 appropriation, 0.4% greater than the FY2015 request, 0.7% less than the House-passed amount, and 0.2% more than the amount recommended by the Senate Committee on Appropriations. A recurring issue is whether the BOP has adequate resources, both in terms of personnel and infrastructure, to properly manage the burgeoning federal prison population. Prison population growth and prison crowding continue to be a major concern for the BOP. The number of inmates held in BOP facilities grew from 125,560 in FY2000 to 176,849 in FY2014. During that same time period, prison crowding grew from 32% over rated capacity to 36% over rated capacity, even though the BOP's capacity increased by approximately 35,000 beds. The BOP estimates that by FY2019 the federal prison system will be operating at 41% over rated capacity. However, despite the problem the BOP has with overcrowding, the Administration did not request funding under the B&F account to start work on any new prison construction. In addition, the BOP did not request any additional funding to expand the amount of contract bedspace. Congress appropriated $106.0 million for the B&F account for FY2015, a 17.8% increase over the FY2014 appropriation. The growing federal prison population has not only resulted in more crowded prisons, but it has also strained the BOP's ability to manage and care for federal inmates. The BOP reports that the staff-to-inmate ratio has increased from 3.6 to 1 in FY1997 to 4.8 to 1 in FY2013. The growing federal prison population has also required the BOP to dedicate more resources to caring (e.g., providing health care, food, and clothing) and providing programming (e.g., substance abuse treatment, educational programming, and work/vocational opportunities) for inmates. The BOP is statutorily required (18 U.S.C. § 3621) to provide residential drug abuse treatment to all inmates who volunteer and are eligible for the program. Prisoners who are convicted of nonviolent crimes and who successfully complete a residential substance abuse treatment program are eligible to have their sentence reduced by not more than one year; as such, the BOP notes, inmates are strongly motivated to participate. The BOP reported that due to limited capacity, inmates receive, on average, only a 10 month reduction. The BOP's budget request preserved funding Congress provided for FY2014 to expand the residential drug treatment program. The BOP reported that the expanded residential substance abuse treatment program will allow the BOP to treat all eligible inmates and extend sentence reductions for those who qualify from the current 10 months average to the full 12 months allowed by statute. Office on Violence Against Women (OVW) The Office on Violence Against Women (OVW) was created to administer programs created under the Violence Against Women Act (VAWA) of 1994 and subsequent legislation. These programs provide financial and technical assistance to communities around the country to facilitate the creation of programs, policies, and practices designed to improve criminal justice responses related to domestic violence, dating violence, sexual assault, and stalking. In FY2014, OVW received $417.0 million. The President's FY2015 budget request for OVW included $422.5 million, or a proposed 1.3% increase from the FY2014 enacted appropriation. The FY2015 request included a proposal to increase funds for the Legal Assistance for Victims, Grants to Support Families in the Justice System (+ $1.0 million), Violence on Campus (+ $2.0 million), and Transitional Housing (+ $0.25 million) programs and decrease funds (- $0.25 million) for Research and Evaluation of Violence Against Women. The House recommended $429.5 million for OVW which was 3.0% more than the FY2014-enacted amount and 1.7% more than the Administration's FY2015 request. The Senate Appropriations Committee recommended $430.0 million for OVW for FY2015. This amount was 3.1% higher than the FY2014 enacted amount and 1.8% higher than the Administration's FY2015 request. P.L. 113-235 includes $430.0 million for OVW, an increase of 3.1% over the FY2014 enacted amount and 1.8% more than the President's request. Of note, Congress specifies in the explanatory statement to P.L. 113-235 that OVW shall report within 90 days on its efforts "to improve grant funding execution and efficiency" and specifically addresses the allocation of resources for the Rural Domestic Violence Grant Program. In the requested report, Congress asked for an explanation as to how OVW is trying to raise awareness of the program in rural communities. Office of Justice Programs (OJP) The Office of Justice Programs (OJP) manages and coordinates the National Institute of Justice, Bureau of Justice Statistics, Office of Juvenile Justice and Delinquency Prevention, Office of Victims of Crimes, Bureau of Justice Assistance, and related grant programs. The FY2014-enacted appropriation for OJP was $1.643 billion. For FY2015, the Administration requested $1.567 billion, which was 4.7% less than the FY2014-enacted appropriation. H.R. 4660 included $1.722 billion for OJP, which would have been 4.8% greater than the FY2014 appropriation and 10.6% greater than the Administration's request. The Senate committee-reported bill included $1.609 billion for OJP, which would have been a 2.1% decrease compared to the FY2014 appropriation and 6.5% less than what the House recommended, but it would have been 3.4% greater than the Administration's request. The FY2015 appropriation for OJP is $1.691 billion, an amount that is 2.9% above the FY2014 appropriation, 8.6% greater than the Administration's request, 1.8% less than the House-passed amount, and 5.1% more than the amount recommended by the Senate Committee on Appropriations. Research, Evaluation, and Statistics The Research, Evaluation, and Statistics account (formerly the Justice Assistance account), among other things, funds the operations of the Bureau of Justice Statistics and the National Institute of Justice. The Consolidated Appropriations Act, 2014 provided $120.0 million for this account. The Administration requested $136.9 million for the Research, Evaluation, and Statistics account, an amount that was 14.1% greater than the FY2014-enacted appropriation. The House-passed bill would have provided $120.0 million for this account, which would have been the same as the FY2014 appropriation, and 12.3% less than the Administration's request. The Senate committee-reported bill included $115.0 million for this account, an amount that was 4.2% less than the FY2014 appropriation, 16.0% less than the Administration's request, and 4.2% below the House-passed amount. For FY2015, Congress appropriated $111.0 million for the Research, Evaluation, and Statistics account. The FY2015 appropriation is 7.5% less than the FY2014 appropriation, 18.9% less than the Administration's request, 7.5% less than the House-passed amount, and 3.5% below the Senate committee-reported amount. State and Local Law Enforcement Assistance The State and Local Law Enforcement Assistance (S&LLEA) account includes funding for a variety of grant programs to improve the functioning of state, local, and tribal criminal justice systems. Some examples of programs that have traditionally been funded under this account include the Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Drug Courts program, the State Criminal Alien Assistance Program (SCAAP), and DNA backlog reduction grants. Congress appropriated $1.172 billion for the S&LLEA account for FY2014. The Administration's request for FY2015 was $1.033 billion, which was 11.8% less than the FY2014-enacted appropriation. The House recommended $1.291 billion for the S&LLEA account, which would have been 10.2% greater than the FY2014 appropriation and 25.0% greater than the Administration's request. The Senate Committee on Appropriations recommended $1.150 billion for this account, an amount that was 1.9% less than the FY2014 appropriation, 11.3% greater than the Administration's request, and 11.0% below the Senate committee-reported amount. The FY2015 appropriation for the S&LLEA account is $1.241 billion. The FY2015 appropriation is 5.9% greater than the FY2014 appropriation, 20.1% greater than the Administration's request, 3.9% below the House-passed amount, and 8.0% greater than the amount recommended by the Senate Committee on Appropriations. For FY2015, the Administration proposed to eliminate several grant programs, including, the State Criminal Alien Assistance Program (SCAAP). SCAAP provides partial reimbursement to states and localities for prior year costs of incarcerating illegal aliens with at least one felony or two misdemeanor convictions for violations of state or local law, and who are incarcerated at least four consecutive days. In justifying the proposal to eliminate SCAAP, the Administration noted that the program does not promote correctional reforms or offer strategies or tools that will help jurisdictions reduce corrections costs or improve public safety. However, this is the one source of federal funding to help state correctional systems and county jails offset the cost of incarcerating individuals who are not legally in the country. Congress did not accept the Administration's proposal and instead provided $185.0 million for SCAAP for FY2015. The Administration also proposed to consolidate funding for the drug and mental health courts into a "problem solving justice" program. The Administration requested $44.0 million for this program. The proposed program would have assisted state, local, and tribal governments with developing and implementing strategies, including specialized courts, which can divert offenders with drug, mental health, and special needs away from prosecution and incarceration. Congress did not adopt the Administration's proposal. Instead, Congress provided funding for individual problem-solving court programs for FY2015, including $8.5 million for mental health courts, $4.0 million for drug courts, and $5.0 million for veterans' treatment courts. For FY2015, the Administration requested $35.0 million for Community Teams to Reduce the Sexual Assault Evidence Kit Backlog and Improve Sexual Assault Investigations (hereinafter, "Community Teams program"). Proposed funding under this program could be used for a wide variety of purposes, including the following: supporting law enforcement to conduct inventories of untested kits; assessment of current sexual assault investigation practices and identification of law enforcement training needs to improve current practices; strategic planning to determine the extent to which the kits need to be tested; development and/or implementation of evidence-tracking systems; sexual assault kit testing; enhancement of investigative and prosecutorial resources needed to follow up on the outcomes of increased sexual assault testing and/or implement new investigative or prosecutorial practices in sexual assault; development or strengthening of cold case units and systems for communication between laboratories, prosecutors, and law enforcement regarding the status of evidence; law enforcement training on recent findings in neurobiology of trauma to help them work more effectively with victims of sexual assault; development of victim notification procedures; and enhancement of victim services for past and current victims of sexual assault. Funding from the Community Teams program may also be used to support further research by the National Institute of Justice on issues related to preventing sexual assault and improving the system's response to sexual assault victims. The House recommends $41.0 million for the Community Teams program. Congress provided $41.0 million for this program for FY2015. The Administration also requested a total of $147.0 million under the State and Local Law Enforcement Assistance account for grants to support its "Now is the Time" initiative, which focuses on decreasing gun violence across the country. This amount included $15.0 million for the VALOR program (a set-aside under the Edward Byrne Memorial Justice Assistance Grant (JAG) program), $75.0 million for the comprehensive school safety program, $5.0 million for NICS Act Record Improvement Program (NARIP) Grants, and $50.0 million for the National Criminal History Improvement Program (NCHIP). Congress included the $15.0 million set-aside under the JAG program for the VALOR program and $75.0 million for the comprehensive school safety program in the FY2015 CJS appropriation act. Congress also provided $78.0 million for a National Instant Criminal Background Check System (NICS) Initiative (which would combine the NCHIP and NARIP programs) and a $3.0 million set-aside under the JAG program for grants for firearms safety materials and gun locks. The Administration requested funding for several programs that could be used to address issues related to drug abuse. As previously discussed, the Administration requested funding for drug courts under its proposed problem solving justice program. In addition, the Administration requested $14.0 million for the Residential Substance Abuse Treatment (RSAT) program, which provides funding to state and local governments for substance abuse treatment for prison and jail inmates, and $7.0 million for prescription drug monitoring programs. Congress provided $10.0 million for RSAT and $11.0 million for prescription drug monitoring programs. Juvenile Justice Programs The Juvenile Justice Programs account includes funding for grant programs to reduce juvenile delinquency and help state, local, and tribal governments improve the functioning of their juvenile justice systems. The FY2014 enacted appropriation included $254.5 million for juvenile justice programs. For FY2015, the Administration's request included $299.4 million for this account, what would have been an increase of 17.6% over the FY2014 level. Of note, the FY2014 enacted appropriation had eliminated funding for the long-funded Juvenile Accountability Block Grant (JABG) Program. The Administration's FY2015 request would have reinstated funding for JABG. The House-passed bill would have provided $223.5 million for juvenile justice programs, which would have been 12.2% less than the FY2014 enacted amount and 25.4% less than the Administration's request. The Senate Committee on Appropriations recommended $257.5 million for juvenile justice programs, 1.2% more than the FY2014 enacted amount, $14% less than the Administration's request, and 15.2% more than the House-passed amount. The FY2015 enacted funding includes $251.5 million for juvenile justice programs, 1.2% less than the FY2014 enacted level, 16.0% less than the Administration's request, 12.5% more than the House-passed amount, and 2.3% less than the Senate Committee recommended amount. Notably, the FY2015 juvenile justice appropriation does not reinstate funding for the JABG program as had been requested by the Administration. Public Safety Officers Benefits Program (PSOB) The Public Safety Officers Benefits (PSOB) program provides three different types of benefits to public safety officers and their survivors: death, disability, and education. The PSOB program is intended to assist in the recruitment and retention of law enforcement officers, firefighters, and first responders and to offer peace of mind to men and women who choose careers in public safety. The FY2014-enacted appropriation for PSOB was $97.3 million. The Administration requested $87.3 million for PSOB for FY2015, an amount that was 10.3% below the FY2014 appropriation. The House and the Senate Committee on Appropriation's recommendations for the PSOB program were equal to the Administration's request. The FY2015 appropriation for PSOB is $87.3 million, the same as the FY2015 request. Community Oriented Policing Services (COPS) The Community Oriented Policing Services (COPS) Office awards grants to state, local, and tribal law enforcement agencies throughout the United States so they can hire and train law enforcement officers to participate in community policing, purchase and deploy new crime-fighting technologies, and develop and test new and innovative policing strategies. Congress appropriated $214.0 million for the COPS program for FY2014. The Administration proposed a $60.0 million, or 28.0%, increase in funding for the COPS program for FY2015. Language in the Administration's FY2015 request would have allowed up to $50.0 million of the $247.0 million requested for the COPS hiring program to be used for hiring non-sworn law enforcement personnel (such as crime and intelligence analysts). The House-passed bill included $209.5 million for the COPS account, which would have been 2.1% less than the FY2014 appropriation and 23.5% less than the Administration's request. The Senate Committee on Appropriations recommended $224.0 million for COPS, an amount that was 4.7% more than the FY2014 appropriation, 18.2% less than the Administration's request, and 6.9% greater than the House-passed amount. The FY2015 appropriation for COPS is $208.0 million, which is 2.8% less than the FY2014 appropriation, 24.1% less than the FY2015 request, 0.7% less than the House-passed amount, and 7.1% less than the Senate Committee reported amount. The FY2015 CJS appropriations act does not include language that would allow funds under the hiring program to be used to hire non-sworn personnel. The Crime Victims Fund The Crime Victims Fund (CVF) was established by the Victims of Crime Act of 1984 ( P.L. 98-473 , VOCA). It is administered by the Office for Victims of Crime (OVC), and provides funding to the states and territories for victim compensation and assistance programs. This account does not receive appropriations but instead is largely funded by criminal fines, forfeited bail bonds, penalties, and special assessments that are collected by U.S. Attorneys' Offices, U.S. courts, and the BOP. In FY2014, the obligation cap on the CVF was set at $745.0 million. In the FY2015 Budget Request, the Administration requested to raise the cap by $65.0 million to a total of $810.0 million. The House recommended $770.0 million which was 3.4% greater than the FY2014 amount and 4.9% less than the Administration's FY2015 request. The Senate Appropriations Committee recommended $775.0 million the CVF cap for FY2015. This amount was 4.0% higher than the FY2014 enacted amount and 4.1% lower than the Administration's FY2015 request. The FY2015 enacted amount for the CVF cap is $2.361 billion, a 216.9% increase over the FY2014 enacted amount and an amount 191.5% higher than the Administration's request. The Administration had proposed an increase for the Crime Victims Fund in order to (1) enhance formula-based awards to states to support victims' programs and provide additional funding for national scope training and technical assistance and demonstration programs; (2) enhance services for domestic victims of human trafficking; and (3) support the implementation strategies outlined in the Vision 21: Transforming Victim Services report. In the report to accompany H.R. 4660 , the House Committee on Appropriations stated that OVC may implement Vision 21 within available resources. In an unprecedented move, Congress more than tripled the CVF cap. The CVF currently has a balance of nearly $13 billion, which indicates that receipts to the fund are exceeding the congressionally specified cap each year. Congress did not specify directions for the increase in CVF funds, which will be distributed to crime victims programs according to a formula established by VOCA. Science Agencies92 The Science Agencies fund and otherwise support research and development (R&D) and related activities across a wide variety of federal missions, including national competitiveness, energy and the environment, and fundamental discovery. FY2014 and FY2015 Appropriations The science agencies received a total of $24.824 billion under the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). For FY2015, the Administration requested a total of $24.721 billion for the science agencies, a proposed 0.4% reduction. The House-passed bill included a total of $25.296 billion for the science agencies, which would have been 1.9% greater than the FY2014 appropriation and 2.3% more than the Administration's request. The Senate Committee-reported bill included a total of $25.161 billion for the science agencies, an amount that was 1.4% greater than the FY2014 appropriation and 1.8% more than the 2015 request, but 0.5% less than the amount recommended by the House. The FY2015 appropriation for the science agencies is $25.360 billion. The FY2015 appropriation is 2.2% greater than the FY2014 appropriation, 2.6% more than the Administration's request, 0.3% greater than the House-passed amount, and 0.8% greater than the Senate Committee-reported amount. Office of Science and Technology Policy (OSTP)93 Congress established the Office of Science and Technology Policy (OSTP) through the National Science and Technology Policy, Organization, and Priorities Act of 1976 ( P.L. 94-282 ). The act states that "the primary function of the OSTP director is to provide, within the Executive Office of the President, advice on the scientific, engineering, and technological aspects of issues that require attention at the highest level of Government." The OSTP director, often referred to informally as the President's science advisor, also manages the National Science and Technology Council (NSTC), which coordinates science and technology policy across the executive branch of the federal government, and co-chairs the President's Council of Advisors on Science and Technology (PCAST), a council of external advisors that provides advice to the President on matters related to science and technology policy. OSTP is one of two offices in the Executive Office of the President (EOP) that is funded in the CJS appropriations bill. P.L. 113-235 provides $5.6 million for OSTP, the same as the Administration's request and the FY2014 appropriation. The joint explanatory statement approves all report language from the House and Senate bills unless changed by the joint explanatory statement. The only report language expressly addressed refers to public access to federally funded research, which states that OSTP shall report quarterly and include cost information as described in the Senate report. The House-passed bill would have provided $5.6 million for OSTP, the same as the Administration's request and the FY2014 appropriation. The report accompanying the House-passed bill urged OSTP to begin implementing key recommendations made by the Interagency Working Group on Neuroscience and to brief the House Committee on Appropriations within 120 days on the prioritization and implementation status of these recommendations. It also urged OSTP to promote and encourage international collaboration in neuroscience and to brief the House Committee on Appropriations within 180 days on the results of these efforts. In addition, the report encouraged OSTP to establish a committee to coordinate federal investments in medical imaging research and develop a roadmap for the full scope of imaging research and development. Finally, the report directed OSTP to report semiannually to the House Committee on Appropriations regarding the progress made by each major federal research agency in developing, finalizing and implementing its plan to enable public access to federally funded research findings. The amount recommended for OSTP by the Senate Committee on Appropriations was $5.6 million, the same as the Administration's request and the FY2014 appropriation. The report accompanying the Senate-committee recommended bill directed OSTP to report quarterly to the committee on timelines for implementation of open access to federal research, including cost estimates. Also, the report directed OSTP to establish an NSTC subcommittee on medical imaging and develop a roadmap for the full scope of imaging research and development. In addition, the report directed OSTP to report to Congress on revising the National Strategic Plan for Advanced Manufacturing, including identifying relevant agencies, topics, stakeholders, international perspectives, resources, and metrics for inclusion in the strategy development process. Finally, the report encourages OSTP to work with non-federal education and outreach communities in order to preserve effective science, technology, engineering, and math education programs designed to directly support the STEM-related mission needs of the agencies administering the programs. The Administration's request for FY2015 was $5.6 million, the same as appropriated for FY2014. According to the Administration, its request would have enabled "OSTP to carry out its significant national security emergency preparedness communications responsibilities that must be performed in times of national crisis," and supported the director of OSTP, the federal Chief Technology Officer, three Senate-confirmed associate directors, and other professional staff members. Congress has for several years restricted OSTP from engaging in certain activities with China or any Chinese-owned company by prohibiting the use of appropriated funds for these activities. The OSTP may proceed with activities that it certifies pose no risk of transferring technology or information with security implications to China and will not involve knowing interactions with officials who have been determined by the United States to have direct involvement with violations of human rights. Such certification must be submitted to the House and Senate Committees at least 30 days prior to such activities. Congress may continue its interest in the debate over its ability to restrict the activities of OSTP and the scope of such restrictions. P.L. 113-235 continues this restriction through FY2015. The House-passed bill would have continued this restriction through FY2015. The Senate committee-recommended bill was silent on the topic. National Aeronautics and Space Administration (NASA)98 The National Aeronautics and Space Administration (NASA) was created in 1958 by the National Aeronautics and Space Act (P.L. 85-568) to conduct civilian space and aeronautics activities. Congress appropriated $17.647 billion for NASA for FY2014. The Administration's request for FY2015 was $17.461 billion, a proposed decrease of 1.1%. In addition to the regular budget request, NASA would have received $885.5 million under the President's proposed Opportunity, Growth, and Security Initiative (OGSI). The House-passed bill would have provided $17.896 billion. The Senate-reported bill would have provided $17.900 billion. The final appropriation was $18.010 billion. See Table 11 for a breakdown of these amounts by appropriations account. There is no authorized level for NASA funding in FY2015; the most recent authorization act (the NASA Authorization Act of 2010, P.L. 111-267 ) authorized appropriations through FY2013. The FY2015 request for Science was $4.972 billion, a decrease of 3.5%.The House-passed bill would have provided $5.193 billion. The Senate-reported bill would have provided $5.200 billion. The final appropriation for FY2015 was $5.245 billion. In Planetary Science, an element of the Science account, the request of $1.280 billion, down from $1.345 billion in FY2014, included $15.0 million for continued study of a potential future mission to Jupiter's moon Europa. Congress provided $69.7 million in FY2013 and $80.0 million in FY2014 for formulation of a Europa mission, which was a high priority of the 2011 National Research Council (NRC) decadal survey of planetary science. The NRC expressed reservations, however, at the mission's estimated a cost of $4.7 billion, and in April 2014, NASA issued a request for information seeking Europa mission concepts costing less than $1 billion. The House-passed bill for FY2015 would have provided $100.0 million for "a mission that meets the science goals outlined for the Jupiter Europa mission in the most recent planetary science decadal survey," plus an additional $18.0 million for assessment and development of related technologies. The House report stated that "the Committee has not seen any credible evidence" that a $1 billion cost is feasible and directed NASA "not to use further project resources in pursuit of such an unlikely outcome." The Senate report directed NASA to use the Space Launch System as the baseline launch vehicle for planning a Europa mission in order to maximize the scientific return. The heavy lift capability of this rocket suggested Senate support for a larger-scale Europa mission. Congress ultimately appropriated $100 million for FY2015 for planning a Europa mission in line with the planetary science decadal survey. The explanatory statement directed NASA to evaluate use of the Space Launch System as the launch vehicle for such a mission. In Astrophysics, also funded in the Science account, the request of $607.0 million, down from $668.0 million in FY2014, included $12.3 million for the Stratospheric Observatory for Infrared Astronomy (SOFIA). SOFIA reached full operating capability in February 2014, and previous budgets envisioned 20 years of operations at a cost of about $85 million per year. According to NASA, however, "because SOFIA development has taken much longer than originally envisioned ... the observatory will no longer provide the kind of scientific impact and synergies with other missions as once planned." NASA proposed to place the SOFIA aircraft in storage unless international partners could support the U.S. share of its operating costs. The House report rejected NASA's proposal to terminate SOFIA, recommended $70.0 million for the project, and directed NASA to "continue seeking third-party partners whose additional funding support would restore SOFIA's budget to its full operational level." The Senate report also disagreed with the proposal to terminate SOFIA; it recommended $87 million. Congress ultimately appropriated $70 million for FY2015 for SOFIA to maintain core operations. The explanatory statement directed NASA to "continue to seek partners to restore SOFIA to its full operational level" and stated that "any science mission terminations should be made only after a senior review that evaluates the relative scientific benefit and return on investment." The OGSI proposal included an additional $187.3 million for Science, above the Administration's base request. Although the House and Senate bills included comparable amounts above the request, their increases did not appear to correspond closely to the content of the OGSI. For example, the House report did not mention the Orbiting Carbon Observatory 3 (OCO-3), which would have received $29.3 million under the OGSI, or the Pre-Aerosols, Carbon, and Ecosystems (PACE) mission, which would have received an additional $50 million. While the Senate report recommended $25 million for PACE, it also included funds for Jason-3 and DSCOVR, two Earth science satellites that the Administration proposed to fund through the National Oceanographic and Atmospheric Administration (NOAA) budget rather than NASA's. The final explanatory statement included $20 million for PACE for FY2015 and funded Jason-3 and DSCOVR in the NOAA budget. The FY2015 request for Aeronautics was $551.1 million, a decrease of 2.6%. NASA proposed reorganizing its aeronautics research to align with a new strategic vision announced in August 2013. Following this realignment, most individual projects were to continue, but funding for rotorcraft research was to decrease by $7.9 million. The OGSI proposal included an additional $43.9 million for Aeronautics and would have restored the proposed reduction in rotorcraft funding. The House-passed bill would have provided $666.0 million. The House report accepted the proposed restructuring and directed NASA to allocate the recommended funding increase proportionally across the new programs. It did not mention rotorcraft. The Senate bill would have provided $551.0 million. Like the House report, the Senate report supported the proposed reorganization, but it expressed disappointment with the requested reduction for rotorcraft research. The final appropriation for FY2015 was $651.0 million, with the increase above the request to be applied proportionally across the restructured programs. The FY2015 request for Space Technology was $705.5 million, an increase of 22.5%. Support for the Asteroid Redirect Mission, including the accelerated development of high-power solar electric propulsion technology for future spacecraft, was proposed to increase from $38.0 million to $93.0 million. The OGSI proposal included an additional $100.0 million for Space Technology. The House-passed bill would have provided $627.0 million. Noting several specific examples, the House report encouraged the Space Technology Mission Directorate to prioritize technologies that have "the broadest applicability across [its] customer base." Separately, the report found it unclear whether Congress will commit to the Asteroid Redirect Mission and directed NASA to spend funds on that mission only in areas that "are also applicable to other current NASA programs, clearly extensible to other potential future exploration missions ... or have broad applicability to other future non-exploration activities." The Senate bill would have provided $580 million. The Senate report directed NASA to prioritize ongoing activities, recommended continued funding for the development of satellite servicing technology, and directed NASA to increase its focus on Small Business Innovation Research (SBIR) awards to companies with fewer than 50 employees. The final appropriation for FY2015 was $596.0 million. The FY2015 request for Exploration was $3.976 billion, a decrease of 3.3%. This account funds development of the Orion Multipurpose Crew Vehicle (MPCV) and the Space Launch System (SLS) heavy-lift rocket, which were mandated by the 2010 authorization act for human exploration beyond Earth orbit. The account also funds development of a commercial crew transportation capability for future U.S. astronaut access to the International Space Station. The request of $2.784 billion for Orion, the SLS, and related ground systems (known collectively as Exploration Systems Development) was a decrease of 10.6%, while the request of $848.0 million for commercial crew was an increase of 21.8%. The OGSI proposal included an additional $100.0 million for SLS and Orion and an additional $250.0 million for commercial crew. As in past years, many in Congress saw the budget request as evidence of a difference in human spaceflight priorities between Congress and the Administration, and this perceived difference was controversial. The House-passed bill would have provided $4.167 billion for Exploration, including $3.055 billion for Exploration Systems Development and $785.0 million for commercial crew. The House report expressed frustration with the "arbitrarily reduced funding levels for SLS" and the increased request for commercial crew. It stated that the recommended funding for commercial crew was intended to support only one provider (in September 2014, NASA awarded commercial crew contracts to two providers). The Senate bill would have provided $4.368 billion for Exploration, including $3.251 billion for Exploration Systems Development and $805 million for commercial crew. The Senate report stated that the request for Orion and the SLS had "again fallen below what is necessary" and "far short of requirements." For commercial crew, the Senate report would have required certified cost and pricing data for commercial crew contracts. Advocates of this language described it as promoting transparency. Others, noting that it was drawn from federal cost-plus contracting, argued that it was not suitable for the fixed-price commercial approach that NASA is using for the commercial crew program. The final appropriation for FY2015 of $4.357 billion included $3.245 billion for Exploration Systems Development and $805 million for commercial crew. The explanatory statement did not include the Senate language about certified cost and pricing data. The FY2015 request for Space Operations was $3.905 billion, an increase of 3.4%. Although the request of $3.051 billion for the International Space Station (ISS) was a 3.2% increase, NASA planned to eliminate one previously planned cargo flight to the ISS in FY2015. The OGSI proposal included an additional $100.6 million and would have funded the restoration of the eliminated ISS cargo flight. The House-passed bill would have provided $3.878 billion for Space Operations, including $3.040 billion for the ISS. The Senate bill would have provided $3.831 billion, including $3.013 billion for the ISS. The final appropriation for FY2015 was $3.828 billion; the explanatory statement did not specify how much of that total was for the ISS. The FY2015 request for Education was $88.9 million, a decrease of 23.8%. NASA education programs are affected by a government-wide consolidation and reorganization of activities in science, technology, engineering, and mathematics (STEM) education. Among the programs included in the FY2015 request for the Education account were the National Space Grant College and Fellowship Program ($24.0 million), the Experimental Program to Stimulate Competitive Research (EPSCoR, $9.0 million), and the Minority University Research Education Program (MUREP, $30.0 million). In addition, the request for the Science account included $6.0 million for the Global Learning and Observations to Benefit the Environment (GLOBE) program and $15.0 million for other STEM education and public outreach activities. However, the previous Science Mission Directorate policy, under which 1% of all Science mission funding was allocated to education and public outreach, has been terminated. The OGSI proposal included an additional $10.0 million for Education; it would not have affected education activities funded in other NASA accounts. The House-passed bill would have provided $106.0 million for the Education account, including $30.0 million for Space Grant, $9.0 million for EPSCoR, and $32.0 million for MUREP. It would also have provided $30.0 million, double the request, for general STEM education and public outreach activities in the Science account. The Senate bill would have provided $108.0 million in the Education account, including $40.0 million for Space Grant, $18.0 million for EPSCoR, and $30.0 million for MUREP, plus $42.0 million in the Science account. The final appropriation for FY2015 was $119.0 million, including $40.0 million for Space Grant, $18.0 million for EPSCoR, and $32.0 million for MUREP, plus $42.0 million in the Science account. National Science Foundation (NSF)106 The National Science Foundation (NSF) supports basic research and education in the non-medical sciences and engineering. Congress established the foundation as an independent federal agency in 1950 and directed it to "promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes." The NSF is a primary source of federal support for U.S. university research. It is also responsible for significant shares of the federal science, technology, engineering, and mathematics (STEM) education program portfolio and federal STEM student aid and support. P.L. 113-235 provides $7.344 billion to the NSF in FY2015. This amount is $172.3 million (2.4%) more than the FY2014 estimated level of $7.172 billion. The House sought $7.394 billion for NSF in FY2015. The Senate Committee on Appropriations would have provided the requested level ($7.255 billion). (See Table 12 .) As requested, NSF's FY2015 program priorities included four programs that were also foundation priorities in FY2013 and FY2014: Cyber-enabled Materials, Manufacturing, and Smart Systems (CEMMSS, $213.2 million); Cyberinfrastructure Framework for 21 st Century Science, Engineering, and Education (CIF21, $124.8 million); Science, Engineering, and Education for Sustainability (SEES, $139.0 million); and Secure and Trustworthy Cyberspace (SaTC, $99.8 million). The Administration added Cognitive Science and Neuroscience ($29.0 million) in its FY2015 request. Of these programs and activities, the Administration sought an increase over FY2014 estimated levels for only Cognitive Science and Neuroscience. The House report recommended $35.0 million for Cognitive Science and Neuroscience in FY2015, $21.2 million (152.5%) more than the FY2014 estimate of $13.9 million. The explanatory statement, which accompanied P.L. 113-235 , endorses the House recommendation for neuroscience. The Senate report recommended the full request ($139.0 million) for SEES. Congress typically appropriates to NSF at the major account level. NSF's major accounts are Research and Related Activities (R&RA); Education and Human Resources (E&HR); Major Research Equipment and Facilities Construction (MREFC); Agency Operations and Awards Management (AOAM); National Science Board (NSB); and Office of Inspector General (OIG). R&RA is the largest NSF account and the primary source of research funding at the NSF. P.L. 113-235 provides $5.934 billion to R&RA in FY2015. This amount is $124.7 million (2.1%) over the FY2014 estimated funding level of $5.809 billion. The House-passed bill would have provided $5.974 billion to R&RA in FY2015. The Senate Committee on Appropriations recommended $5.839 billion. The Administration's request held six of eight R&RA subaccounts at close to FY2014 levels (actual range: -1.8% to 0.8%) in FY2015. Two subaccounts, Social, Behavioral, and Economic Sciences (SBE) and the U.S. Artic Research Commission would have increased by more substantial percentages: 6.0% and 8.5%, respectively, with SBE receiving the largest increase by amount—$15.4 million over the FY2014 estimate. Most of the SBE increase ($11.5 million) was intended for the National Center for Science and Engineering Statistics. The enduring debate over NSF support for research in the social sciences—which dates to NSF's establishment—resurfaced in the 113 th Congress. For example, during consideration of the FY2013 CJS Appropriations Act ( P.L. 113-6 ), legislators debated funding for NSF's Political Science program and ultimately restricted it to projects that met certain national interests. In FY2015, the House report recommended that any R&RA appropriations above the request "shall be applied to math and physical sciences [MPS], computer and information science and engineering [CISE], engineering [ENG], and biological sciences [BIO]." This language appears to be designed to prevent R&RA accounts in the geosciences (GEO) and international and integrative activities (IIA), as well as SBE and the U.S. Arctic Research Commission (USARC), from receiving increases over requested levels. The House report further notes both the "intrinsic value in SBE sciences," while recognizing "longstanding Congressional concerns" about SBE-funded activities. A House floor amendment to H.R. 4660 sought to effectively hold funding for SBE at the FY2014 level ($256.9 million). (Some House authorizers also sought to make similar changes in proposed NSF reauthorization bills during the 113 th Congress. ) P.L. 113-235 does not incorporate language from the House floor amendment to H.R. 4660 that would have held SBE at FY2014 levels; but, the explanatory statement effectively adopts House report language requiring NSF to apply any funding increases it receives for R&RA (above requested levels) to MPS, CISE, ENG, and BIO. Widely tracked R&RA programs include the Experimental Program to Stimulate Competitive Research (EPSCoR) and Advanced Manufacturing programs. P.L. 113-235 provides $159.7 million to EPSCoR in FY2015; which is the same as the request, House recommendation, and Senate Committee on Appropriations' recommendation. EPSCoR received $158.2 million in FY2014 (estimated). For Advanced Manufacturing, the House report recommended the FY2014 current plan funding level ($164.7 million) in FY2015. The Senate report further recommended that NSF target $15.0 million of the funding it receives for Advanced Manufacturing to biomanufacturing. P.L. 113-235 provides $866.0 million to E&HR, NSF's main education account, in FY2015; including $60.9 million for the Robert Noyce Teacher Scholarship Program (NOYCE). The FY2015 enacted funding level for E&HR is $19.5 million (2.3%) more than the FY2014 estimated funding level of $846.5 million. The House-passed bill would have provided $876.0 million to E&HR in FY2015. The Senate Committee on Appropriations recommended the request ($889.8 million). By amount, the largest requested E&HR increase was for Improving Undergraduate STEM Education (IUSE). The FY2014 IUSE estimate was $74.1 million. The Administration sought $99.1 million for IUSE in FY2015, a proposed increase of $25.0 million (33.7%). Some of the most widely tracked E&HR programs include the Graduate Research Fellowship (GRF), the Integrative Graduate Education and Research Traineeship or IGERT (now called the NSF Research Traineeship or NRT), and the Advanced Technological Education (ATE) program. The FY2015 request for the GRF was $333.4 million, about 11.1% over the FY2014 estimate. (NSF also sought to increase the GRF stipend from $32,000 to $34,000 in FY2015.) The FY2015 request for NRT was $58.0 million, an increase of 7.8% over the FY2014 estimate. The FY2015 request for ATE was $64.0 million, the same as the FY2014 estimate. The House report recommended $66.0 million for ATE in FY2015; the Senate report recommended $64.0 million. The explanatory statement endorses the House recommendation. Other widely tracked E&HR programs include those that are commonly referred to as "broadening participation" programs. These include the Historically Black Colleges and Universities Undergraduate Program (HBCU-UP), Tribal Colleges and Universities Program (TCUP), and Louis Stokes Alliances for Minority Participation (LSAMP). The FY2015 requests for these broadening participation programs were the same as the FY2014 estimated levels—$31.9 million (HBCU-UP), $13.5 million (TCUP) and $45.6 million (LSAMP). The House and Senate reports both recommended $32.0 million for HBCU-UP, $13.5 million for TCUP, and $46.0 million for LSAMP in FY2015. The Senate report also recommended $8.0 million for the Alliances for Graduate Education and the Professoriate (AGEP) and $24.0 million for the Centers for Research Excellence in Science and Technology (CREST) in FY2015. The explanatory statement provides $32.0 million for HBCU-UP, $13.5 million for TCUP, and $46.0 million for LSAMP; as well as $8.0 million for AGEP and $24.0 million for CREST. In addition to these programs, the House report directed NSF to provide at least $30.0 million in "targeted opportunities" for Hispanic-Serving Institutions (HSIs). (Legislators had previously encouraged NSF to establish a separate HSI program. However, according to the House report, NSF has not done so due to "technical challenges.") The Senate report, on the other hand, specifically provided $5.0 million for a separate HSI program at NSF. The explanatory statement endorses the House recommendation. NSF's MREFC account supports large construction projects and scientific instruments. P.L. 113-235 provides $200.8 million to MREFC in FY2015; a small increase over the FY2014 estimated level of $200.0 million. The request notes that MREFC will support three projects in FY2015. Historically, this account has typically supported between four and six projects per fiscal year. The FY2015 Administration request for AOAM was $338.2 million, or $40.2 million (13.5%) more than the FY2014 estimate. Most of this increase was intended to fund the next phase of NSF's headquarters relocation effort. P.L. 113-235 provides $325.0 million to AOAM in FY2015. Related Agencies The annual CJS appropriations act includes funding for seven related agencies with missions or responsibilities similar to those of the Departments of Commerce and Justice or the science agencies. The related agencies funded as a part of the annual CJS appropriations act are: the U.S. Commission on Civil Rights; the Equal Employment Opportunity Commission; the International Trade Commission; the Legal Services Corporation; the Marine Mammal Commission; the Office of the U.S. Trade Representative; and the State Justice Institute. FY2014 and FY2015 Appropriations The related agencies received a total of $881.8 million under the Consolidated Appropriations Act, 2014. For FY2015, the Administration requested a total of $956.1 million for the related agencies, which represented a proposed 8.4% increase in appropriations. The House-passed bill would have provided a total of $870.9 million for the related agencies, a proposed decrease of 1.2% compared to the FY2014 appropriation and an amount that would be 8.9% less than the Administration's request. The Senate Committee-reported bill would have provided $923.0 million for the related agencies, which would have been 4.7% greater than the FY2014 appropriation and 6.0% greater than the House-passed amount, but 3.5% below the Administration's request. The FY2015 appropriations act provides $895.9 million for the related agencies, an amount that is 1.6% greater than the FY2014 appropriation, 6.3% below the Administration's request, 2.9% greater than the House-passed amount, and 2.9% less than the amount recommended by the Senate Committee on Appropriations. Commission on Civil Rights Established by the Civil Rights Act of 1957, the U.S. Commission on Civil Rights (the commission) investigates allegations of citizens who may have been denied the right to vote based on color, race, religion, or national origin; studies and gathers information on legal developments constituting a denial of the equal protection of the laws; assesses the federal laws and policies in the area of civil rights; and submits reports on its findings to the President and Congress when the commission or the President deems it appropriate. Under the Consolidated Appropriations Act, 2014, the commission received $9.0 million. The Administration requested $9.4 million for the commission, a proposed 4.4% increase compared to the FY2014-enacted appropriation. H.R. 4660 included $9.0 million for the commission, an amount equal to the FY2014 appropriation and 4.3% less than the Administration's request. The Senate Committee on Appropriations recommended $9.4 million for the commission, an amount that is equal to the Administration's request. For FY2015, Congress provides $9.2 million for the commission, an amount that is 2.2% greater than the FY2014 appropriation and the House-passed amount, but 2.1% less than the Administration's request and the Senate committee-reported amount. Equal Employment Opportunity Commission (EEOC)126 The Equal Employment Opportunity Commission (EEOC) enforces several laws that ban employment discrimination based on race, color, national origin, sex, age, or disability. In recent years, appropriators were particularly concerned about the agency's ability to reduce the pending inventory of charges due to rising caseloads and limited staff. Due to new hires of enforcement staff and developments in technology, the EEOC continues to reduce the pending inventory of cases. The FY2015 CJS appropriations act provided $364.5 million for the Equal Employment Opportunity Commission, $0.5 million more than the FY2014 amount of $364.0 million. Of the funds provided in FY2015, up to $30.0 million would be for payments to state and local entities with which the agency has work-sharing agreements to address workplace discrimination within their jurisdictions (i.e., Fair Employment Practices Agencies (FEPAs) and Tribal Employment Rights Organizations (TEROs)). The amount recommended by the Senate Committee on Appropriations for FY2015 was $365.0 million or $0.5 million more than the FY2015 amount. The House-passed bill would have provided $364.0 million for the EEOC in FY2015, $0.5 million less than the FY2015 amount. The Administration had recommended $365.5 for the EEOC in FY2015. Although the pending inventory of private sector cases filed with the EEOC was reduced from 78,136 at the end of FY2011 to 70,312 at the end of FY2012, the inventory increased slightly in FY2013 to 70,781. The increase in FY2013 reflects hiring freezes imposed by the FY2013 budget cycle. The FY2015 request includes 60 additional investigators and 6 mediator hires, positions which help the agency improve staffing levels and subsequent workloads. The EEOC federal sector hearings workload was 15,301 hearings in FY2013 and estimated to increase slightly to 15,500 in FY2014. The commission continues to implement technology initiatives to support the federal sector program, such as the ongoing development of the EEOC File Exchange (EFX) web-based portal system. The commission also continues to expand the use of the HotDocs commercial document assembly software, which streamlines the writing phase of the hearings process. U.S. International Trade Commission (ITC)129 The U.S. International Trade Commission (ITC) is an independent, quasi-judicial federal agency with broad investigative responsibilities on matters related to international trade. The ITC's activities include investigating the effects of dumped and subsidized imports on domestic industries; conducting global safeguard investigations; and adjudicating disputes involving imported goods that allegedly infringe U.S. intellectual property rights. The ITC also serves as a federal resource for trade data and other trade policy information. It makes most of its information and analyses available to the public to promote understanding of competitiveness, international trade issues, and the role that international trade plays in the U.S. economy. The ITC has two strategic goals that guide its programmatic activities: (1) to produce sound, objective, and timely determinations in investigations; and (2) to produce objective, high-quality, and responsive analysis and information on tariffs, trade, and competitiveness. As a matter of policy, its budget request is submitted to Congress by the President without revision. The ITC received $83.0 million for FY2014. The Administration's request for the ITC for FY2015 was $86.5 million, a proposed increase of 4.2%. The House-passed bill would have provided $86.0 million for ITC, 0.5% less than the Administration's request and 3.6% more than the enacted amount for FY2014. The amount recommended by the Senate Committee on Appropriations was $85.0 million, 1.7% less than the Administration's request and 2.4% more than the FY2014 enacted amount. The FY2015 CJS Appropriations Act provided $84.5 million for the ITC, an amount 2.3% less than the Administration's request and 1.8% above the FY2014 enacted amount. Legal Services Corporation (LSC)132 The Legal Services Corporation (LSC) is a private, nonprofit, federally funded corporation that provides grants to local offices that, in turn, provide legal assistance to low-income people in civil (noncriminal) cases. The LSC has been controversial since its incorporation in the early 1970s and has been operating without authorizing legislation since 1980. There have been ongoing debates over the adequacy of funding for the agency and the extent to which certain types of activities are appropriate for federally funded legal aid attorneys to undertake. In annual appropriations bills, Congress traditionally has included legislative provisions restricting the activities of LSC-funded grantees, such as prohibiting any lobbying activities or prohibiting representation in certain types of cases. The authorization of appropriations for the LSC expired at the end of FY1980. Since then the LSC has operated under annual appropriations laws. The LSC received $365.0 million for FY2014. The Obama Administration's budget request for the LSC for FY2015 was $430.0 million, a proposed increase of 17.8%. The Administration's FY2015 budget request included $395.0 million for basic field programs and required independent audits, $20.0 million for management and grants oversight, $4.8 million for client self-help and information technology, $4.4 million for the Office of the Inspector General, $1.0 million for loan repayment assistance, and $4.9 million for a pro bono innovation fund. The Obama Administration also proposed that LSC restrictions on class action suits and attorneys' fees be eliminated. The House-passed bill would have provided $350.0 million for the LSC for FY2015. This amount is 4.1% less than the FY2014-enacted amount and 18.6% less than the Administration's FY2015 budget request. The amount recommended by the Senate Committee on Appropriations was $400.0 million. This amount is 9.6% more than the FY2014-enacted amount and 7.0% less than the Administration's FY2015 budget request. Pursuant to P.L. 113-235 , the LSC received $375 million for FY2015. This amount is 2.7% more than the FY2014-enacted amount, 7.1 % more than the House-passed amount, and 12.8% less than the Administration's FY2015 budget request. The FY2015 LSC appropriation included $343.2 million for basic field programs and required independent audits, $18.5 million for management and grants oversight, $4.0 million for client self-help and information technology, $4.4 million for the Office of the Inspector General, $1.0 million for loan repayment assistance, and $4.0 million for a pro bono innovation fund. Marine Mammal Commission (MMC) The Marine Mammal Commission (MMC) is an independent agency of the executive branch, established under Title II of the Marine Mammal Protection Act (MMPA; P.L. 92-522). The MMC and its Committee of Scientific Advisors on Marine Mammals provide oversight and recommend actions on domestic and international topics to advance policies and provisions of the Marine Mammal Protection Act. As funding permits, the Marine Mammal Commission supports research to further the purposes of the MMPA. The FY2014-enacted appropriation for the MMC was $3.3 million. The Administration proposed a 5.6% increase for MMC for FY2015. The House recommended $3.3 million for the MMC for FY2015. The House's recommendation would have been the same as the FY2014 appropriation and 5.3% less than the Administration's request. The Senate Committee on Appropriations recommended $3.4 million for the MMC, equal to the Administration's request. The FY2015 appropriation for the MMC is $3.3 million, which is 2.8% greater than the FY2014 appropriation and the House-passed amount, but 2.7% less than the Administration's request and the Senate committee-reported amount. Office of the U.S. Trade Representative (USTR)133 The Office of the U.S. Trade Representative (USTR), located in the Executive Office of the President, is responsible for developing and coordinating U.S. international trade and direct investment policies. The USTR is the President's chief negotiator for international trade agreements, including commodity and direct investment negotiations. USTR also conducts U.S. affairs related to the World Trade Organization. The USTR is leading the negotiations for the United States for the ongoing talks for the proposed Trans-Pacific Partnership agreement (TPP) and for the Transatlantic Trade and Investment Partnership (T-TIP). The USTR received $52.6 million for FY2014. The Administration's request for USTR was $56.2 million, a proposed increase of 6.8%. The House-passed bill would have provided $53.5 million for USTR, 4.8% less than the Administration's request and 1.7% more than the FY2014 enacted amount. The Senate Committee on Appropriations recommended $55.0 million for the USTR for FY2015, the same amount as the Administration's request and 4.6% above the FY2014 enacted amount. The FY2015 CJS Appropriations Act provided $54.3 million for the USTR, an amount 3.4% less than the Administration's request and 3.1% more than the FY2014 enacted amount. State Justice Institute (SJI) The State Justice Institute (SJI) is a nonprofit corporation that makes grants to state courts and funds research, technical assistance, and informational projects aimed at improving the quality of judicial administration in state courts across the United States. It is governed by an 11-member board of directors appointed by the President and confirmed by the Senate. Under the terms of its enabling legislation, SJI is authorized to present its budget request directly to Congress, apart from the President's budget. For FY2014 the SJI received $4.9 million. The Administration requested $5.1 million for FY2015, a proposed 4.5% increase in funding. The House-passed and Senate committee-reported bills would have provided a total of $5.1 million for SJI, equal to the Administration's request . The FY2015 appropriation for SJI is equal to the Administration's request.

This report tracks and describes actions taken by the Administration and Congress to provide FY2015 appropriations for the Commerce, Justice, Science, and Related Agencies (CJS) accounts. It also provides an overview of FY2014 appropriations for agencies and bureaus funded as a part of the annual appropriation for CJS. The annual CJS appropriations act provides funding for the Departments of Commerce and Justice, the science agencies, and several related agencies. Appropriations for the Department of Commerce include funding for agencies such as the Census Bureau; the U.S. Patent and Trademark Office; the National Oceanic and Atmospheric Administration; and the National Institute of Standards and Technology. Appropriations for the Department of Justice (DOJ) provide funding for agencies such as the Federal Bureau of Investigation; the Bureau of Prisons; the U.S. Marshals; the Drug Enforcement Administration; and the Bureau of Alcohol, Tobacco, Firearms, and Explosives; along with funding for a variety of grant programs for state, local, and tribal governments. Funding for the science agencies goes to the Office of Science and Technology Policy, the National Aeronautics and Space Administration (NASA), and the National Science Foundation (NSF). The annual appropriation for the related agencies includes funding for agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission. Over the past 10 fiscal years, appropriations for CJS increased from FY2005 to FY2010, and they have generally declined since. After adjusting for inflation, FY2013 and FY2014 appropriations for CJS were generally at the same level as in FY2005. The peak in CJS appropriations around FY2010 was the result of increased appropriations for the Department of Commerce to support the 2010 decennial census. Since FY2010, total appropriations for CJS have been around $60 billion, with the exception of FY2013 when sequestration cut nearly $4 billion out of the total FY2013 CJS appropriations. While decreased appropriations for the Department of Commerce mostly explain the overall decrease in CJS appropriations since FY2010, there have also been cuts in funding for DOJ and NASA. Recent reductions to NASA's appropriation have brought it more in-line with what the agency received in FY2005. In addition, despite recent cuts to DOJ's appropriation, Congress still appropriated $6.883 billion more for DOJ in FY2014 than it did in FY2005. For FY2014, through P.L. 113-76, Congress appropriated a total of $61.623 billion for CJS, of which $8.181 billion was for the Department of Commerce, $27.737 billion was for the Department of Justice, $24.824 billion was for the science agencies, and $881.8 million was for the related agencies. For FY2015, the Administration requested a total of $62.397 billion for the agencies and bureaus funded as a part of the annual CJS bill. The Administration's request included $8.746 billion for the Department of Commerce, $27.974 billion for the Department of Justice, $24.721 billion for the science agencies, and $956.1 million for the related agencies. The House-passed CJS bill (H.R. 4660) would have provided $62.559 billion for the CJS departments and agencies. The House-passed bill included $8.231 billion for the Department of Commerce, $28.162 billion for the Department of Justice, $25.296 billion for the science agencies, and $870.9 million for the related agencies. On June 5, 2014, the Senate Committee on Appropriations reported its version of the FY2015 CJS appropriations bill (S. 2437). The bill reported by the Senate Committee on Appropriations would have provided a total of $62.636 billion for CJS. The bill included $8.556 billion for the Department of Commerce, $27.997 billion for the Department of Justice, $25.161 billion for the science agencies, and $923.0 million for the related agencies. On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235). The act provides a total of $61.753 billion for the agencies and bureaus funded by the annual CJS appropriations act. The act provides $8.467 billion for the Department of Commerce, $27.030 billion for the Department of Justice, $25.360 billion for the science agencies, and $895.9 million for the related agencies. Policy makers considered several issues while debating the FY2015 funding levels for CJS agencies and bureaus, including the following: Whether the Census Bureau would receive the funds requested to complete the research and testing necessary for a cost-effective 2020 census design, and to restore 12-month interviewing and the full American Community Survey sample size after a one-month break in data collection that was caused by the October 2013 federal government shutdown. Whether to fund the National Institute of Standards and Technology (NIST) core laboratory and construction accounts at a level consistent with the goal of doubling funding for these and other targeted accounts, as proposed previously by President Obama and adopted implicitly in the America COMPETES Act (P.L. 110-69) and the America COMPETES Reauthorization Act of 2010 (P.L. 111-358). Whether Congress should have provided the $147.0 million in gun- and school violence-related grant funding under the State and Local Law Enforcement Assistance the Administration requests as a part of its "Now is the Time" initiative, which is the Administration's effort to combat gun violence. Whether the Bureau of Prisons has adequate resources to properly manage the growing number of inmates held in federal prisons. Whether the current direction for the U.S. human spaceflight program, established in October 2010 by the National Aeronautics and Space Administration Authorization Act of 2010 (P.L. 111-267), can be implemented successfully in a period of increased budgetary constraint, as well as what the potential impact of human spaceflight's funding needs will be on the availability of funding for other NASA programs, such as science, aeronautics, and education. Whether Congress should have adopted the Administration's proposed government-wide science, technology, engineering, and mathematics (STEM) education program reorganization and consolidation, including proposed changes at NSF, NASA, and the Department of Commerce.

Introduction On July 20, 1923, the National Woman's Party (NWP) met in Seneca Falls, New York, to commemorate the 75 th anniversary of the historic Seneca Falls Convention and celebrate the 1920 ratification of the Nineteenth Amendment, by which women won the right to vote. At the meeting, NWP leader Alice Paul announced her next project would be to develop and promote a new constitutional amendment, guaranteeing equal rights and equality under the law in the United States to women and men. Paul, a prominent suffragist, noted the recent ratification of the Nineteenth Amendment, which established the right of women to vote. She characterized an "equal rights" amendment as the next logical step for the women's movement. The proposed amendment was first introduced six months later, in December 1923, in the 68 th Congress. Originally named "the Lucretia Mott Amendment," in honor of the prominent 19 th century abolitionist, women's rights activist, and social reformer, the draft amendment stated that, "men and women shall have equal rights throughout the United States and every place subject to its jurisdiction." Nearly half a century passed before the Mott Amendment, as amended and ultimately renamed the Alice Paul Amendment, was approved by Congress and proposed to the states for ratification in 1972. In common with the Eighteenth and Twentieth through Twenty-Sixth Amendments, the proposed ERA included a seven-year deadline for ratification; in this case the deadline was included in the proposing clause, or preamble, that preceded the text of the amendment. After considerable early progress in the states, ratifications slowed, and the process ultimately stalled at 35 states in 1977, 3 short of the 38 approvals (three-fourths of the states) required by the Constitution. As the 1979 deadline approached, however, ERA supporters capitalized on the fact that the seven-year time limit was incorporated in the amendment's proposing clause, rather than in the body of the amendment. Concluding that the amendment itself was, therefore, not time-limited, Congress extended the ratification period by 38 months, through 1982. No further states added their approval during the extension, however, and the proposed ERA appeared to expire in 1982. Since the proposed ERA's extended ratification period expired in 1982, Senators and Representatives have continued to introduce new versions of the amendment, beginning in the 97 th Congress. More recently, new analyses emerged that led ERA supporters to assert that the amendment remains viable, and that the period for its ratification could be extended indefinitely by congressional action. Resolutions embracing this thesis have been introduced beginning in the 112 th Congress. Their stated purpose is that of "[r]emoving the deadline for ratification of the Equal Rights Amendment." If enacted, these measures would eliminate the 1979 and 1982 deadlines; reopen the proposed ERA for state ratification at the present count of 37 states; and extend the period for state ratification indefinitely. This report examines the legislative history of the various proposals that ultimately emerged as the proposed Equal Rights Amendment. It identifies and provides an analysis of current legislative proposals and reviews contemporary factors that may bear on its present and future viability. Most Recent Developments 115th Congress Proposals As the 115 th Congress convened, resolutions were introduced in both the House and Senate that embraced two approaches to the Equal Rights Amendment. These include "fresh start" proposals that proposed a new constitutional amendment, separate from the amendment proposed by Congress in 1972 (H.J. Res. 208, 92 nd Congress), and proposals designed to reopen the ratification process by removing the deadline included in the resolution proposing the original ERA. Fresh Start Proposals Perhaps the most basic means of restarting an equal rights amendment would be by introduction of a new joint resolution, a "fresh start." In 1982, even as the extended ratification deadline for the proposed ERA approached, resolutions proposing a new equal rights amendment were introduced in the 97 th Congress. New versions of the ERA have continued to be introduced in the House and Senate in each succeeding Congress. All have shared language identical or similar to the original proposed by Congress in 1982. Two fresh start amendments have been introduced to date in the 115 th Congress, as detailed below. S.J.Res. 6 The first fresh start ERA proposal to be offered in the 115 th Congress was S.J.Res. 6, introduced by Senator Bob Menendez of New Jersey on January 20, 2017. To date, Senator Menendez has been joined by 15 cosponsors. Senator Menendez's proposal incorporates the language of the original ERA, as proposed in the 92 nd Congress: Section 1. Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex. Section 2.   The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article. Section 3. This article shall take effect 2 years after the date of ratification. S.J.Res. 6 has been referred to the Senate Committee on the Judiciary. H.J.Res. 33 H.J.Res. 33 was introduced in the House of Representatives by Representative Carolyn Maloney of New York on January 24, 2017. To date, Representative Maloney has been joined by 169 cosponsors. This measure is also a fresh start resolution, proposing a new ERA: Section 1. Women shall have equal rights in the United States and every place subject to its jurisdiction. Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex. Section 2. Congress and the several States shall have the power to enforce, by appropriate legislation, the provisions of this article. Section 3. This amendment shall take effect two years after the date of ratification. This version of the amendment includes Section 1 language that differs from the version of the ERA proposed by Congress in 1972. The new wording appeared initially in H.J.Res. 56 in the 113 th Congress. Specifically, Section 1 was amended by the addition of the following clause at its beginning: "Women shall have equal rights in the United States and every place subject to its jurisdiction." In a press release issued at the time, Representative Maloney described this as a ... new and improved Equal Rights Amendment.... Today's ERA would prohibit gender discrimination and for the first time, would explicitly mandate equal rights for women.... This ERA is different ... it's designed for the 21 st Century. This ERA expressly puts women in the Constitution for the first time. It may also be noted that this language recalls the wording of the first version of the E R A, as drafted by suffragist Alice Paul in 1923 and introduced in the 68 th Congress in 1923: Men and women shall have equal rights throughout the United States and every place subject to its jurisdiction. Congress shall have power to enforce this article by appropriate legislation. Further, the resolution expands enforcement authority for the amendment "by appropriate legislation," extending it from Congress to include "the several States." H.J.Res. 33 has been referred to the Subcommittee on the Constitution and Civil Justice of the House Committee on the Judiciary. Discussion As joint resolutions proposing an amendment to the Constitution, S.J.Res. 6 and H.J.Res. 33 would require approval in identical form by two-thirds of the Members present and voting in both chambers of Congress. Unlike a standard joint resolution that has the force of law, the President's approval is not necessary for joint resolutions that propose amendments. Both resolutions prescribe that the proposed amendment would be submitted to the legislatures of the states for ratification. Neither S.J.Res. 6 nor H.J.Res. 33 includes a time limit for ratification, either in their preambles, or in the body of the amendment. While a ratification deadline has been included in either the preamble or the text of the 18 th and 20 th through 26 th Amendments, it is a tradition dating to the early 20 th century, rather than a constitutional requirement. If Congress were to propose either of these resolutions to the states as a constitutional amendment, they would arguably be eligible for ratification indefinitely. In not setting a ratification deadline, these measures thus avoid the expiration issues associated with the original proposed Equal Rights Amendment. They also arguably embrace the assumption under which the 27 th Amendment was ratified in 1992, some 203 years after Congress sent it to the states for approval: proposed amendments remain constitutionally valid and eligible for ratification unless a deadline is specifically prescribed when the amendment is proposed. Opponents, however, might argue that the seven-year ratification deadline first included in the 18 th Amendment should not be lightly discarded. The inclusion of a "sunset" provision on proposed amendments, they might argue, is necessary to ensure that a contemporaneous majority of the people, and through them the state legislatures, favors the measure. This issue is examined at greater length later in this report. Removing the ERA Ratification Deadline: The "Three-State Strategy" Two resolutions introduced in the 115 th Congress, one each in the House and Senate, are designed to reopen the ratification process for H.J. Res. 208, the Equal Rights Amendment proposed by the 92 nd Congress in 1972, and extend it indefinitely by removing the deadline set in the preamble to the proposed ERA. Both these measures are based on the "three-state" argument that (1) Congress has the constitutional authority to propose, alter, or terminate any limits on the ratification of amendments pending before the states; (2) all existing ratifications remain in effect and viable; and (3) rescissions of ratification passed by some states are invalid. The three-state argument is examined in detail later in this report. S.J.Res. 5 This resolution, designed to reopen the ERA ratification process, was introduced by Senator Ben Cardin of Maryland on January 17, 2017. To date, Senator Cardin has been joined by 36 cosponsors. The purpose of the resolution, as stated in its title is "[r]emoving the deadline for ratification of the equal rights amendment." The text of the resolution states: [t]hat notwithstanding any time limit contained in House Joint Resolution 208, 92d Congress, as agreed to in the Senate on March 22, 1972, the article of amendment proposed to the States in that joint resolution shall be valid to all intents and purposes as part of the Constitution whenever ratified by the legislatures of three-fourths of the several States. S.J.Res. 5 has been referred to the Senate Judiciary Committee. H.J.Res. 53 This resolution was introduced by Representative Jackie Speier of California on January 31, 2017. To date, Representative Speier has been joined by 166 co-sponsors. The text of H.J.Res. 53 is identical to that of S.J.Res. 5. H.J.Res. 53 has been referred to the Subcommittee on the Constitution and Civil Justice of the House Committee on the Judiciary. Discussion Many ERA proponents claim that because the amendment as originally proposed by Congress in 1972 did not include a ratification deadline within the amendment text , it remains potentially viable and eligible for ratification indefinitely. They maintain that Congress possesses the authority both to remove the original 1979 ratification deadline and its 1982 extension, and to restart the ratification clock at the then-current 36-state level, with or without a future ratification deadline. In support, they assert that Article V of the Constitution gives Congress uniquely broad authority over the amendment process. They further cite the Supreme Court's decisions in Dillon v. Glo ss and Coleman v. Miller in support of their position. They also note the precedent of the Twenty-Seventh "Madison" Amendment, which was ratified in 1992, 203 years after Congress proposed it to the states. These issues are examined more fully later in this report. Recent Activity in the State Legislatures: Nevada and Illinois Although the ratification deadline for the proposed ERA expired in 1982, its proponents have continued to press for action in the legislatures of states that either failed to ratify it, or had previously rejected the amendment. Recent notable developments in the states include action by Nevada in 2017 and Illinois in 2018 to ratify the amendment. Also in 2018, however, proposals to ratify the ERA failed to reach the floor of state legislatures in both Arizona and Virginia, although supporters in the North Carolina Legislature assert the amendment may come to a vote in that state's legislature during the current session. Nevada and Illinois Ratify the Equal Rights Amendment The most widely-publicized recent ERA developments in the states occurred in March 2017, and May 2018, when Nevada and Illinois ratified the proposed amendment. Their actions raised the number of state ratifications to 37. On March 22, 2017, the Nevada Legislature completed action on a resolution approving the ERA as proposed by H.J.Res. 208 in the 92 nd Congress. With this action, Nevada became the 36 th state to ratify the ERA, and the first state to do so since 1977. The ratification measure, introduced on February 17 as Senate Joint Resolution 2, (SJR2), passed the Nevada Senate on March 1 and the Nevada House of Representatives on March 20. The Senate's concurrence with a House amendment on March 22 completed the ratification process. The choice of dates had historical significance: H.J.Res. 208 was proposed by Congress on March 22, 1972, exactly 45 years earlier. Press accounts of the action noted that the ratification marked a reversal of earlier actions in Nevada. Efforts to secure ERA ratification in the legislature failed three times in the 1970s and failed once when placed on the ballot as an advisory ballot issue in 1978. With Nevada's ratification, the three-state strategy arguably changed to a "two-state strategy," and the legislature's action was reported as "being read by [ERA] supporters as an encouraging sign," while the Eagle Forum, an advocacy group historically opposed to ERA, restated its criticism of the amendment, noting the deadline for ratification had been passed in 1982. On May 30, 2018, the Illinois legislature completed action on a resolution approving the ERA as proposed by H.J.Res. 208 in the 92 nd Congress. With this action Illinois became the 37 th state to ratify the amendment. The ratification measure, introduced as SJRCA (Senate Joint Resolution Constitutional Amendment 0004) on February 7, 2018, was adopted by the Senate as originally introduced on April 11 and in its final form by the Senate and House of Representatives on May 30. The governor's approval was not required. Contemporary Public Attitudes toward the Equal Rights Amendment Public opinion polls showed support through the 1990s for an equal rights amendment. The first recorded survey on support for the proposal was a CBS News telephone poll conducted in September 1970, in which 56% of respondents approved of an equal rights amendment. Favorable attitudes remained steady in the 1970s and throughout the subsequent ratification period, during which time levels of support as reported by the Gallup Poll never dropped below 57%. A later ERA-specific survey conducted by CBS News in 1999 reported that 74% of respondents supported the proposed ERA, while 10% were opposed. The ERA's expiration as a pending constitutional amendment was eventually followed by corresponding fall-off in related polling; there is little evidence of related activity by major survey research organizations after 1999, a development that is arguably due to the fact that the ERA was presumed to be a closed issue. More recently, in 2017, the Harris Survey conducted a poll on women's status in American society. While it did not include a specific question concerning the ERA, the Harris Survey included the following query: "There has been much talk recently about changing women's status in society today. On the whole, do you favor or oppose most of the efforts to strengthen and change women's status in society?" Sixty-six percent of respondents favored strengthening and changing women's status in society, 7% were opposed, and 27% were not sure. An Equal Rights Amendment: Legislative and Ratification History, 1923-1972 Despite the efforts of women's rights advocates in every Congress, nearly 50 years passed between the time when the Mott Amendment was first introduced in 1923 and the Equal Rights Amendment was approved by Congress and proposed to the states in 1972. Five Decades of Effort: Building Support for an Equal Rights Amendment in Congress, 1923-1970 The first proposal for an equal rights amendment, drafted by Alice Paul, was introduced in the 68 th Congress in 1923. In its original form, the text of the amendment read as follows: Men and women shall have equal rights throughout the United States and every place subject to its jurisdiction. Congress shall have power to enforce this article by appropriate legislation. Although Alice Paul characterized the then-Lucretia Mott Amendment as a logical and necessary next step in the campaign for women's rights following the Nineteenth Amendment, the proposal made little progress in Congress over the course of more than two decades. During the years following its first introduction, an equal rights amendment was the subject of hearings in either the House or Senate in almost every Congress. According to one study, the proposal was the subject of committee action, primarily hearings, on 32 occasions between 1923 and 1946, but it came to the floor for the first time—in the Senate—only in the latter year. During this period, however, the proposal continued to evolve. In 1943, for instance, the Senate Judiciary Committee reported a version of an equal rights amendment incorporating revised language that remained unchanged until 1971: Equality of rights under the law shall not be denied or abridged by the United States or by any State on account of sex. Congress and the several states shall have power, within their respective jurisdictions, to enforce this article by appropriate legislation. Throughout this period, amendment proponents faced opposition from traditionalists, organized labor, and some leaders of the women's movement. According to one study of the amendment's long pendency in Congress, "[t]he most persistent and most compelling trouble that crippled prospects for an ERA from its introduction in 1923 until a year after Congress initially passed it on to the states was opposition from most of organized labor during a period of ascending labor strength." A principal objection raised by organized labor and women's organizations that opposed the amendment was concern that the ERA might lead to the loss of protective legislation for women, particularly with respect to wages, hours, and working conditions. One historian notes that: Through the years of the New Deal and the Truman administration, however, protective legislation for women held a firm place in organized labor's list of policy favorites. Since an ERA threatened protective laws, it and its supporters qualified as the enemy. The nature of opposition from women's groups was illustrated by a 1946 statement issued by 10 prominent figures, including former Secretary of Labor Frances Perkins and former First Lady Eleanor Roosevelt, which asserted that an equal rights amendment would "make it possible to wipe out the legislation which has been enacted in many states for the special needs of women in industry." These attitudes toward the proposal persisted, even as women in great numbers entered the civilian workforce and the uniformed services during the four years of U.S. involvement in World War II (1941-1945), taking jobs in government, industry, and the service sector that had previously been filled largely by men. Congressional support for an equal rights amendment grew slowly in the late 1940s, but a proposal eventually came to the Senate floor, where it was the subject of debate and a vote in July 1946. Although the 39-35 vote to approve fell short of the two-thirds of Senators present and voting required by the Constitution, it was a symbolic first step. The so-called Hayden rider, named for its author, Senator Carl Hayden of Arizona, was perhaps emblematic of the arguments ERA advocates faced during the early post-war era. First introduced during the Senate's 1950 debate, this proposal stated that: The provisions of this article shall not be construed to impair any rights, benefits, or exemptions conferred by law upon persons of the female sex. Although the rider's ostensible purpose was to safeguard protective legislation, one source suggested an ulterior motive: "Hayden deliberately added the riders in order to divide the amendment's supporters, and these tactics delayed serious consideration of the unamended version of the Equal Rights Amendment." Whatever the rider's intent, it was not welcomed by ERA supporters, and was opposed on the floor by Senator Margaret Chase Smith of Maine, at that time the only woman Senator. The Senate ultimately passed an equal rights amendment resolution that included the Hayden rider twice in the 1950s. In the 81 st Congress, S.J. Res. 25, introduced by Senator Guy Gillette of Iowa and numerous co-sponsors, was approved by a vote of 63-19 on January 25, 1950, a margin that comfortably surpassed the two-thirds of Members present and voting required by the Constitution. An amendment came before the Senate again in the 83 rd Congress, when Senator John M. Butler of Maryland and co-sponsors introduced S.J. Res. 49. The resolution, as amended by the Hayden rider, passed by a vote of 73-11 on July 16, 1953. Over the next 16 years, the Senate considered various equal rights amendment resolutions in committee in almost every session, but no proposal was considered on the floor during this period. By 1964, however, the Hayden rider had lost support in the Senate as perceptions of the equal rights amendment concept continued to evolve. In the 88 th Congress, the Senate Judiciary Committee effectively removed it from future consideration when it stated in its report: Your committee has considered carefully the amendment which was added to this proposal on the floor of the Senate.... Its effect was to preserve "rights, benefits, or exemptions" conferred by law upon persons of the female sex. This qualification is not acceptable to women who want equal rights under the law. It is under the guise of so-called "rights" or "benefits" that women have been treated unequally and denied opportunities which are available to men. Between 1948 and 1970, however, the House of Representatives took no action on an equal rights amendment. Throughout this period, Representative Emanuel Celler of New York had blocked consideration of the amendment in the Judiciary Committee, which he chaired from 1949 to 1953 and again from 1955 to 1973. A Member of the House since 1923, Chairman Celler had been a champion of New Deal social legislation, immigration reform, civil rights legislation, and related measures throughout his career, but his strong connections with organized labor, which, as noted earlier, opposed an equal rights amendment during this period, may have influenced his attitudes toward the proposal. Congress Approves and Proposes the Equal Rights Amendment, 1970-1972 Although proposals for an equal rights constitutional amendment continued to be introduced in every Congress, there was no floor consideration of any proposal by either chamber for almost two decades following the Senate's 1953 action. By the early 1970s, however, the concept had gained increasing visibility as one of the signature issues of the emerging women's movement in the United States. As one eyewitness participant later recounted: The 1960s brought a revival of the women's rights movement and more insistence on changed social and legal rights and responsibilities. The fact of women's involvement in the civil rights movement and the anti-war movement and their changed role in the economy created a social context in which many women became active supporters of enhanced legislation for themselves. By the time the concept of an equal rights amendment emerged as a national issue, it had also won popular support, as measured by public opinion polling. As noted earlier in this report, the first recorded survey on support for the proposal was a CBS News telephone poll conducted in September 1970, in which 56% of respondents favored an equal rights amendment. Favorable attitudes remained consistent during the 1970s and throughout the subsequent ratification period. Labor opposition also began to fade, and in April 1970, one of the nation's largest and most influential unions, the United Auto Workers, voted to endorse the concept of an equal rights amendment. In actions that perhaps reflected changing public attitudes, Congress had also moved during the 1960s on several related fronts to address women's equality issues. The Equal Pay Act of 1963 "prohibited discrimination on account of sex in payment of wages," while the Civil Rights Act of 1964 banned discrimination in employment on the basis of race, color, religion, sex , or national origin [emphasis added]. Although it remained pending, but unacted upon in Congress, proposals for an equal rights amendment had gained support in other areas. The Republican Party had endorsed an earlier version of the amendment in its presidential platform as early as 1940, followed by the Democratic Party in 1944. Both parties continued to include endorsements in their subsequent quadrennial platforms, and, by 1970, Presidents Eisenhower, Kennedy, Lyndon Johnson, and Nixon were all on record as having endorsed an equal rights amendment. First Vote in the House, 91st Congress—1970 Representative Martha Griffiths of Michigan is widely credited with breaking the legislative stalemate that had blocked congressional action on a series of equal rights amendment proposals for more than two decades. Against the background of incremental change outside Congress, Representative Griffiths moved to end the impasse in House consideration of the amendment. On January 16, 1969, she introduced H.J. Res. 264, proposing an equal rights amendment, in the House of Representatives. The resolution was referred to the Judiciary Committee where, as had been expected, no further action was taken. On June 11, 1970, however, Representative Griffiths took the unusual step of filing a discharge petition to bring the proposed amendment to the floor. A discharge petition "allows a measure to come to the floor for consideration, even if the committee of referral does not report it and the leadership does not schedule it." In order for a House committee to be discharged from further consideration of a measure, a majority of Representatives (218, if there are no vacancies) must sign the petition . As reported at the time, the use of the discharge petition had seldom been invoked successfully, having gained the necessary support only 24 times since the procedure had been established by the House of Representatives in 1910, and Representative Griffiths' filing in 1970. By June 20, Representative Griffiths announced that she had obtained the necessary 218 Member signatures for the petition. Although the Judiciary Committee had neither scheduled hearings nor issued a report, the resolution was brought to the House floor on August 10. The House approved the motion to discharge by a vote of 332 to 22, and approved the amendment itself by a vote of 334 to 26. The Senate had begun to act on a resolution proposing an equal rights amendment in the 91 st Congress in 1970, before the amendment came to the House floor. In May, the Judiciary Committee's Subcommittee on Constitutional Amendments held hearings on S.J.Res. 61, the Senate version of an amendment. These hearings were followed by hearings in the full committee in September, and consideration on the Senate floor in early October. Floor debate was dominated by consideration and adoption of two amendments that would have (1) exempted women from compulsory military service, and (2) permitted non-denominational prayer in public schools; and a final amendment that provided alternative language for the resolution. Thus encumbered, the Senate resolution was unacceptable to ERA supporters, but, in any event, the Senate adjourned on October 14 without a vote on the resolution as amended, and failed to bring it to the floor for final action in the subsequent lame-duck session. Passage and Proposal by Congress, 92nd Congress—1971-1972 In the 92 nd Congress, Representative Griffiths began the process anew in the House of Representatives when she introduced H.J.Res. 208, proposing an equal rights amendment. Chairman Celler continued to oppose it, but no longer blocked committee action. After subcommittee and full committee hearings, the House Judiciary Committee reported an amendment on July 14, but the resolution as reported included amendments concerning citizenship, labor standards, and the exemption of women from selective service that were unacceptable to ERA supporters. When H.J.Res. 208 came to the floor in early October, however, the House stripped out the committee amendments, and, on October 12, it approved the resolution by a bipartisan vote of 354 to 24. The Senate took up the House-passed amendment during the second session of the 92 nd Congress, in March 1972. On March 14, the Judiciary Committee reported a clean version of H.J. Res. 208 after rejecting several amendments, including one adopted by the Subcommittee on the Constitution, and several others offered in the full committee. The resolution was called up on March 15, and immediately set aside. The Senate began debate on the amendment on March 17, with Senator Birch Bayh of Indiana, a longtime ERA supporter, as floor manager. On the same day, President Richard Nixon released a letter to Senate Republican Leader Hugh Scott of Pennsylvania reaffirming his endorsement of the Equal Rights Amendment. After two days in which the Members debated the proposal, Senator Sam Ervin of North Carolina offered a series of amendments that, among other things, would have exempted women from compulsory military service and service in combat units in the U.S. Armed Forces, and preserved existing gender-specific state and federal legislation that extended special exemptions or protections to women. Over the course of two days, Senator Ervin's amendments were serially considered and rejected, generally by wide margins. On March 22, the Senate approved the House version of the amendment, H.J. Res. 208, by a vote of 84 to 8, with strong bipartisan support. The text of H.J. Res. 208—the Equal Rights Amendment as proposed by the 92 nd Congress—follows: House Joint Resolution 208 Proposing an amendment to the Constitution of the United States relative to equal rights for men and women. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each house concurring therein), That The following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States within seven years of its submission by the Congress: "Section 1. Equality of rights under the law shall not be denied or abridged by the United States or any State on account of sex. "Section 2. The Congress shall have the power to enforce, by appropriate legislation, the provisions of this article. "Section 3. This amendment shall take effect two years after the date of ratification." The action of the two chambers in approving H.J. Res. 208 by two-thirds majorities of Members present and voting (91.3% in the Senate and 93.4% in the House) had the effect of formally proposing the amendment to the states for ratification. Congress Sets a Seven-Year Ratification Deadline When it proposed the Equal Rights Amendment, Congress stipulated in the preamble of the joint resolution that the ERA was to be ratified by the constitutionally requisite number of state legislatures (38 then as now) within seven years of the time it was proposed, in order to become a valid part of the Constitution. A time limit for ratification was first instituted with the Eighteenth Amendment, proposed in 1917, and, with the exception of the Nineteenth Amendment and the Child Labor Amendment, all subsequent proposed amendments have included a ratification deadline of seven years. With respect to the Child Labor Amendment, Congress did not incorporate a ratification deadline when it proposed the amendment in 1924. It was ultimately ratified by 28 states through 1937, 8 short of the 36 required by the Constitution at that time, the Union then comprising 48 states. Although the amendment arguably remains technically viable because it lacked a deadline when proposed, the Supreme Court in 1941 upheld federal authority to regulate child labor as incorporated in the Fair Labor Standards Act of 1938 (52 Stat. 1060) in the case of United States v. Darby Lumber Company (312 U.S. 100 (1941)). In this case, the Court reversed its earlier decision in Hammer v. Dagenhart (24 U.S. 251 (1918)), which ruled that the Keating-Owen Child Labor Act of 1916 (39 Stat. 675) was unconstitutional. The amendment is thus widely regarded as having been rendered moot by the Court's 1941 decision. In the case of the Eighteenth, Twentieth, Twenty-First, and Twenty-Second Amendments, the "sunset" ratification provision was incorporated in the body of the amendment itself . For subsequent amendments, however, Congress determined that inclusion of the time limit within its body "cluttered up" the proposal. Consequently, all but one of the subsequently proposed amendments —the Twenty-Third, Twenty-Fourth, Twenty-Fifth and Twenty-Sixth, and the ERA—placed the limit in the preamble or authorizing resolution , rather than in the body of the amendment itself . This decision, seemingly uncontroversial at the time, was later to have profound implications for the question of extending the ratification window for the ERA. Ratification Efforts in the States States initially responded quickly once Congress proposed the Equal Rights Amendment for their consideration. Hawaii was the first state to ratify, on March 22, 1972, the same day the Senate completed action on H.J. Res. 208. By the end of 1972, 22 states had ratified the amendment, and it seemed well on its way to adoption. Opposition to the amendment, however, began to coalesce around organizations like "STOP ERA," which revived many of the arguments addressed during congressional debate. Opponents also broadly asserted that ratification of the amendment would set aside existing state and local laws providing workplace and other protections for women and would lead to other, unanticipated negative social and economic effects. In 1976, ERA supporters established a counter-organization, "ERAmerica," as an umbrella association to coordinate the efforts of pro-amendment groups and serve as a high-profile national advocate for the amendment. Opposition to the proposed Equal Rights Amendment continued to gain strength, although, as noted earlier in this report, public approval of the amendment never dropped below 54% during the ratification period. Following the first 22 state approvals, 8 additional states ratified in 1973, 3 more in 1974, and 1 each in 1975 and 1977, for an ultimate total of 35, 3 short of the constitutional requirement of 38 state ratifications. At the same time, however, ERA opponents in the states promoted measures in a number of legislatures to repeal or rescind their previous ratifications. Although the constitutionality of such actions has long been questioned, by 1979, five states had passed rescission measures. The question of rescission will be addressed in detail later in this report. Ratification Is Extended in 1978, but Expires in 1982 By the late 1970s, the ratification process had clearly stalled, and the deadline for ratification as specified in the preamble to H.J. Res. 208 was approaching. Reacting to the impending "sunset" date of March 22, 1979, ERA supporters developed a novel strategy to extend the deadline by congressional resolution. The vehicle chosen by congressional supporters was a House joint resolution, H.J.Res. 638 , introduced in the 95 th Congress on October 26, 1977, by Representative Elizabeth Holtzman of New York and others. In its original form, the resolution proposed to extend the deadline an additional seven years, thus doubling the original ratification period. During hearings in the House Judiciary Committee's Subcommittee on Civil and Constitutional Rights, legal scholars debated questions on the authority of Congress to extend the deadline; whether an extension vote should be by a simple majority or a supermajority of two-thirds of the Members present and voting; and if state rescissions of their ratifications were lawful. The full Judiciary Committee also addressed these issues during its deliberations in 1978. Continuing controversy in the committee and opposition to extending the ratification period a full seven years led to a compromise amendment to the resolution that reduced the proposed extension to three years, three months, and eight days. ERA supporters accepted the shorter period as necessary to assure committee approval of the extension. Two other changes, one that would have recognized the right of states to rescind their ratifications, and a second requiring passage of the extension in the full House by a two-thirds super majority, were both rejected by the committee when it reported the resolution to the House on July 30. The full House debated the resolution during summer 1978, rejecting an amendment that proposed to recognize states' efforts to rescind their instruments of ratification. Another amendment rejected on the floor would have required votes on the ERA deadline extension to pass by the same two-thirds vote necessary for original actions proposing constitutional amendments. The House adopted the resolution by a vote of 233 to 189 on August 15, 1978. The Senate took up H.J.Res. 638 in October; during its deliberations it rejected amendments similar to those offered in the House and joined the House in adopting the resolution, in this case by a vote of 60 to 36 on October 6. In an unusual expression of support, President Jimmy Carter signed the joint resolution on October 20, even though the procedure of proposing an amendment to the states is solely a congressional prerogative under the Constitution. During the extended ratification period, ERA supporters sought unsuccessfully to secure the three necessary ratifications for the amendment, while opponents pursued rescission in the states with similarly unsuccessful results. A Gallup Poll reported in August 1981 that 63% of respondents supported the amendment, a higher percentage than in any previous survey, but, as one observer noted, "The positive poll results were really negative, because additional ratifications needed to come from the states in which support was identified as weakest." On June 30, 1982, the Equal Rights Amendment deadline expired with the number of state ratifications at 35, not counting rescissions. Rescission: A Legal Challenge to the Ratification Process As noted earlier, while ratification of the proposed Equal Rights Amendment was pending, a number of states passed resolutions that sought to rescind their earlier ratifications. By the time the amendment's extended ratification deadline passed in 1982, the legislatures of more than 17 states had considered rescission, and 5 passed these resolutions. Throughout the period, however, legal opinion as to the constitutionality of rescission remained divided. On May 9, 1979, the state of Idaho, joined by the state of Arizona and individual members of the Washington legislature, brought legal action in the U.S. District Court for the District of Idaho, asserting that states did have the right to rescind their instruments of ratification. The plaintiffs further asked that the extension enacted by Congress be declared null and void. On December 23, 1981, District Court Judge Marion Callister ruled (1) that Congress had exceeded its power by extending the deadline from March 22, 1979, to June 30, 1982; and (2) that states had the authority to rescind their instruments of ratification, provided they took this action before an amendment was declared to be an operative part of the Constitution. The National Organization for Women (NOW), the largest ERA advocacy organization, and the General Services Administration (GSA) appealed this decision directly to the Supreme Court, which, on January 25, 1982, consolidated four appeals and agreed to hear the cases. In its order, the High Court also stayed the judgment of the Idaho District Court. On June 30, as noted earlier, the extended ratification deadline expired, so that when the Supreme Court convened for its term on October 4, it dismissed the appeals as moot, and vacated the district court decision. Renewed Legislative and Constitutional Proposals, 1982 to the Present Interest in the proposed Equal Rights Amendment did not end when its extended ratification deadline expired on June 30, 1982. Since that time, there have been regular efforts to introduce the concept as a "fresh start" in Congress, while additional approaches have emerged that would revive H.J. Res. 208, the amendment as originally proposed by the 92 nd Congress. "Fresh Start" Proposals One potential means of restarting an equal rights amendment would be by introduction of a new joint resolution, a "fresh start." Even as the June 30, 1982, extended ratification deadline approached, resolutions proposing an equal rights amendment were introduced in the 97 th Congress. New versions of an ERA have continued to be introduced in the House and Senate in each succeeding Congress. For many years, Senator Edward Kennedy of Massachusetts customarily introduced an equal rights amendment early in the first session of a newly convened Congress; since the 111 th Congress, Senator Robert Menendez of New Jersey has introduced Senate fresh start proposals. In the House of Representatives, Representative Carolyn Maloney of New York introduced a fresh start equal rights amendment in the 105 th and all succeeding Congresses. Fresh start amendments introduced in the 115 th Congress, S.J.Res. 6 and H.J.Res. 33 , were discussed earlier in this report, under "Most Recent Developments." "Three-State" Proposals In addition to "fresh start" proposals, alternative approaches to the ratification question have also emerged over the years. In 1994, Representative Robert E. Andrews of New Jersey introduced H.Res. 432 in the 103 rd Congress. His proposal sought to require the House of Representatives to "take any legislative action necessary to verify the ratification of the Equal Rights Amendment as part of the Constitution when the legislatures of an additional 3 states ratify the Equal Rights Amendment." This resolution was a response to the three-state strategy proposed by a pro-ERA volunteer organization "ERA Summit" in the 1990s, which was called following adoption of the Twenty-Seventh Amendment, the Madison Amendment, in 1992. The rationale for H.Res. 432 , and a succession of identical resolutions offered by Representative Andrews in subsequent Congresses, was that, following the precedent of the Madison Amendment, the ERA remained a valid proposal and the ratification process was still open. Representative Andrews further asserted that the action of Congress in extending the ERA deadline in 1978 provided a precedent by which "subsequent sessions of Congress may adjust time limits placed in proposing clauses by their predecessors. These adjustments may include extensions of time, reductions, or elimination of the deadline altogether." The influence of the Madison Amendment is examined at greater length later in this report. The year 2012 marked the 30 th anniversary of the expiration of the proposed Equal Rights Amendment's extended ratification deadline. During that period, new analyses emerged that examined the question of whether the amendment proposed in 1972 remains constitutionally viable. As noted later in this report, one of the most influential developments opening new lines of analysis occurred when the Twenty-Seventh Amendment, originally proposed in 1789 as part of a package that included the Bill of Rights, was taken up in the states after more than two centuries and ultimately ratified in 1992. This action, and Congress's subsequent acknowledgment of the amendment's viability, bear directly on the issue of the current status of the proposed Equal Rights Amendment, and are examined later in this report. In the 112 th Congress, for the first time since the proposed ERA's deadline expired, resolutions were introduced in both the House and Senate that sought specifically to (1) repeal, or eliminate entirely, the deadlines set in 1972 and 1978; (2) reopen the proposed ERA for state ratification at the then-current count of 35 states; and (3) extend the period for state ratification indefinitely. Current legislation proposing the three state/two state strategy in the 115 th Congress, S.J.Res. 5 and H.J.Res. 53 were discussed earlier in this report, under "Most Recent Developments." Contemporary Viability of the Equal Rights Amendment Supporters of the ERA, and particularly the three-state strategy—now, arguably, the one-state strategy, assuming the validity of ratifications by Nevada and Illinois—identify a number of sources that they claim support their contention that the proposed Equal Rights Amendment remains constitutionally viable. Other scholars and observers, however, have raised concerns about, or objections to, these assertions. Article V: Congressional Authority over the Amendment Process Proponents of the proposed Equal Rights Amendment cite the exceptionally broad authority over the constitutional amendment process granted to Congress by Article V of the Constitution as a principal argument for their case. The article's language states that "[t]he Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution ... which ... shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States or by Conventions in three fourths thereof...." While the Constitution is economical with words when spelling out the authority extended to the three branches of the federal government, it does speak specifically when it places limits on these powers. In this instance, the founders placed no time limits or other conditions on congressional authority to propose amendments, so long as they are approved by the requisite two-thirds majority of Senators and Representatives present and voting. In a 1992 opinion for the Counsel to the President concerning ratification of the Twenty-Seventh Amendment, Acting Assistant Attorney General Timothy Flanigan took note of the absence of time limits in Article V, and drew a comparison with their presence in other parts of the Constitution: ... [t]he rest of the Constitution strengthens the presumption that when time periods are part of a constitutional rule, they are specified. For example, Representatives are elected every second year ... and a census must be taken within every ten year period following the first census, which was required to be taken within three years of the first meeting of Congress..... Neither House of Congress may adjourn for more than three days without the consent of the other ... and the President has ten days (Sundays excepted) within which to sign or veto a bill that has been presented to him.... The Twentieth Amendment refers to certain specific dates, January 3 rd and 20 th . Again, if the Framers had intended there to be a time limit for the ratification process, we would expect that they would have so provided in Article V. Further, Article V empowers Congress to specify either of two modes of ratification: by the state legislatures, or by ad hoc state conventions. Neither the President nor the federal judiciary is allocated any obvious constitutional role in the amendment process. To those who might suggest the Constitutional Convention did not intend to grant such wide authority to Congress, ERA supporters can counter by noting that the founders provided a second mode of amendment, through a convention summoned by Congress at the request of the legislatures of two-thirds of the states. The suggestion here is that the founders deliberately provided Congress with plenary authority over the amendment process, while simultaneously checking it through the super-majority requirement, and balancing it with the Article V Convention alternative. In the case of the proposed Equal Rights Amendment, it has been inferred by ERA supporters that since neither ratification deadlines nor contemporaneity requirements for amendments appear anywhere in Article V, Congress is free to propose, alter, or terminate such ratification provisions at its discretion. Advocates of congressional authority over the amendment process might also note the fact that Congress has acted on several occasions in the course of, or after, the ratification process by the states to assert its preeminent authority under Article V in determining ratification procedures. For instance, on July 21, 1868, Congress passed a resolution that declared the Fourteenth Amendment to have been duly ratified and directed Secretary of State William Seward to promulgate it as such. Congress had previously received a message from the Secretary reporting that 28 of 37 states then in the Union had ratified the amendment, but that 2 of the 28 ratifying states had subsequently passed resolutions purporting to rescind their ratifications, and the legislatures of 3 others had approved the amendment only after previously rejecting earlier ratification resolutions. Congress considered these issues but proceeded to declare the ratification process complete. Congress similarly exercised its authority over the process less than two years later when it confirmed the ratification of the Fifteenth Amendment by resolution passed on March 30, 1870. Congress exercised its authority over the amendment process again in 1992 when it declared the Twenty-Seventh Amendment, the so-called "Madison Amendment," to have been ratified, an event examined in the next section of this report. Opponents of ERA extension, while not questioning the plenary authority of Congress over the amending process, raise questions on general grounds of constitutional restraint and fair play. Some reject it on fundamental principle; Grover Rees III, writing in T he T exas Law Review , asserted that ... extension is unconstitutional insofar as it rests on the unsubstantiated assumption that states which ratified the ERA with a seven-year time limit also would have ratified with a longer time limit, and insofar as it attempts to force those states into an artificial consensus regardless of their actual intentions. ERA supporter Mary Frances Berry noted a similar argument raised by the amendment's opponents: ... some scholars pointed out that legally an offer and agreed-upon terms is required before any contract is valid. ERA ratification, according to this view, was a contract. Therefore, states could not be regarded as contracting not in the agreed upon terms. The agreed upon terms included a seven-year time limit. When seven years passed, all pre-existing ratifications expired. Writing in Constitutional Commentary , authors Brannon P. Denning and John R. Vile offered additional criticisms of efforts to revive the proposed Equal Rights Amendment, noting that ample time had been provided for ratification between 1972 and 1982. They further suggested that elimination of ratification deadlines would reopen the question of purported state rescissions of acts of ratification; that progress in women's equality in law and society may have "seemed to render ERA superfluous"; and that allowing the proposed amendment "a third bite at the apple would suggest that no amendment to the U.S. Constitution ever proposed ... could ever be regarded as rejected." The Madison Amendment (the Twenty-Seventh Amendment): A Dormant Proposal Revived and Ratified Supporters of the proposed Equal Rights Amendment cite another source in support of their argument for the proposed amendment's viability: the Twenty-Seventh Amendment to the Constitution, also known as the Madison Amendment, which originated during the first year of government under the Constitution, but fell into obscurity, and became the object of renewed public interest only in the late 20 th century. In 1789, Congress proposed a group of 12 amendments to the states for ratification. Articles III through XII of the proposals became the Bill of Rights, the first 10 amendments to the Constitution. They were ratified quickly, and were declared adopted on December 15, 1791. Articles I and II, however, were not ratified along with the Bill of Rights; Article II, which required that no change in Members' pay could take effect until after an election for the House of Representatives had taken place, was ratified by six states between 1789 and 1791 (the ratification threshold was 10 states in 1789), after which it was largely forgotten. After nearly two centuries, the Madison Amendment was rediscovered in 1978, when the Wyoming legislature was informed that as no deadline for ratification had been established, the measure was arguably still viable. Seizing on the opportunity to signal its disapproval of a March 3, 1978, vote by Congress to increase compensation for Representatives and Senators, the legislature passed a resolution approving the proposed amendment. In its resolution of ratification, the legislature cited the congressional vote to increase Member compensation, noting that: ... the percentage increase in direct compensation and benefits [to Members of Congress] was at such a high level, as to set a bad example to the general population at a time when there is a prospect of a renewal of double-digit inflation; and ... increases in compensation and benefits to most citizens of the United States are far behind these increases to their elected Representatives.... " The Wyoming legislature's action went almost unreported, however, until 1983, when Gregory D. Watson, a University of Texas undergraduate student, studied the amendment and concluded that it was still viable and eligible for ratification. Watson began a one-person campaign, circulating letters that drew attention to the proposal to state legislatures across the country. This grassroots effort developed into a nationwide movement, leading ultimately to 31 additional state ratifications of the amendment between 1983 and 1992. In 1991, as the number of state ratifications of the Madison Amendment neared the requisite threshold of 38, Representative John Boehner of Ohio introduced H.Con.Res. 194 in the 102 nd Congress. The resolution noted that, "this amendment to the Constitution was proposed without a deadline for ratification and is therefore still pending before the States." The resolution went on to state "the sense of the Congress that at least 3 of the remaining 15 States should ratify the proposed 2 nd amendment to the Constitution, which would delay the effect of any law which varies the compensation of Members of Congress until after the next election of Representatives." Although no further action was taken on the resolution, its findings anticipated Congress's response to the amendment. On May 7, 1992, the Michigan and New Jersey legislatures both voted to ratify the "Madison Amendment," becoming the 38 th and 39 th states to approve it. As required by law, the Archivist of the United States certified the ratification on May 18, and the following day an announcement that the amendment had become part of the Constitution was published in the Federal Register . Although the Archivist was specifically authorized by the U.S. Code to publish the act of adoption and issue a certificate declaring the amendment to be adopted, many in Congress believed that, in light of the unusual circumstances surrounding the ratification, positive action by both houses was necessary to confirm the Madison Amendment's legitimacy. In response, the House adopted H.Con.Res. 320 on May 20, and the Senate adopted S.Con.Res. 120 and S.Res. 298 on the same day. All three resolutions declared the amendment to be duly ratified and part of the Constitution. By providing a recent example of a proposed amendment that had been inactive for more than a century, the Twenty-Seventh Amendment suggests to ERA supporters an attainable model for renewed consideration of the proposed Equal Rights Amendment. Ratification of the Madison Amendment: A Model for the Proposed Equal Rights Amendment? The example of the Madison Amendment contributed to the emergence of a body of advocacy scholarship that asserts the proposed Equal Rights Amendment has never lost its constitutional viability. One of the earliest expressions of this viewpoint was offered in an article that appeared in the William and Mary Journal of Women and the Law in 1997. The authors reasoned that adoption of the Twenty-Seventh Amendment challenged many of the assumptions about ratification generated during the 20 th century. Acceptance of the Madison Amendment by the Archivist and the Administrator of General Services, as advised by the Justice Department and ultimately validated by Congress, was said to confirm that there is no requirement that ratifications of proposed amendments must be roughly contemporaneous. The authors went on to examine the history of the seven-year time limit, concluding after a review of legal scholarship on the subject that this device was a matter of procedure, rather than of substance (i.e., part of the body of the amendment itself). As such it was "separate from the amendment itself, and therefore, it can be treated as flexible." By extending the original ERA deadline, Congress based its action on the broad authority over the amendment process conferred on it by Article V. Finally, the authors asserted, relying on the precedent of the Twenty-Seventh Amendment, that "even if the seven-year limit was a reasonable legislative procedure, a ratification after the time limit expired can still be reviewed and accepted by the current Congress.... " In their view, even if one Congress failed to extend or remove the ratification deadline, states could still ratify, and a later Congress could ultimately validate their ratifications. Other observers question the value of the Madison Amendment as precedent. Writing in Constitutional Commentary , Denning and Vile asserted that the Twenty-Seventh Amendment presented a poor model for ERA supporters. Examining the amendment's origins, they suggested that "the courts and most members of Congress have tended to treat the 27 th as a 'demi-amendment,' lacking the full authority of the 26 that preceded it." Reviewing what they characterized as unfavorable interpretations of the Madison Amendment in various legal cases, the authors asked whether what they referred to as the "jury rigged ratification of the ERA might result in its similar evisceration by the judiciary that will be called upon to interpret it." Similarly, a commentary in National Law Journal asserted that, by blocking its own cost of living salary increases, Congress itself has also persistently failed to observe the Madison Amendment's requirements that "[n]o law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened." On the other hand, supporters of the proposed ERA might claim that such criticism of the Twenty-Seventh Amendment refers more to what they might characterize as the flawed application of the amendment, rather than the intrinsic integrity of the amendment itself. Constitutional scholar Michael Stokes Paulsen further questioned use of the Twenty-Seventh Amendment as an example in the case of the proposed Equal Rights Amendment. He returned to the contemporaneity issue, suggesting that the amending process ... should be occasions , not long, drawn-out processes. To permit ratification over a period of two centuries is to erode, if not erase the ideal of overwhelming popular agreement.... There is no assurance that the Twenty-seventh Amendment ever commanded, at any one time , popular assent corresponding to the support of two-thirds of the members of both houses of Congress and three-fourths of the state legislatures. (Emphases in the original.) It could be further argued by opponents of proposed Equal Rights Amendment extension that, whatever the precedent set by Congress in declaring the Twenty-Seventh Amendment to have been regularly adopted, there is no precedent for Congress promulgating an amendment based on state ratifications adopted after two ratification deadlines have expired. The Role of the Supreme Court Decisions in Dillon v. Gloss and Coleman v. Miller By some measures, the action of the Archivist of the United States in announcing ratification of the Twenty-Seventh Amendment, followed by congressional confirmation of its viability, superseded a body of constitutional principle that had prevailed since the 1920s and 1930s. This body of theory and political consideration arguably originated with the Supreme Court's 1921 decision in Dillon v. Gloss , the case in which the Court first enunciated the principle that conditions of ratification for proposed constitutional amendments could be determined by Congress, and that the conditions should be roughly contemporaneous. The Court concluded that, relying on the broad grant of authority contained in Article V, Congress had the power, "keeping within reasonable limits, to fix a definite period for the ratification.... " At the same time, the Court noted that nothing in the nation's founding documents touched on the question of time limits for ratification of a duly proposed constitutional amendment, and asked whether ratification would be valid at any time ... within a few years, a century or even a longer period, or that it must be had within some reasonable period which Congress is left free to define? Neither the debates in the federal convention which framed the Constitution nor those in the state conventions which ratified it shed any light on the questions. Ultimately, however, the Court concluded that proposal of an amendment by Congress and ratification in the states are both steps in a single process, and that amendments ... are to be considered and disposed of presently.... [A] ratification is but the expression of the approbation of the people and is to be effective when had in three-fourths of the states, there is a fair implication that it must be sufficiently contemporaneous in that number of states to reflect the will of the people in all sections at relatively the same period, which of course ratification scattered through a long series of years would not do. The need for contemporaneity was also discussed by the Court with regard to the congressional apportionment amendment and the Madison Amendment, both of which were pending in 1921. The Court maintained that the ratification of these amendments so long after they were first proposed would be "untenable." Some scholars dispute the Court's position in Dillon , however; Mason Kalfus, writing in The University of Chicago Law Review , claimed that reference to the contemporaneity doctrine is to be found neither in the text of Article V nor in the deliberations of the Philadelphia Convention. In Coleman v. Miller , the Supreme Court explicitly held that Congress had the sole power to determine whether an amendment is sufficiently contemporaneous, and thus valid, or whether, "the amendment ha[s] lost its vitality through the lapse of time." In Coleman , the High Court refined its holdings in Dillon , ruling that when it proposes a constitutional amendment: Congress may fix a reasonable time for ratification; there was no provision in Article V that suggested a proposed amendment would be open for ratification forever; since constitutional amendments were deemed to be prompted by some type of necessity, they should be dealt with "presently"; it could be reasonably implied that ratification by the states under Article V should be sufficiently contemporaneous so as to reflect a nationwide consensus of public approval in relatively the same period of time; and ratification of a proposed amendment must occur within some reasonable time after proposal. The Court additionally ruled, however, that if Congress were not to specify a reasonable time period for ratification of a proposed amendment, it would not be the responsibility of the Court to decide what constitutes such a period. The Court viewed such questions as essentially political and, hence, nonjusticiable, believing that the questions were committed to, and must be decided by, Congress in exercise of its constitutional authority to propose an amendment or to specify the ratification procedures for an amendment. This "political question" interpretation of the contemporaneity issue is arguably an additional element supporting the fundamental constitutional doctrine of continued viability claimed by ERA advocates. Another observer suggests, however, that the constitutional foundation of the Supreme Court's ruling in Coleman v. Miller , and hence the political question doctrine, may have been affected by the contemporary political situation. According to this theory, the Court in 1939 may have been influenced by, and overreacted to, the negative opinion generated by its political struggles with President Franklin Roosevelt over the constitutionality of New Deal legislation: "A later court, bruised by its politically unpopular New Deal rulings, retreated somewhat from a dogmatic defense of ratification time limits (as enunciated in Dillon v. Gloss )." Michael Stokes Paulsen also questioned the Supreme Court's decision in Coleman v. Miller , suggesting that the "political question" doctrine could be interpreted to assert a degree of unchecked congressional authority over the ratification process that is arguably anti-constitutional. Ancillary Issues A range of subsidiary issues could also come under Congress's purview should it consider revival of the proposed Equal Rights Amendment or a signal to the states that it would consider additional ratifications beyond the expired ratification deadline in the congressional resolutions. Origins of the Seven-Year Ratification Deadline One historical issue related to consideration of the proposed Equal Rights Amendment concerns the background of the seven-year deadline for ratification that originated with the Eighteenth Amendment (Prohibition). The amendment was proposed in 1917, proceeded rapidly through the state ratification process, and was declared to be adopted in 1919. During Senate consideration of the proposal, Senator and, later, President Warren Harding of Ohio is claimed to have originated the idea of a ratification deadline for the amendment as a political expedient, one that would "permit him and others to vote for the amendment, thus avoiding the wrath of the 'Drys' (prohibition advocates), yet ensure that it would fail of ratification." As it happened, the law of unintended consequences intervened, as "[s]tate ratification proceeded at a pace that surprised even the Anti-Saloon League, not to mention the calculating Warren Harding." Proposed on December 18, 1917, the amendment was declared to have been adopted just 13 months later, on January 29, 1919. ERA supporters might cite this explanation of the origins of the seven-year ratification deadline in addition to their central assertions of the amendment's viability. They could claim that, far from being an immutable historical element in the amendment process, bearing with it the wisdom of the founders, the ratification time limit is actually the product of a failed political maneuver, and is, moreover, of comparatively recent origin. Opponents of extension might argue, however, that, whatever its origins, the seven-year ratification deadline has become a standard element of nearly all subsequent proposed amendments. They might further note that if ratification deadlines were purely political, Congress would not have continued to incorporate them in nine subsequent proposed amendments. In their judgment, these time limits not only ensure that proposed constitutional amendments enjoy both broad and contemporaneous support in the states, but they also arguably constitute an important element in the checks and balances attendant to the amendment process. Rescission In addition to this question, the constitutional issue of rescission would almost certainly recur in a contemporary revival of the proposed Equal Rights Amendment. As noted earlier in this report, five states enacted resolutions purporting to rescind their previously adopted ratifications of the proposed amendment. The U.S. District Court for the District of Idaho ruled in 1981 that states had the option to rescind their instruments of ratification any time in the process prior to the promulgation or certification of the proposed amendment, a decision that was controversial at the time. The Supreme Court agreed to hear appeals from the decision, but after the extended ERA ratification deadline expired on June 30, 1982, the High Court in its autumn term vacated the lower court decision and remanded the decision to the District Court with instructions to dismiss the case. It may be noted by ERA supporters, however, that since the Supreme Court ruled in Coleman v. Miller that Congress has plenary power in providing for the ratification process, it may be inferred from this holding that Congress also possesses dispositive authority over the question as to the validity of rescission. Moreover, they might also note that its1868 action directing Secretary of State William Seward to declare the Fourteenth Amendment to be ratified, notwithstanding two state rescissions, further confirms Congress's broad authority over the amendment process. Speculation on potential future court action on this question is beyond the scope of this report, but rescission arguably remains a potentially viable constitutional issue that could arise in response to a revival of the proposed Equal Rights Amendment. Congressional Promulgation of Amendments Some observers have noted that, while Congress passed resolutions declaring the Fourteenth, Fifteenth, and Twenty-Seventh Amendments to be valid, congressional promulgation of amendments that have been duly ratified is not necessary, and has no specific constitutional foundation. In his 1992 Memorandum for the Counsel to the President concerning the Twenty-Seventh Amendment, Acting Assistant Attorney General Timothy Flanigan, wrote that Article V clearly delimits Congress's role in the amendment process. It authorizes Congress to propose amendments and specify their mode of ratification, and requires Congress, on the application of the legislatures of two-thirds of the States, to call a convention for the proposing of amendments. Nothing in Article V suggests that Congress has any further role. Indeed, the language of Article V strongly suggests the opposite: it provides that, once proposed, amendments "shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by" three-fourths of the States. (Emphasis original in the memorandum, but not in Article V.) The same viewpoint has been advanced by constitutional scholar Walter Dellinger. Addressing the question shortly after the Twenty-Seventh Amendment was declared to have been ratified, he noted An amendment is valid when ratified. There is no further step. The text requires no additional action by Congress or anyone else after ratification by the final state. The creation of a "third step"—promulgation by Congress—has no foundation in the text of the Constitution. Supporters of the proposed Equal Rights Amendment, however, might refer again to the Supreme Court's ruling in Coleman v. Miller . If plenary authority over the amendment process rests with Congress, advocates might ask, does it also presumably extend to other issues that arise, including provision for such routine procedures as promulgation of an amendment? The Proposed District of Columbia Voting Rights (Congressional Representation) Amendment—Congress Places a Ratification Deadline in the Body of the Amendment Congress has proposed one constitutional amendment to the states since the proposed Equal Rights Amendment began the ratification process in 1972, the District of Columbia Voting Rights (Congressional Representation) Amendment. For this amendment, Congress returned to the earlier practice of placing a deadline for ratification directly in the body of the proposal itself. According to contemporary accounts, this decision was influenced by the nearly concurrent congressional debate over the ERA deadline extension. The District of Columbia is a unique jurisdiction, part of the Union, but not a state, and subject to "exclusive Legislation in all Cases whatsoever ... by Congress." Congress has exercised its authority over the nation's capital with varying degrees of attention and control, and through a succession of different governing bodies, beginning in 1800. By the 1950s, the long-disenfranchised citizens of Washington, DC, began to acquire certain rights. The Twenty-Third Amendment, ratified in 1961, established their right to vote in presidential elections. In 1967, President Lyndon Johnson used his reorganization authority to establish an appointed mayor and a city council, also presidentially appointed. In 1970, Congress provided by law for a non-voting District of Columbia Delegate to Congress, who was seated in the House of Representatives. In 1973, President Richard Nixon signed legislation that established an elected mayor and council, while reserving ultimate authority over legislation to Congress. After more than a decade of change, proponents asserted that voting representation in Congress proportionate to that of a state would be an important step in the progress toward full self-government by the District of Columbia. In 1977, Representative Don Edwards of California, chairman of the House Judiciary Committee's Subcommittee on Civil and Constitutional Rights, introduced H.J.Res. 554 (95 th Congress). The resolution, as introduced, comprised the following text: Resolved by the Senate and the House of Representatives of the United States of America in Congress assembled (two thirds of each House concurring therein), That the following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three fourths of the several states within seven years of the date of its submission by the Congress: Article— Section 1. For purpose of representation in the Congress, election of the President, and Article V of this Constitution, the District constituting the seat of government of the United States shall be treated as though it were a state. Section 2. The exercise of the rights and powers conferred under this article shall be by the people of the District constituting the seat of government, and as shall be provided by the Congress. Section 3. The twenty-third article of amendment to the Constitution of the United States is hereby repealed. Extensive hearings were held in the subcommittee in 1977, and on February 15, 1978, the full Judiciary Committee reported the measure to the House. The committee, however, adopted an amendment offered by Representative M. Caldwell Butler of Virginia that incorporated the seven-year ratification deadline directly in the body of the resolution, rather than in the preamble. Congressional Quarterly reported that this provision ... was intended to ensure that the deadline could not be extended by a simple majority vote of Congress. The Justice Department has said in the case of the Equal Rights Amendment that Congress could extend the deadline for ratification by a simple majority vote because the time limit was contained in the resolving clause rather than in the body of that amendment. Similarly, writing in Fordham Urban Law Journal during the same period, Senator Orrin Hatch of Utah noted that: Section 4 of the D.C. Amendment requires that ratification of the necessary three-fourths of the states must occur within seven years of the date of its submission to the states. The inclusion of this provision within the body of the resolution will avoid a similar controversy to that which has arisen with respect to the time limit for ratification of the proposed "Equal Rights Amendment." During consideration of H.J.Res. 554 in the full House, language setting the ratification deadline was deleted from the authorizing resolution, and the Butler amendment was incorporated in the body of the proposal by voice vote as a new section: Section 4. This article shall be inoperative, unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the States within seven years from the date of its submission. The amendment passed the House on March 2, 1978, by a margin of 289 to 127, 11 votes more than the two-thirds constitutional requirement. The Senate took up the House-passed resolution on August 16, 1978. During four days of debate, it rejected a wide range of amendments, voting to adopt H.J.Res. 554 on August 22 by a margin of 67 to 32, one vote more than the constitutional requirement. The District of Columbia Congressional Representation Amendment expired on August 2, 1985, seven years after it was proposed by Congress. It was ultimately ratified by 16 states, 22 short of the constitutionally mandated requirement that it be approved by three-fourths, or 38, of the states. Concluding Observations The arguments and constitutional principles relied on by ERA supporters to justify the revival of the proposed Equal Rights Amendment include, but may not be limited to, the following: Article V, they assert, grants exceptionally broad discretion and authority over the constitutional amendment process to Congress. In their interpretation, the example of the Twenty-Seventh Amendment suggests that there is no requirement of contemporaneity in the ratification process for proposed constitutional changes. ERA proponents claim that the Supreme Court's decision in Coleman v. Miller gives Congress wide discretion in setting conditions for the ratification process. Far from being sacrosanct and an element in the founders' "original intent," the seven-year deadline for amendments has its origins in a political maneuver by opponents of the Eighteenth Amendment authorizing Prohibition. The decision of one Congress in setting a deadline for ratification of an amendment does not constrain a later Congress from rescinding the deadline and reviving or acceding to the ratification of a proposed amendment. Against these statements of support may be weighed the cautions of other observers who may argue as follows: The Twenty-Seventh Amendment is a questionable model for efforts to revive the proposed Equal Rights Amendment; unlike the proposed amendment, it was not encumbered by two expired ratification deadlines. Moreover, it is argued that Congress has generally ignored its provisions since ratification. Even though the proposed Equal Rights Amendment received an extension, supporters were unable to gain approval by three-fourths of the states. Opponents suggest that a "third bite of the apple" is arguably unfair and, if not unconstitutional, at least contrary to the founders' intentions. Revivification opponents caution ERA supporters against an overly broad interpretation of Coleman v. Miller , which, they argue, may have been be a politically influenced decision . Congress implicitly recognized its misjudgment on the ratification deadline for the proposed Equal Rights Amendment when it incorporated such a requirement in the text of the proposed District of Columbia Voting Rights (Congressional Representation) Amendment. The rescission issue was not conclusively decided in the 1980s and remains potentially open to congressional or judicial action if the proposed Equal Rights Amendment is reopened for further ratifications. Congress could revisit the contending points raised by different analysts if it gives active consideration to legislation that would seek specifically to revive the proposed Equal Rights Amendment, or to accept the additional state ratifications. In recent years, some supporters of the proposed ERA have embraced the three-state strategy, which maintains that Congress has the authority to effectively repeal the ratification deadlines provided in H.J. Res. 208, 92 nd Congress and H.J.Res. 638 , 95 th Congress. In the 115 th Congress, S.J.Res. 5 and H.J.Res. 53 incorporate this approach, which could be more accurately described as a "one-state strategy" following ratification by Nevada in 2017 and Illinois in 2018. Alternatively, Congress could propose a "fresh start" equal rights amendment; such proposals have been introduced regularly since the original ERA time limit expired in 1982. This approach might avoid the controversies that have been associated with repeal of the deadlines for the 1972 ERA, but starting over would present a fresh constitutional amendment with the stringent requirements provided in Article V: approval by two-thirds majorities in both houses of Congress, and ratification by three-fourths of the states. It would, however, be possible to draft the proposal without a time limit, as is the case with S.J.Res. 6 and H.J.Res. 33 in the 115 th Congress. If approved by Congress in this form, the proposed amendment would, as was the case with the Madison Amendment, remain current, viable, and thus eligible for ratification, for an indefinite period.

The proposed Equal Rights Amendment to the U.S. Constitution (ERA), which declares that "equality of rights under the law shall not be denied or abridged by the United States or any State on account of sex," was approved by Congress for ratification by the states in 1972. The proposal included a seven-year deadline for ratification. Between 1972 and 1977, 35 state legislatures, of the 38 required by the Constitution, voted to ratify the ERA. Despite a congressional extension of the deadline from 1979 to 1982, no additional states approved the amendment during the extended period, at which time the amendment was widely considered to have expired. Since 1982, Senators and Representatives who support the amendment have continued to introduce new versions of the ERA, generally referred to as "fresh start" amendments. In addition, some Members of Congress have also introduced resolutions designed to reopen ratification for the ERA as proposed in 1972, restarting the process where it ended in 1982. This was known as the "three-state strategy," for the number of additional ratifications then needed to complete the process, until Nevada and Illinois ratified the amendment in March 2017 and May 2018, respectively, becoming the 36th and 37th states to do so. The ERA supporters' intention here is to repeal or remove the deadlines set for the proposed ERA, reactivate support for the amendment, and complete the ratification process by gaining approval from the one additional state needed to meet the constitutional requirement, assuming the Nevada and Illinois ratifications are valid. As the 115th Congress convened, resolutions were introduced in the House of Representatives and the Senate that embraced both approaches. H.J.Res. 33, introduced by Representative Carolyn Maloney, and S.J.Res. 6, introduced by Senator Robert Menendez, propose "fresh start" equal rights amendments. H.J.Res. 53, introduced by Representative Jackie Speier, and S.J.Res. 5, introduced by Senator Benjamin Cardin, would remove the deadline for ratification of the ERA proposed by Congress in 1972. First introduced in Congress in 1923, the ERA proposed to the states in 1972 by the 92nd Congress included the customary seven-year ratification time limit. Although through 1977 the ERA was approved by 35 states, various controversies brought the ratification process to a halt as the deadline approached. In 1978, Congress extended the deadline through 1982. Opponents claimed this violated the spirit, if not the letter of the amendment process; supporters insisted the amendment needed more time for state consideration. Further, they justified extension because the deadline was placed not in the amendment, but in its preamble. Despite the extension, no further states ratified during the extension period, and the amendment was presumed to have expired in 1982. During this period, the ratification question was further complicated when five state legislatures passed resolutions rescinding their earlier ratifications. The Supreme Court agreed to hear cases on the rescission question, but the ERA's ratification time limit expired before they could be argued, and the Court dismissed the cases as moot. Many ERA proponents claim that because the amendment did not include a ratification deadline within the amendment text, it remains potentially viable and eligible for ratification indefinitely. They maintain that Congress possesses the authority both to repeal the original 1979 ratification deadline and its 1982 extension, and to restart the ratification clock at the current 37-state level—including the Nevada and Illinois ratifications—with or without a future ratification deadline. In support, they assert that Article V of the Constitution gives Congress broad authority over the amendment process. They further cite the Supreme Court's decisions in Dillon v. Gloss and Coleman v. Miller in support of their position. They also note the precedent of the Twenty-Seventh "Madison" Amendment, which was ratified in 1992, 203 years after Congress proposed it to the states. Opponents of reopening the amendment process may argue that attempting to revive the ERA would be politically divisive, and that providing it with a "third bite of the apple" would be contrary to the spirit and perhaps the letter of Article V and Congress's earlier intentions. They might also reject the example of the Twenty-Seventh Amendment, which, unlike the proposed ERA, never had a ratification time limit. Further, they might claim that efforts to revive the ERA ignore the possibility that state ratifications may have expired with the 1982 deadline, and that amendment proponents fail to consider the issue of state rescission, which has never been specifically decided in any U.S. court. The "fresh start" approach provides an alternative means to revive the ERA. It consists of starting over by introducing a new amendment, similar or identical to, but distinct from, the original. A fresh start would avoid potential controversies associated with reopening the ratification process, but would face the stringent constitutional requirements of two-thirds support in both chambers of Congress and ratification by three-fourths of the states.

Overview of Sugar Program The sugar program is designed to guarantee the minimum price received by growers of sugarcane and sugar beets, and by the firms (raw sugar mills and beet refiners) that process these crops into sugar. To accomplish this, the USDA limits the amount of sugar that processors can sell domestically under "marketing allotments" and restricts imports. USDA is required to operate the sugar program on a "no-cost" basis. This means USDA must regulate the U.S. sugar supply using allotments, import quotas, and related authorities so that domestic market prices do not fall below minimum price levels. These are based on the loan rates for raw cane sugar and refined beet sugar set out in law, which USDA uses to derive effective support levels (see " Level of Sugar Price Support " below, for explanation). If the market price is below the support level when a sugar price support loan comes due, its "non-recourse" feature means a processor can exercise the legal right to forfeit, or hand over, sugar offered to USDA as collateral for the loan in fulfillment of its repayment obligation. Should this occur, USDA would record a budgetary expense, or outlay, for such a transaction. This report focuses on the issues raised by the sugar program provisions in the House and Senate farm bills. Also, see the Appendix for a side-by-side comparison of the sugar provisions in the enacted 2008 farm bill with previous law and the House and Senate farm bill provisions. Issues in 2008 Farm Bill Debate Consideration of future U.S. sugar policy revolved primarily around four issues. These were where to set the level of minimum price guarantees to be made available to processors, how to use two tools to manage U.S. sugar supply, authorizing any sugar surplus to be used as a feedstock for ethanol, and accounting for projected program costs. Though industrial users of sugar in food and beverage products initially explored converting the sugar program to operate similar to the programs in place for the major grains, oilseeds and cotton, this policy option did not receive further attention. Level of Sugar Price Support USDA is required to extend price support loans to sugar processors that meet certain conditions on passing program benefits to the farmers that supply them with sugar beets or sugarcane. These loans are made at statutorily set loan rates, and account for most of the effective support level made available to producers and processors. USDA is required to use its other tools to protect this price guarantee. Loan rates for raw cane sugar have not changed since 1985; for refined beet sugar, since 1992. These minimum prices have guaranteed producers of sugar crops and the processors that convert these crops into sugar, a U.S. price that since the early 1980s has ranged from two to four times the price of sugar traded in the world marketplace. The enacted 2008 farm bill will increase sugar loan rates by 4% to 5% by FY2012. Conferees split the difference between the House- and Senate-proposed rate increases and adopted the Senate approach that proposed to increase rates in stages each year. The loan rate for raw cane sugar would rise in quarter-cent increments from the current 18.0¢ per pound to 18.75¢/lb., beginning with the 2009 sugarcane crop. The refined beet sugar loan rate, beginning with the 2009 sugar beet crop, would similarly increase in stages, from the current 22.9¢ per pound to 24.1¢/lb in FY2012. The Appendix provides loan rates for each of the fiscal years covered by 2008 farm bill authority. Growers and processors had initially sought a one cent increase in the raw cane sugar loan rate (with a corresponding increase in the refined beet sugar rate), and had acknowledged their satisfaction with receiving half of their request in the House-passed farm bill. They argued that the increase in the loan rate is needed to cover increased production costs, particularly energy inputs. Sugar users countered that the House-proposed higher loan rates would increase costs to taxpayers by an additional $100 million annually. They also noted that while the bill's ethanol provisions (see " Sugar for Ethanol " below) "are supposedly designed to deal with surpluses," the loan rate increase "can only encourage higher surplus production." The Bush Administration, in its statement of administration policy on the House and Senate farm bills, opposed the increase in the loan rates for sugar. Implementation On September 30, 2008, USDA announced loan rates for 2008-crop sugar as required by the 2008 farm bill. The national average loan rate is 18.0¢/lb. for raw cane sugar, and 22.9¢/lb. for refined beet sugar, the same as for the previous year's crop. In turn, these national loan rates are adjusted to reflect transportation cost differentials. Reflecting this, the raw cane sugar loan rate will range from 16.37¢/lb. in Hawaii (if sugar pledged for a loan is stored on the islands) to 18.22¢/lb. in Louisiana. The refined beet sugar loan rate will range from 21.95¢/lb. in Idaho, Oregon, and Washington to 24.34¢/lb. in Michigan and Ohio. Controlling Sugar Supply to Protect Sugar Prices The sugar program uses two tools—import quotas and marketing allotments—to ensure that producers and processors receive price support benefits. By regulating the amount of foreign sugar allowed to enter and the quantity of sugar that processors can sell, USDA can for the most part keep market prices above effective support levels, meet the no-cost objective, and ensure that domestic sugar demand is met. If these tools are implemented as intended, the likelihood that USDA acquires sugar due to loan forfeitures is remote. Import Quotas The United States must import sugar to cover demand that the U.S. sugar production sector cannot supply. However, USDA restricts the quantity of foreign sugar allowed to enter for refining and/or sale to manufacturers for domestic food and beverage use. Quotas are used to ensure that the quantity that enters does not depress the domestic market price to below support levels. Quota amounts are laid out in U.S. market access commitments made under World Trade Organization (WTO) rules and under bilateral free trade agreements (FTAs). The sugar program authorized by the 2002 farm bill accommodated, or made room for, imports of up to 1.532 million short tons raw value (STRV) each year. This import level is one of the four factors that USDA used to establish the national sugar allotment (called the "overall allotment quantity"), and reflected U.S. trade commitments under two trade agreements in effect when the 2002 program was authorized ( Table 1 ). Since January 1, 2008, however, U.S. sugar imports from Mexico are no longer restricted. Under NAFTA, Mexico no longer faces any tariff or quantitative limit on the amount of sugar exported to the U.S. market. With this opening, though, imports could fluctuate from year to year for various reasons. First, the amount of Mexican sugar exported to the U.S. market will depend largely upon the extent that U.S. exports of historically cheaper high-fructose corn syrup (HFCS) displace Mexican consumption of Mexican-produced sugar. Surplus Mexican sugar, in turn, would then likely move north to the United States. Second, Mexico's sugar output, though trending upward, does vary from year to year, depending upon weather and growing conditions. Mexican government policy also is to hold three months worth of sugar stocks in reserve and to allow sugar imports when needed to meet demand and lower prices. Third, Mexican sugar prices in recent years have for the most part been higher than U.S. sugar prices. To the extent that this occurs in the future, the incentive for a Mexican sugar mill to export sugar north in search of a better price is reduced. Fourth, U.S. buyers' concerns about the quality of Mexican sugar may limit the amount that actually flows north in the next few years. Also, the United States has committed under other existing and pending bilateral FTAs to allow for additional sugar imports. Such imports in 2013, the fifth year of the sugar program authorized by the 2008 farm bill, could total from about 420,000 tons to 1.215 million tons above existing WTO and FTA trade commitments and above the maximum amount of sugar allowed to enter from Mexico in 2007. The wide range reflects two varying assumptions made to estimate by how much HFCS use in Mexico might displace sugar consumption in Mexico and create a surplus available for export to the U.S. market. Legislation The sugar program provisions in the enacted 2008 farm bill did not directly address the issue of additional sugar imports. Instead, a new sugar-for-ethanol program is authorized to handle the price-related impact of such imports (Section 9001 in the energy title; see " Sugar for Ethanol " and " Sugar Program Costs " below). However, other provisions prescribe how USDA must now administer import quotas. To cover shortfalls (because of hurricanes or other disastrous events) in what domestic sugar processors can sell under allotments, USDA is directed to ensure that most imports enter in the form of raw cane sugar rather than refined sugar. While most permitted imports have historically entered in raw form, USDA decisions to allow large quantities of refined sugar to enter after the late 2005 hurricanes significantly affected the competitive position of cane refineries in Louisiana and Florida that process raw sugar. Unlike 2001-2002, when the Congress considered the last farm bill, most cane refineries are now a key part of vertically integrated operations owned by raw sugar processors and/or sugarcane producers. The 2008 farm bill's policy change is intended to ensure that these cane refineries (which process raw sugar into refined sugar) can more fully use their operating capacity. Also, limiting the entry of refined sugar enhances the position of the domestic beet sector to increase their sales of refined sugar. Conferees, though, did not adopt provisions found only in the House-passed bill that would have directed USDA to regulate when and how much raw cane sugar imports are allowed to be shipped to U.S. cane refineries. While USDA announced shipping patterns in FY2003-FY2005, the impact of the hurricanes led to a decision not to follow this long-standing practice in FY2006-FY2008. USDA justified removing these restrictions because of "changes occurring over time in the domestic marketing of cane sugar." The House-passed provisions could be viewed as intending to increase the transaction costs for countries that export larger amounts of sugar to the U.S. market and to give a slight competitive edge to domestic processors with respect to buyers. Food and beverage firms opposed "micro-managing" the timing of imports, noting that the application of such rules will limit the ability of cane refiners to efficiently use their processing capacity and could lead to serious shortfalls at times in the amount of sugar supplied to the market. In commenting on the House bill, the Bush Administration expressed concern over requiring shipping patterns for quota sugar imports. Also, several countries eligible to ship sugar to the U.S. market expressed concern that the proposed regulation of the flow of imports would run counter to U.S. trade commitments. Because of the concern expressed that prescribing how sugar import shipping patterns should be administered would open up the United States to challenges by sugar exporting countries in the WTO, these provisions were dropped in conference. Implementation In line with the changes made by the 2008 farm bill, USDA on September 9, 2008, announced that the FY2009 raw sugar tariff-rate quota (TRQ) will be set at 1,231,497 STRV—the U.S. minimum access commitment for raw sugar imports under WTO rules. Relatedly, USDA announced the TRQ for refined and specialty sugars at 104,251 STRV. This amount is 80,000 ST higher than the U.S. minimum refined sugar TRQ (24,251 STRV), increased in order to meet U.S. demand for organic sugar not available from the domestic producing sector. Both announcements reflect the enacted 2008 farm bill's requirement that USDA set both the raw sugar and refined sugar TRQs at the minimum levels required by U.S. WTO trade commitments by October 1, 2008. USDA's accompanying statement acknowledged that it expects the domestic market will require additional supplies of sugar (i.e., imports) during FY2009, and indicated that appropriate adjustments will be made to these TRQ levels and the national marketing allotment level (see below) to ensure the availability of adequate supplies of sugar. The enacted 2008 farm bill limits USDA's ability to allow additional sugar imports under the TRQs established to meet U.S. WTO trade commitments. However, USDA is given some discretionary authority to exercise on this matter. Any decision to increase the raw sugar TRQ and/or the refined sugar TRQ before April 1, 2009, now requires USDA to first declare that an emergency sugar shortage exists because of "war, flood, hurricane, or other natural disaster" or another similar event as determined by the Secretary of Agriculture. USDA could interpret the law's discretionary language to determine that an emergency sugar shortage exists and allow for additional imports to the extent it determines that market prices will not fall below support levels and result in loan forfeitures. The sugar production sector likely will argue that there is no need for additional imports, pointing out that there is no physical shortage of sugar. Industrial sugar users likely will petition USDA to allow for additional refined sugar imports, pointing out that projected low ending stocks are keeping refined sugar prices considerably above the historical average. To date, USDA has not yet issued regulations detailing how such a determination would be made. In the interim, sugar crop producers/processors and major sugar users are expected to weigh in on what USDA under the Obama Administration develops as rules to detail what constitutes an emergency sugar shortage. Marketing Allotments In the 2002 farm bill, the domestic production sector accepted mandatory limits on the amount of sugar that processors can sell—known as marketing allotments—in return for the assurance of price protection. It viewed allotments as a way to try to capture any growth in U.S. sugar demand, and assumed that the then-U.S. sugar import quota commitments would continue without change (see " Import Quotas " above). The statute, however, stipulated that if (1) USDA estimates imports will be above 1.532 million short tons, and (2) that such imports would lead USDA to reduce the amount of domestic sugar that U.S. processors can sell, then USDA must suspend marketing allotments. Suspending allotments because of additional imports raises the prospect of downward pressure on market prices if most U.S. sugar demand is already met. If the additional imports were to cause the price to fall below support levels, forfeitures would occur and USDA would be unable to meet the no-cost requirement. Including the allotment suspension provision in the 2002 farm bill was designed to ensure that USDA not lose control over managing U.S. sugar supplies for fear of the consequences that could be unleashed (i.e., demonstrate its inability to implement congressional policy). Legislation Implementation of the 2002 farm bill's marketing allotment authority resulted in the U.S. sugar production sector's share of domestic food consumption ranging from a low of 73% in FY2006 to a high of 89% in FY2004. Concerned that their market share would decline as sugar imports increase under various trade agreements (see " Import Quotas " above), sugar producers and processors decided to pursue a different approach in formulating their proposal for the 2008 farm bill. Adopted by farm bill conferees, an important new provision guarantees that the domestic production sector always benefits from a minimum 85% share of the U.S. sugar-for-food market. USDA is now required to announce an "overall allotment quantity" (OAQ)—the amount of sugar that all processors combined can sell—that represents at least 85% of estimated domestic sugar consumption. This is intended to address the sector's objective that imports not displace the ability of U.S. sugar processors to sell more of their output in each successive year, to the extent that U.S. demand for sugar grows. Implementation On September 9, 2008, USDA announced that the FY2009 OAQ will be 8.925 million STRV. This complies with the new statutory requirement that USDA establish the OAQ at not less than 85% of estimated U.S. human sugar consumption (projected at 10.5 million STRV for FY2009). The FY2009 OAQ level is considerably higher than USDA's latest estimate of FY2009 sugar production. Though cane sugar output is projected to increase by 4% over FY2008, beet sugar production is expected to be almost 11% lower because of spring 2008 weather problems in North Dakota and Minnesota, a major beet-producing region, and reduced planted beet acreage. As of mid-January 2009, USDA projected 2008/2009 U.S. sugar production at 7.8 million ST, 1.1 million ST below the OAQ that USDA announced last September. With the OAQ split between the beet and cane producing sectors using the percentage shares laid out in law, each sector is expected to fully market all of the sugar that USDA projects will be produced during FY2009 ( Table 2 ). USDA is currently projecting historically low ending stocks at the end of the 2008/2009 marketing year (i.e., September 30, 2009). This normally would imply higher than average wholesale sugar prices in the late summer period, but that is not the case across the board this year. The raw cane sugar futures price has been below the loan forfeiture levels for Florida and Hawaii since late October 2008, and below the loan forfeiture levels for Louisiana and Texas from mid-November to early December 2008. By contrast, current spot U.S. refined sugar (cane and beet) prices are well above the historical average. Various explanations for this price divergence are offered. Some point out that continued imports of raw-sugar-equivalent product from Mexico keeps downward pressure on the U.S. raw cane sugar futures price. However, USDA projects that imports from Mexico this year will be somewhat lower than last year. Others note that the loss of the production capacity of the cane sugar refinery in Savannah, Georgia, caused by an explosion a year ago, has reduced demand for raw cane sugar, keeping the raw cane sugar price lower than might be the case otherwise. Higher-than-average refined sugar prices are also attributed to the loss of refined product that this refinery would normally supply. In the interim, any call made by sugar users for USDA to increase the end-of-year U.S. sugar supply (to meet their desire for lower sugar prices) is limited by what USDA can do under the enacted 2008 farm bill to increase imports (see " Implementation " under " Import Quotas ", above). If USDA were to determine before the midpoint of the marketing year (April 1) that a sugar shortage exists, it would first have to reassign existing allotment deficits to imports of raw cane sugar (i.e., increase the raw cane sugar TRQ to accommodate the deficit amount). If a sugar shortage still existed after taking such action, USDA would only then be able to increase the refined sugar TRQ if two conditions are met and this second increase in supply will not result in sugar loan forfeitures. Before taking this second step, USDA must take into account that both the sales of domestic sugar and the refining capacity of domestic raw cane sugar have "been maximized." On or after April 1, USDA can only allow for imports of raw cane sugar to address an allotment deficit. Taking this year's current price outlook into account, any USDA decision to allow for additional imports of raw cane sugar would likely depress raw cane prices. As a result, USDA could see some sugarcane processors forfeit on their loans in late summer 2009—a development that would run counter to the enacted farm bill's intent that USDA operate the sugar program at no cost. For this reason, USDA may be reluctant to allow such an increase, even though refined sugar prices are expected to remain high by historical comparison. Sugar for Ethanol Background Sugar producers and processors have had an ongoing interest in exploring the potential for using sugar crops and processed sugar as a feedstock to produce ethanol (a gasoline additive). In the 2002-2003 period, they encouraged USDA to explore selling forfeited sugar stocks to corn-based ethanol processors. A few ethanol producers experimented by adding sugar to speed up the ethanol fermentation process, but the results were disappointing. In 2005, Congress approved the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) that gives six countries increased access for their sugar to the U.S. market. During the debate, producers and processors sought a deal with the Bush Administration on a sugar-for-ethanol package. Their objective was to have this option available to divert additional sugar imports under DR-CAFTA whenever domestic prices fall below support levels. With Congress mandating in 2005 that the use of renewable fuels be doubled by 2012, some advocated that sugar be considered as a feedstock along with other agricultural crops and waste. Separately, Hawaii mandated (effective April 2006) that 85% of the gasoline sold must contain 10% ethanol. This requirement assumes that over time, the sugarcane produced on the islands will be available to use as the prime feedstock for ethanol. If the cost of feedstock is excluded, producing ethanol from sugar cane can be less costly than producing it from corn. This is because the starch in corn must first be broken down into sugar before it can be fermented. This extra step adds to the cost of processing corn into ethanol, when contrasted to using sugarcane or processed sugar. Further, sugar cane waste (bagasse) also can be burned to provide energy for an ethanol plant, reduce associated energy costs, and improve sugar ethanol's energy balance relative to corn ethanol. Brazil's success at integrating sugar ethanol into its passenger vehicle fuel supply has stimulated interest in exploring prospects for sugar-based ethanol in the United States. However, wide differences in sugar production costs and market prices in the two countries cause the economics of sugar-based ethanol to differ significantly. In investigating the economics of ethanol from sugar, USDA concluded that producing sugar cane ethanol in the United States would be more than twice as costly as U.S. corn ethanol and nearly three times as costly as Brazilian sugar ethanol. Feedstock costs accounted for most of this price differential. The USDA study showed that while sugar ethanol may be a positive energy strategy in such countries as Brazil, it may not be economical in the United States. Legislation The enacted 2008 farm bill incorporates a proposal presented to the Agriculture Committees by the U.S. sugar production sector. The "Feedstock Flexibility Program for Bioenergy Producers" requires USDA to administer a sugar-for-ethanol program using sugar intended for food use but deemed to be in surplus. USDA will sell both surplus sugar that it purchases if determined necessary to maintain prices above support levels, and the sugar acquired as a result of loan forfeitures, to bioenergy producers for processing into fuel grade ethanol and other biofuel. Competitive bids would be used by USDA to purchase sugar from processors, at a price not less than sugar program support levels, which it would then sell to ethanol firms. USDA would implement this program only in those years where purchases are required to operate the sugar program at no cost. USDA's CCC would provide open-ended funding. Because it would cost much more to produce ethanol from U.S.-priced sugar than from corn, this new program would require a considerable subsidy to operate as intended. The prime market for such sugar likely would be existing corn-based ethanol facilities close to sugar beet producing areas (e.g., the Upper Midwest) and new plants constructed in sugarcane-producing states (Hawaii and Louisiana). Producers of ethanol from corn in the continental United States, though, would likely need to adjust their fermentation process and/or invest in new equipment to handle sugar. As a result, they may not be as interested in purchasing sugar as a feedstock unless the price is significantly discounted further (e.g., requiring even more of a subsidy) to reflect the additional costs of processing sugar instead of corn. However, the availability of this subsidy could facilitate the development of the ethanol sector in Hawaii and partially reduce the islands' dependence on importing gasoline for its vehicle transportation needs. As designed, this program will rely on U.S.-produced (rather than foreign) sugar. The amount that USDA decides to purchase would approximate its estimate of the extent that imports under trade agreements reduce the U.S. sugar price below support levels. Producers supported this provision, viewing it as an insurance policy for receiving the benefits of a guaranteed minimum price for sugar marketed for food use. Sugar users opposed this program "to ostensibly manage surplus supplies." In their July 13, 2007, letter to Members of Congress, they argued that this authority "will likely be used to short domestic markets, further restricting the availability of sugar for food use in the U.S. market." They characterized this approach as "wasteful of taxpayer resources" because sugar is not price competitive with corn as a feedstock, and will require large subsidies to ethanol producers "to induce them to accept the sugar." The Bush Administration opposed this sugar-for-ethanol component, commenting that it would not allow USDA to dispose of surplus sugar to end uses other than ethanol production, even if "those uses would yield a much higher return for taxpayers." Outlook The current U.S. sugar market outlook (i.e., demand considerably above current supply, implying that market prices will be above loan forfeiture levels) suggests that, at present, USDA will likely be able to meet the program's no-cost directive without having to activate the new sugar-for-ethanol program in FY2009. USDA confirmed this with its September 2008 determination that no sugar will be available for this program, taking into account its forecast that sugar loan forfeitures are unlikely in FY2009. The status of this program in subsequent years will depend on whether U.S. sugar production returns to more normal levels, and on how sugar users (particularly in the beverage sector) in both the United States and Mexico respond to higher HFCS prices caused by (until recently) high corn prices. If HFCS prices are higher than Mexican sugar prices, the likely result will be a smaller displacement of Mexican-produced sugar by HFCS imports from the United States, and thus a smaller surplus available to be exported without restriction to the U.S. market. This reportedly did occur during FY2008. Sugar Program Costs For the six years covered by the 2002 farm bill (FY2003-FY2008), USDA succeeded in operating the sugar program at no cost, as directed by law. Budget forecasts in early 2007 had projected that the sugar program, if continued without change, would cost from almost $700 million (Congressional Budget Office (CBO)) to about $800 million (USDA) over the FY2008-FY2012 five-year period. Projected outlays reflected estimates of the budgetary impact of additional sugar imports from Mexico and from other countries with additional access to the U.S. market for their sugar under bilateral FTAs. Each cost projection assumed that the additional supplies depress the domestic sugar price below price support levels, and lead processors to forfeit on a portion of their loans. Outlook The policy changes enacted in the 2008 farm bill are intended to head off these potential costs and ensure that USDA can operate the program at no cost. However, estimating future budgetary impacts is difficult, considering that market conditions can change quickly and dramatically, and can differ significantly from historical experience. In its latest baseline budget projection (January 2009), CBO assumes that USDA essentially succeeds in operating the sugar price support program at no cost. It estimates outlays of $2 million in each of FY2009-FY2012, or a total of $6 million over the farm bill's five-year period. For the sugar-for-ethanol program, which is an integral part of the sugar program but scored separately as a non-commodity activity, CBO estimates outlays of $325 million over the farm bill period. The latter estimate assumes that USDA sells sugar to bioenergy producers at a much lower price than the sugar program's minimum guaranteed price which USDA is required to pay for the surplus sugar purchased or acquired from domestic sugar processors. Appendix. Comparison of 2008 Farm Bill Sugar Program Provisions with Previous Law and House and Senate Bills

Congress reauthorized the sugar price support program with some changes in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the enacted 2008 farm bill). The sugar program is designed to guarantee the price received by sugar crop growers and processors and is intended to operate at "no cost" to the U.S. Treasury. To accomplish this, the U.S. Department of Agriculture (USDA) controls supply by limiting the amount of sugar that processors can sell domestically under "marketing allotments" and restricts imports. At the same time, USDA seeks to ensure that supplies of sugar are adequate to meet domestic demand. "No cost" is achieved if USDA applies these tools in a way that maintains market prices above minimum price support levels. Since January 1, 2008, sugar imports from Mexico no longer face quotas or duties under the North American Free Trade Agreement. Other imports are allowed entry under quotas found in other free trade agreements (FTAs). To address the potential for a U.S. sugar surplus caused by additional imports under these trade agreements, the enacted farm bill mandates a sugar-for-ethanol program. USDA is now required to purchase as much U.S.-produced sugar as necessary to maintain market prices above support levels, to be sold to bioenergy producers for processing into ethanol. Funding is open-ended for this program. Other provisions increase the minimum guaranteed prices for raw sugar and refined beet sugar by 4% to 5%, mandate an 85% market share for the U.S. sugar production sector, and remove certain discretionary authority that USDA exercises to administer import quotas. The enacted sugar provisions reflect the proposal presented to the House and Senate Agriculture Committees by producers of sugar beets and sugarcane and the processors of these crops. They favored continuing the structure of the current sugar price support program but sought changes to enhance their position in the U.S. marketplace. Their sugar-for-ethanol provisions ensure that the prospect of imports adding to U.S. sugar supplies under any future trade agreements will not undermine the program's price guarantee and the sugar industry's market share. Food and beverage manufacturers that use sugar opposed the proposed program's provisions, arguing that costs to consumers will increase and that new requirements will restrict the flow of sugar for food use in the domestic market. The Bush Administration opposed these provisions, with the President identifying them as one reason why he vetoed the farm bill. USDA has continued to estimate a tight domestic sugar supply in FY2009 largely due to reduced beet production. Its import quota decisions made to date and its estimate of sugar expected to enter from Mexico and other FTA partners do not point to a sugar surplus. As a result, USDA announced in September 2008 that the sugar-for-ethanol program will not be implemented this year. Attention now turns to how USDA will implement newly enacted rules dealing with the timing of additional raw cane sugar versus refined sugar imports, because of the implications for market prices. For background information on the sugar program and a review of more recent developments, please see CRS Report R40995, Sugar Policy Issues, by [author name scrubbed].